<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHASE METRICS, INC.
AIR BEARINGS, INCORPORATED
APPLIED ROBOTIC TECHNOLOGIES, INC.
HELIOS, INCORPORATED
SANTA BARBARA METRIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3572 33-0328048
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
10260 SORRENTO VALLEY ROAD
SAN DIEGO, CALIFORNIA 92121
(619) 646-4800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN F. SCHAEFER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PHASE METRICS, INC.
10260 SORRENTO VALLEY ROAD
SAN DIEGO, CALIFORNIA 92121
(619) 646-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
GREG T. WILLIAMS, ESQ.
BROBECK, PHLEGER & HARRISON LLP
4675 MACARTHUR COURT, SUITE 1000
NEWPORT BEACH, CALIFORNIA 92660
(714) 752-7535
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
================================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT
OF SECURITIES TO BE OFFERING AGGREGATE OF REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER NOTE(2) OFFERING PRICE(2) FEE(2)
- --------------------------------------------------------------------------------------------------------------------------------
10 3/4% New Senior Notes due 2005............... $110,000,000(1) 100% $110,000,000 $32,450
- --------------------------------------------------------------------------------------------------------------------------------
New Note Guarantees for the 10 3/4% New Senior
Notes due 2005(3)............................. $0 0% $0 $0
================================================================================================================================
</TABLE>
(1) Includes New Note Guarantees of the New Senior Notes due 2005 by Applied
Robotic Technologies, Inc., Helios Incorporated, Santa Barbara Metric, Inc.
and Air Bearings Incorporated, each a wholly-owned subsidiary of the
Registrant.
(2) Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the
registration fee has been estimated based on the book value of the
securities to be received by Registrant in exchange for the securities to be
issued hereunder in the Exchange Offer described herein.
(3) Pursuant to Rule 457(n) of the Securities Act of 1933, as amended, no
registration fee is required with respect to the New Note Guarantees.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $110,000,000 of new 10 3/4% Senior Notes due 2005 (the "New
Notes") of Phase Metrics, Inc. (the "Company") and the guarantees related
thereto that may be exchanged (the "Exchange Offer") for equal principal amounts
of the Company's outstanding 10 3/4% Senior Notes due 2005 (the "Notes") and the
guarantees related thereto. This Registration Statement also covers the
registration of the New Notes and the guarantees related thereto for resale by
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") in market-making
transactions. The complete Prospectus relating to the Exchange Offer (the
"Exchange Offer Prospectus") follows immediately after this Explanatory Note.
Following the Exchange Offer Prospectus beginning on page B-1 are certain pages
and sections of a prospectus relating solely to any market-making transactions
by DLJ (along with the relevant pages of the Exchange Offer Prospectus, the
"Market-Making Prospectus"), including an alternate front cover page, an
alternate section entitled "Risk Factors -- Absence of Active Trading Market" to
be used in lieu of the section entitled "Risk Factors -- Absence of Trading
Market; Restrictions on Transfers," an alternate section entitled "Use of
Proceeds" and an alternate section entitled "Plan of Distribution." In addition,
the Market-Making Prospectus will not include the following sections (or the
information set forth under the captions for such sections) of the Exchange
Offer Prospectus: "Prospectus Summary -- The Note Offering" and "-- The Exchange
Offer," "Risk Factors -- Compliance with Exchange Offer Procedures; Restrictions
on Resales," "The Exchange Offer" and "Certain United States Federal Tax
Considerations." All other sections of the Exchange Offer Prospectus will be
included in the Market-Making Prospectus.
<PAGE> 3
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
10 3/4% SENIOR NOTES DUE 2005
($110,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
NEW 10 3/4% SENIOR NOTES DUE 2005
($110,000,000 PRINCIPAL AMOUNT)
OF
[PHASE METRICS LOGO]
------------------------
The Exchange Offer Will Expire At 12:00 Midnight, New York City Time,
On , 1998, Unless Extended
------------------------
Phase Metrics, Inc., a Delaware corporation (the "Company"), hereby offers
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange up to an aggregate principal amount of $110,000,000
of its new 10 3/4% Senior Notes due 2005 (the "New Notes") for an equal
principal amount of its outstanding 10 3/4% Senior Notes due 2005 (the "Notes"),
in integral multiples of $1,000. The New Notes will be senior unsecured
obligations of the Company and are substantially identical (including principal
amount, interest rate, maturity and redemption rights) to the Notes for which
they may be exchanged pursuant to this Exchange Offer, except that (i) the
offering and sale of the New Notes will have been registered under the
Securities Act of 1933, as amended (the "Securities Act") and (ii) holders of
New Notes will not be entitled to certain rights under the Registration Rights
Agreement of the Company and Applied Robotic Technologies, Inc., Helios,
Incorporated, Air Bearings, Incorporated and Santa Barbara Metric, Inc., all of
which are California corporations and wholly-owned subsidiaries of the Company
(together with any future other subsidiary of the Company that executes a New
Note Guarantee, the "Subsidiary Guarantors") dated as of January 30, 1998 (the
"Registration Rights Agreement"). The New Notes will be fully and
unconditionally guaranteed on a senior unsecured basis (the "New Note
Guarantees") by, and will be joint and several obligations of the Subsidiary
Guarantors. The Notes have been, and the New Notes will be, issued under an
Indenture dated as of January 30, 1998 (the "Indenture"), among the Company, the
Subsidiary Guarantors and State Street Bank and Trust Company, as trustee (the
"Trustee"). See "Description of New Notes." There will be no proceeds to the
Company from this Exchange Offer; however, pursuant to the Registration Rights
Agreement, the Company will bear certain offering expenses.
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES
IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 4
The Company will accept for exchange any and all Notes which are validly
tendered on or prior to 12:00 midnight New York City time, on ,
1998, unless the Exchange Offer is extended (the "Expiration Date"). Tenders of
Notes may be withdrawn at any time prior to 12:00 midnight, New York City time,
on the Expiration Date; otherwise such tenders are irrevocable. State Street
Bank and Trust Company will act as exchange agent with respect to the Notes (in
such capacity, the "Exchange Agent") in connection with the Exchange Offer. The
Exchange Offer is not conditioned upon any minimum principal amount of Notes
being tendered for exchange, but is otherwise subject to certain customary
conditions. Notes may be tendered only in denominations of $1,000 and any
integral multiple thereof. See "The Exchange Offer."
The Notes were initially sold by the Company on January 30, 1998 (the "Note
Closing") in transactions not registered under the Securities Act of 1933, as
amended (the "Securities Act") in reliance upon the exemption provided in
Section 4(2) thereof (the "Note Offering"). The Notes were subsequently resold
to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act and to persons outside the United States in reliance on
Regulation S under the Securities Act. Accordingly, the Notes may not be
reoffered, resold or otherwise transferred in the United States unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The New Notes are
being offered hereunder in order to satisfy certain obligations of the Company
and the Subsidiary Guarantors under the Registration Rights Agreement. See "The
Exchange Offer."
The New Notes will bear interest from January 30, 1998, the date of
issuance of the Notes that may be tendered in exchange for the New Notes, at a
rate equal to 10 3/4% per annum. Interest on the New Notes will be payable
semiannually on February 1 and August 1 of each year, commencing August 1, 1998.
The New Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after February 1, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest and Liquidated Damages (as defined
herein), if any, thereon to the date of redemption. See "Summary -- Summary of
Terms of New Notes."
Prior to February 1, 2001, up to 33% of the initially outstanding aggregate
principal amount of New Notes (and any Notes which remain outstanding after the
Exchange Offer) will be redeemable at the option of the Company from the net
proceeds of a public sale of the Company's Common Stock ("Common Stock") at a
price of 110.75% of the principal amount of the New Notes (and any Notes which
remain outstanding after the Exchange Offer), together with accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption; provided,
that at least 67% of the initially outstanding aggregate principal amount of New
Notes (and any Notes which remain outstanding after the Exchange Offer) remains
outstanding immediately after such redemption. Upon the occurrence of a Change
of Control (as defined herein), each Holder (as defined herein) of New Notes may
require the Company to repurchase all or a portion of such Holder's New Notes at
101% of the aggregate principal amount of the New Notes, together with accrued
and unpaid interest and Liquidated Damages, if any, to the date of repurchase.
There can be no assurance that sufficient funds will be available at the time of
any Change of Control to make any required repurchase of New Notes. See "Risk
Factors -- Payment Upon a Change of Control" and "Description of New
Notes -- Repurchase at the Option of Holders -- Change of Control."
The New Notes will be senior unsecured obligations of the Company and will
rank pari passu in right of payment to all existing and future senior
indebtedness of the Company and senior in right of payment to all existing and
future subordinated indebtedness of the Company. The New Notes will be
effectively subordinated, however, to all secured obligations of the Company,
including any borrowings under the New Credit Facility (as defined herein) to
the extent of the assets securing such obligations. The New Notes will be fully
and unconditionally guaranteed under the New Note Guarantees on a joint and
several basis by the Subsidiary Guarantors. The New Note Guarantees will be
senior unsecured obligations of the Subsidiary Guarantors and will rank pari
passu in right of payment to all existing and future senior indebtedness of the
Subsidiary Guarantors. The New Note Guarantees will be effectively subordinated,
however, to all secured obligations of the Subsidiary Guarantors, including the
guarantees of the Subsidiary Guarantors in favor of the lenders under the New
Credit Facility, to the extent of the assets securing such obligations. As of
December 31, 1997, the New Notes and the New Note Guarantees would have been
effectively subordinated to approximately
ii
<PAGE> 5
$3.2 million of secured obligations of the Company and the Subsidiary Guarantors
on an as adjusted basis giving effect to the Note Offering and the application
of the net proceeds therefrom.
The Notes have been, and the New Notes are expected to be, approved for
trading in The Private Offerings, Resale and Trading through Automated Linkages
("PORTAL") Market of the National Association of Securities Dealers, Inc.
Based on interpretations of the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that any New Notes issued
pursuant to the Exchange Offer in exchange for Notes may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided, that such New Notes are acquired in
the ordinary course of such holder's business and that such holder does not
intend to participate in a distribution of such New Notes.
Each broker-dealer ("Participating Broker-Dealer") that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with the initial resale of such New Notes to
third parties. The Letter of Transmittal delivered with this Prospectus states
that by so acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of New Notes received in exchange for Notes where such
new Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that for a period
of one year after the consummation of the Exchange Offer, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
Any broker-dealer who is an affiliate of the Company may not rely on the
SEC staff's no-action letters referenced above and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the New Notes.
Any Holder who tenders in the Exchange Offer with the intention to
participate, or for purpose of participating, in a distribution of the New Notes
also may not rely on the position of the staff of the SEC enunciated in the
no-action letters referenced above and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes. Failure to comply with such requirements in such instance may result in
such Holder incurring liability under the Securities Act for which the Holder is
not indemnified by the Company.
The Company does not intend to list the New Notes on any securities
exchange, or to seek admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") has advised the Company that it intends to make a
market in the New Notes; however, DLJ is not obligated to do so and any
market-making may be discontinued at any time. As a result, the Company cannot
determine whether an active trading market will develop for the New Notes. To
the extent that a market for the New Notes develops, their market value will
depend on market conditions (such as yields on alternative investments), general
economic conditions, the Company's financial condition and other conditions.
Such conditions might cause the New Notes, to the extent that they are actively
traded, to trade at a significant discount from their face value. See "Risk
Factors -- Absence of Trading Market; Restrictions on Transfer."
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF AND THE COMPANY
WILL HAVE FULFILLED ITS PRINCIPAL OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. HOLDERS
iii
<PAGE> 6
OF NOTES WHO DO NOT TENDER THEIR NOTES GENERALLY WILL NOT HAVE ANY FURTHER
REGISTRATION RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR OTHERWISE. SEE
"THE EXCHANGE OFFER -- CONSEQUENCES OF FAILURE TO EXCHANGE."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Notes as of , 1998.
The Company will not receive any proceeds from the Exchange Offer. No
underwriter is being used in connection with the Exchange Offer.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or the "Commission") a Registration Statement on Form S-4 under the
Securities Act for the registration of the New Notes offered hereby (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules to the Registration Statement as permitted by the rules and
regulations of the SEC. For further information with respect to the Company or
the New Notes offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules thereto, which may be inspected without
charge at the public reference facility maintained by the SEC at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and copies of which may be
obtained from the SEC at prescribed rates. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the SEC as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
PHASE METRICS, INC., 10260 SORRENTO VALLEY ROAD, SAN DIEGO, CALIFORNIA 92121,
(619) 646-4800.
The Company is subject to the periodic reporting and other information
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). The Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any of the
New Notes remain outstanding, it will furnish to the holders of the New Notes
and to the extent permitted by applicable law or regulation, file with the
Commission following the consummation of the Exchange Offer (i) all quarterly
and annual financial information required to be contained in a filing with the
Commission on Forms 10-Q and 10-K, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and with respect
to the annual financial statements only, a report thereon by the Company's
independent auditors and (ii) all reports required to be filed with the
Commission on Form 8-K.
iv
<PAGE> 7
In addition, for so long as any of the New Notes remain outstanding, the Company
has agreed to make available to any prospective purchaser of the New Notes or
beneficial owner of the New Notes, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
Documents and other information filed by the Company with the SEC may also
be inspected and copied at the public reference facilities of the SEC at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at the web site
maintained by the SEC (http://www.sec.gov) and at the regional offices of the
SEC located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may also be obtained from the Public Reference Section of the SEC,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its
public reference facilities in New York, New York and Chicago, Illinois at
prescribed rates.
v
<PAGE> 8
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Company's Consolidated Financial
Statements and related Notes thereto, appearing elsewhere in this Prospectus.
This Prospectus may contain forward-looking statements, including, without
limitation, the Company's future product development plans, future demand for
the Company's process and production-test equipment and the effect that certain
market conditions may have on the Company's future operating results.
Forward-looking statements necessarily involve risks and uncertainties. Market
conditions and the Company's actual results may differ materially from the
market conditions and results discussed in these statements. Factors that might
cause such a difference include, without limitation, those discussed in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and those discussed elsewhere in this Prospectus. The
market share and competitive position data contained in this Prospectus are
based upon industry sources and Company estimates. Although such data is
inherently imprecise, based on its understanding of the markets in which the
Company competes, management believes that such data is generally indicative of
the Company's relative market share and competitive position. Unless the context
otherwise requires, all references to the "Company" and "Phase Metrics" refer to
Phase Metrics, Inc. and its consolidated subsidiaries. The definition of certain
terms may be found in the Glossary beginning on page A-1.
THE COMPANY
Phase Metrics is the leading supplier of technologically advanced process
and production-test equipment for the data storage industry. The Company's
systems are used primarily by manufacturers of disk drives, thin-film disks and
read/write heads to manage and improve their respective product yields by
analyzing product and process quality at critical stages in their production
processes. The ability to rapidly achieve and maintain yield improvements is one
of the most important determinants of profitability in the highly competitive
disk drive and disk drive component industries. The Company was formed in 1989
as a single product supplier to the data storage industry. In the last three
years, the Company has significantly expanded its product line through the
acquisition of seven specialized suppliers of complementary systems for the disk
drive and disk drive component industries. These acquisitions and an aggressive
internal research and development program have provided the Company with (i) a
significant research and development effort focused exclusively on the process
and production-test equipment market, (ii) a broad technological base and
product line with applications throughout the disk drive and disk drive
component production chains and (iii) a global infrastructure capable of
providing world-wide customer service and support.
The Company has achieved significant increases in net sales and adjusted
EBITDA (as defined in footnotes 2 and 5 in "Summary Selected Consolidated
Financial Data") since 1994, while cash used for operating activities has
increased. From 1994 through 1997, the Company's net sales grew from $20.1
million to $184.7 million and adjusted EBITDA grew from $2.8 million to $26.2
million. These increases resulted primarily from the growth of the markets for
the Company's products, the Company's acquisitions, the Company's successful
introduction of new products and management's initiatives to improve
productivity. Absent additional significant acquisitions, however, the Company
does not expect net sales and adjusted EBITDA to continue to grow at the rates
experienced over the last several years. Cash used for operating activities
increased from $2.0 million for 1994 to $6.4 million for 1997 due to the net
loss in 1997, an increase in income taxes receivable and prepaid expenses and
other assets, larger increases year over year in deferred income taxes and
inventories, offset by increase in depreciation, amortization and writedowns of
intangible assets, interest on convertible subordinated notes, purchased
in-process research and development, extraordinary loss net of income taxes and
accounts receivable, a decrease in accounts payable and a larger decrease year
over year in customer deposits, accrued expenses and other liabilities. Net
income of $1.6 million in 1994 decreased to a net loss of $5.5 million in 1997
due to significant increases in sales and related gross profit, offset by
increased research and development expenses, selling, general and administrative
expenses, amortization and write-downs of intangible assets and interest
expense. See "Summary Selected Consolidated Financial Data."
1
<PAGE> 9
Demand for data storage process and production-test equipment is driven by
the overall demand for disk drives and disk drive components, rapid advances in
data storage technology, and yield management challenges and margin pressure
facing data storage manufacturers. The ever increasing need for greater data
storage capacity is driven predominantly by the development of more storage
intensive software, the emergence of computer networks within the enterprise and
the overall increase in computer use. As storage capacity demands increase, the
demand for high performance disk drives and replacement or removable drives
increases. While technological advancements are enabling manufacturers to
produce significantly higher capacity disk drives with faster data access speeds
and greater transfer rates, they are also presenting significant challenges and
increasing the complexity of the manufacturing process. The growing complexity
of data storage manufacturing is in turn increasing test and production times
per product and creating pressure on manufacturing costs. Accordingly, there is
greater demand for process and production-test equipment that is able to keep
pace with advancing data storage technologies, while enhancing manufacturing
yields.
The Company's production-test systems include media certifiers, glide
testers, optical scanners and flying height and quasi-static magnetoresistive
("MR") head testers which provide in-line testing, measurement and analysis
throughout the manufacturing process, enabling manufacturers to detect defects
and make real-time process improvement decisions that can significantly impact
product yields, time-to-market, profitability and return on investment. The
Company's process systems include servowriters, disk burnishers and disk laser
texturizers which perform manufacturing process functions. The Company also
provides integrated automation systems for the disk drive, disk and read/write
head certification and manufacturing processes. The Company's products are
driven by extensive proprietary software and electronic hardware, optical and
laser systems, and mechanical componentry.
The Company sells its systems throughout the world primarily through its
direct sales force. A substantial majority of the Company's sales are made to
domestic data storage companies with production facilities in the United States
as well as Singapore, Malaysia and other parts of Southeast Asia. The Company
believes that over 80% of the purchasing decisions for its products are made by
individuals based in the United States. The Company's customers include
substantially all of the world's leading data storage manufacturers, including
Fujitsu, HMT, IBM, Iomega, Komag, Samsung, Seagate, StorMedia and Trace.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES, SEE
"RISK FACTORS."
COMPETITIVE STRENGTHS
The Company believes that it possesses key competitive strengths that have
enabled it to become the leading supplier of technologically advanced process
and production-test equipment for the data storage industry. These competitive
strengths include:
Broad Product Line and Extensive Technology Base. The Company believes that
it is a technological leader in designing, manufacturing and servicing process
and production-test systems that perform critical applications throughout the
disk drive and disk drive component production processes. These systems contain
a significant amount of proprietary software, sophisticated electronics and high
precision mechanics. As evidence of its technological leadership, the Company
believes it was the first to market with systems incorporating numerous
important new technologies, including: (i) in 1993, the first testing system
capable of accurately measuring the flying height of a read/write head below one
microinch; (ii) in 1995, the first disk (media) certifier with integrated
optical defect scanning and also the first certifier with digital glide
certification; (iii) in 1996, the first family of MR head testers to address
each stage of the manufacturing process for the rapidly growing MR head market
and (iv) in 1997, the first disk drive servowriter to incorporate non-contact,
optical encoder positioning technology. The Company currently holds 27 patents
in the United States, with an additional 72 patent applications pending in the
United States and nine pending overseas.
Largest World-Wide Installed Base of Systems. Based in part on published
industry data, the Company believes it has the largest world-wide installed base
of process and production-test systems serving the data storage industry. The
Company is able to leverage this installed base by selling these customers
additional
2
<PAGE> 10
systems as well as upgrades to existing systems to address rapidly changing
industry requirements. The Company believes that such upgrades are becoming an
increasingly important source of revenue for the Company.
Focused Research and Development. In response to rapidly changing technical
requirements in the data storage industry and to maintain its technological
leadership, the Company is continually engaged in efforts to improve its systems
and introduce innovative products and technologies. With approximately 200
engineers focused on research and development, the Company believes that it
maintains the largest engineering group in the world focusing on technological
solutions for data storage manufacturers. Moreover, in 1996, the Company formed
an advanced research department focused exclusively on developing and procuring
critical technologies for next-generation systems. In 1997, the Company invested
approximately $43.6 million in its research and development efforts and expects
to continue to devote significant resources toward maintaining its technological
leadership.
Extensive Global Infrastructure. In addition to its extensive sales and
customer service and support infrastructure in the United States, since the
beginning of 1996 the Company has established sales and customer service and
support offices in Japan, South Korea, Singapore, Thailand and Taiwan. The
Company believes that substantial growth opportunities exist for sales of its
systems to domestic and foreign-based customers for use in their manufacturing
facilities located in Southeast Asia. Therefore, the Company currently has 40
dedicated customer service and support engineers and technicians in Southeast
Asia, which the Company believes is the largest foreign-based group of customer
service and support personnel of any domestic supplier of process and
production-test equipment to the data storage industry.
Experienced Management Team With Significant Ownership. The Company's
Chairman and Chief Executive Officer, John F. Schaefer, and its Vice President,
Finance and Chief Financial Officer, R. Joseph Saunders, joined the Company in
November 1994. Working with Arthur J. Cormier, the founder and previous
President of the Company, the Company assembled a group of experienced officers,
middle managers and senior technologists. Mr. Cormier is currently serving as a
director of and consultant to the Company. This senior management team has grown
the Company's sales, both internally and through acquisitions, from
approximately $20.1 million in 1994 to approximately $184.7 million in 1997. As
of February 28, 1998, the Company's directors and officers and their respective
affiliates beneficially own approximately 86.6% of the Company's capital stock.
Demonstrated Ability to Integrate Acquisitions. In order to expand its
operations and capitalize on the growing demand for process and production-test
equipment for the data storage industry, since November 1994, the Company's
management team has acquired seven specialized suppliers of process and
production-test systems or technologies. The Company believes that it has
successfully integrated each of these acquisitions into its operations.
GROWTH STRATEGY
The Company believes that it is well-positioned to grow future revenue and
cash flow. The key elements of the Company's growth strategy are as follows:
Maintain Leadership in Core Technologies. The Company intends to remain a
technological leader in its markets by continuing to work with customers,
academic institutions and independent third parties to identify emerging data
storage technology trends early in the development process and contribute to the
development of standards related to process and production-test for the data
storage industry. Because the Company's systems are integral to its customers'
manufacturing processes, the Company believes that it is well-positioned to
utilize its research and development resources to partner with its customers in
the development of next-generation products.
Leverage Installed Base of Systems. The Company intends to leverage its
installed base of systems by selling new systems to existing customers and by
continuing to develop and aggressively market system upgrade solutions in
response to rapidly changing industry requirements. In addition, because data
storage manufacturers are required to focus increasingly on their own core
competencies, the Company believes that
3
<PAGE> 11
there is a significant opportunity to increase its sales by supplying certain
process and production-test equipment to data storage manufacturers that
currently develop such systems internally.
Leverage and Expand Global Infrastructure. Due to its extensive global
service and support infrastructure, the Company believes it is well-positioned
to increase productivity and profitability. In particular, the Company believes
that it will be able to leverage the significant investment it has made in
establishing a sales and customer service and support infrastructure in
Southeast Asia to capitalize on the increasing activity in the data storage
industry in that region. As data storage manufacturers require equipment
suppliers to support their increasingly global operations, the Company intends
to continue to expand its world-wide service and support network.
Pursue Complementary Acquisitions. As with many other industries, data
storage manufacturers are increasingly attempting to rationalize their vendor
bases. As a result, there has been an increasing trend toward consolidation of
data storage equipment suppliers. The Company intends to continue to capitalize
on this trend by completing complementary acquisitions of additional product
lines, technologies and related businesses. The Company believes that its market
leadership position and demonstrated ability to successfully integrate strategic
acquisitions will continue to attract additional strategic opportunities.
THE REFINANCING
In connection with the Note Offering, Phase Metrics refinanced (the
"Refinancing") all of its then-existing term loan and revolving credit
indebtedness under its then-existing credit facility (the "Former Credit
Facility"). The net proceeds from the Note Offering, together with existing cash
and $1.6 million in initial borrowings (the "Initial Draw") under its current
revolving credit facility (the "New Credit Facility") with Fleet National Bank
and Imperial Bank (the "Lenders") which it entered into simultaneously with the
Note Closing were used to repay all outstanding indebtedness under the Former
Credit Facility as well as the expenses related to the Note Offering and the
Refinancing. See "Use of Proceeds." The New Credit Facility provides the Company
with up to $25.0 million of revolving credit, subject to certain conditions,
which limit could be increased to $40.0 million at the sole discretion of the
Lenders. See "Description of Indebtedness -- New Credit Facility." At February
28, 1998, the Company had approximately $17.0 million of borrowing availability
under the New Credit Facility.
Borrowings under the New Credit Facility are secured by substantially all
of the existing and future assets of the Company (other than the real estate
owned by the Company in San Diego, California on which its headquarters is
located) and are guaranteed on a secured basis by all Subsidiary Guarantors.
Accordingly, all borrowings under the New Credit Facility and the secured
guarantees of the Subsidiary Guarantors in favor of the Lenders effectively rank
senior to the indebtedness evidenced by the New Notes, to the extent of the
assets securing such obligations.
------------------------
The Company commenced operations in 1989 and was recapitalized in 1994 in
connection with the acquisition of two companies. The Company's principal
executive offices are located at 10260 Sorrento Valley Road, San Diego,
California 92121, and its telephone number is (619) 646-4800.
------------------------
Phase Metrics is a trademark of the Company. This Prospectus includes other
trademarks of the Company and trademarks of other companies.
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<PAGE> 12
THE NOTE OFFERING
<TABLE>
<S> <C>
THE NOTES................................. The Notes were sold by the Company at the Note Closing
on January 30, 1998 and were subsequently resold to
qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to persons in transactions
outside the United States in reliance on Regulation S
under the Securities Act.
REGISTRATION RIGHTS AGREEMENT............. In connection with the Note Offering, the Company
entered into the Registration Rights Agreement, which
grants holders of the Notes certain exchange and
registration rights, which generally terminate upon the
consummation of this Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED........................ $110.0 million in aggregate principal amount of the
Company's new 10 3/4% Senior Notes due 2005.
THE EXCHANGE OFFER........................ $1,000 principal amount of New Notes in exchange for
each $1,000 principal amount of the Notes issued in the
Note Offering. As of the date hereof, $110.0 million
aggregate principal amount of Notes are outstanding.
EXPIRATION DATE........................... 12:00 midnight, New York City time on ,
1998, unless the Exchange Offer is extended (which in
no event shall be more than days from such date), in
which case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is extended.
INTEREST ON THE NEW NOTES AND THE NOTES... The New Notes will bear interest from January 30, 1997,
the date of issuance of the Notes that may be tendered
in exchange for the New Notes. Accordingly, holders of
Notes that are accepted for exchange will not receive
interest on the Notes that is accrued but unpaid at the
time of tender, but such interest will be payable on
the first interest payment date on the New Notes after
the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER.......... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company.
PROCEDURES FOR TENDERING NOTES............ Each holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the relevant
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together with
the Notes and any other required documentation to the
Exchange Agent at the address set forth in the Letter
of Transmittal. The enclosed Letter of Transmittal
should be used to tender Notes. By executing the Letter
of Transmittal, each holder will represent to the
Company that, among other things, the holder or the
person receiving such New Notes, whether or not such
person is the holder, is acquiring the New Notes in the
ordinary course of business and that neither the holder
nor any such other person has any intention or
arrangement or other understanding with any person to
participate in a distribution of such New Notes. In
lieu of physical delivery of the certificates
representing Notes, tendering holders may transfer
Notes pursuant to the procedure for book-entry transfer
as set forth under "The Exchange Offer -- Procedures
for Tendering."
</TABLE>
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<PAGE> 13
<TABLE>
<S> <C>
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.................................. Any beneficial owner whose Notes are registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on such beneficial owner's own behalf,
such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering its
Notes, either make appropriate arrangements to register
ownership of the Notes in such beneficial owner's name
or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time.
GUARANTEED DELIVERY PROCEDURES............ Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who cannot
deliver their Notes (or, in the alternative, comply
with the procedures for book-entry transfer), the
Letter of Transmittal or any other documents required
by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS......................... Tenders may be withdrawn at any time prior to 12:00
midnight, New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Terms of the Exchange Offer."
ACCEPTANCE OF NOTES AND DELIVERY OF NEW
NOTES................................... The Company will accept for exchange any and all Notes
that are properly tendered in the Exchange Offer prior
to 12:00 midnight, New York City time, on the
Expiration Date. The New Notes issued pursuant to the
Exchange Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer -- Terms of
the Exchange Offer."
FEDERAL INCOME TAX CONSEQUENCES........... The issuance of the New Notes to holders of the Notes
pursuant to the terms set forth in this Prospectus will
not constitute an exchange for federal income tax
purposes. Consequently, no gain or loss would be
recognized by holders of the Notes upon receipt of the
New Notes. See "Certain Federal Income Tax Consequences
of the Exchange Offer."
USE OF PROCEEDS........................... There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
</TABLE>
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<PAGE> 14
<TABLE>
<S> <C>
EFFECT ON HOLDERS OF NOTES................ As a result of the making of this Exchange Offer, the
Company will have fulfilled its principal obligations
under the Registration Rights Agreement, and holders of
Notes who do not tender their Notes will generally not
have any further registration rights under the
Registration Rights Agreement or otherwise. Such
holders will continue to hold the untendered Notes and
will be entitled to all the rights and subject to all
the limitations applicable thereto under the Indentures
and Registration Rights Agreement, except to the extent
such rights or limitations, by their terms, terminate
or cease to have further effectiveness as a result of
the Exchange Offer. All untendered Notes will continue
to be subject to certain restrictions on transfer.
Accordingly, if any Notes are tendered and accepted in
the Exchange Offer, the trading market, if any, for the
untendered Notes could be adversely affected.
EXCHANGE AGENT............................ State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange Offer.
See "The Exchange Offer -- Exchange Agent."
</TABLE>
SUMMARY OF TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Notes (which they will replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) holders of the New Notes generally
will not be entitled to further registration rights under the Registration
Rights Agreement. The New Notes will evidence the same debt as the Notes and
will be entitled to the benefits of the Indenture. See "Description of New
Notes."
<TABLE>
<S> <C>
SECURITIES OFFERED........................ $110.0 million in aggregate principal amount of the
Company's 10 3/4% Senior Notes due 2005.
MATURITY DATE............................. February 1, 2005.
INTEREST RATE AND PAYMENT DATES........... The New Notes will bear interest at the rate of 10 3/4%
per annum, payable semiannually in arrears on February
1 and August 1 of each year, commencing August 1, 1998.
OPTIONAL REDEMPTION....................... The New Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
February 1, 2002, in cash at the redemption prices set
forth herein, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of
redemption. In addition, at any time prior to February
1, 2001, the Company may redeem up to 33% of the
initially outstanding aggregate principal amount of New
Notes at a redemption price equal to 110.75% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the
date of redemption, with the net proceeds of a Public
Equity Offering; provided, that at least 67% of the
initially outstanding aggregate principal amount of New
Notes remains outstanding immediately after the
occurrence of such redemption. See "Description of New
Notes -- Optional Redemption."
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
CHANGE OF CONTROL......................... Upon the occurrence of a Change of Control, each holder
of New Notes will have the right to require the Company
to repurchase all or any part of such holder's New
Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon
to the date of repurchase. See "Description of New
Notes -- Repurchase at the Option of Holders -- Change
of Control." There can be no assurance that, in the
event of a Change of Control, the Company would have
sufficient funds to repurchase all New Notes tendered.
See "Risk Factors -- Payment Upon a Change of Control."
RANKING................................... The New Notes will be senior unsecured obligations of
the Company and will rank pari passu in right of
payment with all existing and future senior
indebtedness of the Company and senior in right of
payment to all existing and future subordinated
indebtedness of the Company. The New Notes will be
effectively subordinated, however, to all secured
obligations of the Company, including the Company's
borrowings, if any, under the New Credit Facility, to
the extent of the assets securing such obligations. As
of December 31, 1997 the Notes and the Note Guarantees
were effectively subordinated to approximately $3.2
million of secured obligations of the Company and the
Subsidiary Guarantors on an as adjusted basis giving
effect to the Note Offering and the application of the
net proceeds therefrom. See "Risk Factors -- Effective
Subordination; Encumbrances on Assets."
NEW NOTE GUARANTEES....................... The New Notes will be fully and unconditionally
guaranteed on a joint and several basis by all
Subsidiary Guarantors. The New Note Guarantees will be
senior unsecured obligations of the Subsidiary
Guarantors and will rank pari passu in right of payment
to all existing and future senior indebtedness of the
Subsidiary Guarantors. The New Note Guarantees will be
effectively subordinated to all secured obligations of
the Subsidiary Guarantors, including the guarantees of
such Subsidiary Guarantors in favor of the Lenders
under the New Credit Facility, to the extent of the
assets securing such obligations.
CERTAIN COVENANTS......................... The Indenture related to the New Notes will contain
certain covenants that will limit, among other things,
the ability of the Company to (i) pay dividends, redeem
capital stock or make certain other restricted payments
or investments; (ii) incur additional indebtedness or
issue preferred equity interests; (iii) merge,
consolidate or sell all or substantially all of its
assets; (iv) create liens on assets and (v) enter into
certain transactions with affiliates or related
persons. See "Description of New Notes -- Certain
Covenants."
</TABLE>
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<PAGE> 16
<TABLE>
<S> <C>
FORM AND DENOMINATION..................... The New Notes will be represented by U.S. Global Notes
and Regulation S Permanent Global Notes in fully
registered form, deposited with a custodian for and
registered in the name of a nominee of the Depositary.
Beneficial interests in the U.S. Global Notes will be
shown on, and transfers thereof will be effected
through, records maintained by the Depositary and its
Participants. The Regulation S Permanent Global Notes
will be deposited with the Trustee as custodian for the
Depositary, and beneficial interests therein may be
held through Euroclear, Cedel Bank or any other
Depositary Participant. See "Description of New
Notes -- Book-Entry; Delivery; Form and Transfer."
REGISTRATION RIGHTS....................... In certain limited circumstances under the Registration
Rights Agreement, the Company and the Subsidiary
Guarantors will be required to provide a shelf
registration statement (the "Shelf Registration
Statement") to cover resales of the New Notes by the
holders thereof. If the Company and the Subsidiary
Guarantors fail to satisfy their registration
obligations under the Registration Rights Agreement,
the Company will be required to pay certain Liquidated
Damages (as defined herein) to the holders of New Notes
under certain circumstances.
</TABLE>
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<PAGE> 17
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents summary selected consolidated financial data
of the Company for the periods indicated. The summary selected consolidated
statement of operations data for the years ended December 31, 1995, 1996 and
1997 is derived from the Company's audited Consolidated Financial Statements
included elsewhere in this Prospectus. The summary selected consolidated balance
sheet data as of December 31, 1997 is derived from the Company's audited
Consolidated Financial Statements included elsewhere in this Prospectus and is
presented on a historical and an as adjusted basis to give effect to the Note
Offering and the Initial Draw, and the application of the net proceeds therefrom
as if such transactions had occurred on such date. The following financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company's Consolidated
Financial Statements and related Notes thereto included elsewhere herein and the
other information contained in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995(1) 1996(1) 1997
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................. $116,894 $190,773 $184,660
Gross profit.............................................. 52,128 86,912 83,366
Operating expenses........................................ 40,161 98,332 81,131
Income (loss) from operations............................. 11,967 (11,420) 2,235
Net income (loss)......................................... 4,669 (11,990) (5,544)
OTHER DATA:
Cash provided by (used for) operating activities.......... $ 18,300 $(21,402) $ (6,392)
Cash used for investing activities........................ (11,102) (45,316) (17,169)
Cash provided by (used for) financing activities.......... (3,099) 64,439 23,883
EBITDA(2)................................................. 27,864 21,533 24,107
Acquisition related earnouts(3)........................... 1,380 3,781 2,049
Purchased in-process research and development(4).......... -- 13,935 --
Adjusted EBITDA(5)........................................ 29,244 39,249 26,156
Depreciation, amortization and write-downs of intangible
assets.................................................. 15,897 32,953 21,872
Capital expenditures...................................... 9,135 24,564 17,091
Ratio of earnings to fixed charges(6)..................... 1.4x -- 0.2x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,977 $ 1,220
Working capital........................................... 66,075 65,459
Total assets.............................................. 154,730 156,450
Long-term debt, including current portion................. 121,057 124,116
Redeemable preferred stock................................ 9,237 9,237
Stockholders' deficit..................................... (17,873) (18,871)
</TABLE>
- ---------------
(1) Between June 1995 and December 1996, the Company completed six
acquisitions, including Helios, Incorporated ("Helios") in June 1995,
Applied Robotic Technologies, Inc. ("ART") in July 1995, certain net assets
of Tahoe Instruments ("Tahoe") in July 1995, Air Bearings, Incorporated
("ABI") in January 1996, Santa Barbara Metric, Inc. ("SBM") in December
1996 and a portion of the business of Kirell Development, Inc. ("Kirell")
in December 1996. See Notes 1 and 3 of Notes to Consolidated Financial
Statements. Each of these acquisitions was accounted for as a purchase for
financial reporting purposes, and, as a result, the Company's Consolidated
Statements of Operations include the operating results of Helios, ART,
Tahoe, ABI, SBM and a portion of the business of Kirell from their
respective acquisition dates.
(2) EBITDA represents income (loss) from operations before depreciation and
amortization and write-downs of intangibles. EBITDA is presented because
management believes it is a commonly accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income (loss) as an indicator of operating performance and should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. The Company understands that, while EBITDA is frequently used
by securities analysts in the evaluation of companies, EBITDA as used
herein is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation.
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<PAGE> 18
(3) Reflects earnout costs incurred by the Company in connection with the
acquisitions of Helios, ART, Tahoe and ABI. See Note 9 of Notes to
Consolidated Financial Statements. The combined stated maximum obligations
under the material arrangements totaled $14.1 million, of which $10.2
million had been earned as of December 31, 1997.
(4) The Company expensed certain research and development projects that had not
reached technological feasibility and had no alternative future use,
primarily in connection with the acquisitions of ABI, SBM and a portion of
the business of Kirell. See Note 3 of Notes to Consolidated Financial
Statements.
(5) Adjusted EBITDA represents EBITDA (see footnote 2 above) before acquisition
related earnouts and purchased in-process research and development expense.
(6) For purposes of determining this ratio, earnings consist of income (loss)
before income taxes (benefit) and extraordinary items. Fixed charges
consist of interest expense, a portion of operating lease rental expense
that is representative of the interest factor (deemed to be one-third of
operating lease rental expense) and dividends on preferred stock. For the
year ended December 31, 1996, earnings were inadequate to cover fixed
charges by $22.8 million.
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<PAGE> 19
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following Risk Factors should be considered carefully before tendering Notes in
the Exchange Offer.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
In connection with the Note Offering, the Company incurred a significant
amount of indebtedness. At December 31, 1997, the Company had indebtedness of
$121.1 million. As a result of the Note Offering, the Refinancing and Initial
Draw, the Company's indebtedness, on an as adjusted basis at December 31, 1997,
would have increased by $3.0 million to $124.1 million. At February 28, 1998,
the Company had approximately $17.0 million of borrowing availability under the
New Credit Facility. Subject to certain limitations, the Company may also incur
additional indebtedness in the future under the terms of the Indenture related
to the New Notes and the New Credit Facility. See "Capitalization," "Description
of Indebtedness -- New Credit Facility" and "Description of New Notes."
The Company's ability to make scheduled payments of principal and interest
on, or to refinance, its indebtedness (including the New Notes), and to fund its
operations, including planned capital expenditures and research and development
expenses, depends on its future performance and financial results, which, to a
certain extent, are subject to general conditions in the data storage industry
as well as general economic, financial, competitive and other factors that are
beyond its control. For the year ended December 31, 1996, earnings were
inadequate to cover fixed charges by $22.8 million. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance, however, that the Company's
business will generate adequate cash flow or that any growth can be achieved. If
the Company is unable to generate sufficient cash flow from operations in the
future to service its debt and operate its business, including making necessary
capital expenditures, the Company may be required to refinance all or a portion
of its existing debt, including the New Notes, to sell assets or to obtain
additional financing. There can be no assurance that any such action would be
accomplished on terms acceptable to the Company or at all.
The Company's high level of debt will have several important effects on its
future operations, including, but not limited to, (i) making it more difficult
for the Company to satisfy its obligations with respect to the New Notes, (ii)
increasing the Company's vulnerability to general adverse economic and industry
conditions, (iii) limiting the Company's ability to obtain additional financing
to fund future working capital, capital expenditures, research and development
and other general corporate requirements, (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures,
research and development or other operating needs and uses and (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business.
RESTRICTIVE FINANCING COVENANTS
The New Credit Facility and the Indenture related to the New Notes contain
a number of covenants that will significantly restrict the operations of the
Company, such as the ability of the Company to incur indebtedness, make
prepayments of certain indebtedness, pay dividends, make investments, engage in
transactions with stockholders and affiliates, create liens, sell assets and
engage in mergers and other consolidations. In addition, the Company is required
to comply with specified financial ratio tests under the New Credit Facility,
including maximum leverage and minimum interest coverage, net worth, cash flow
and profitability. There can be no assurance that the Company will be able to
comply with such conditions, covenants or restrictions in the future. The
Company's ability to comply with such conditions, covenants and restrictions may
be affected by events beyond its control, including prevailing economic and
financial conditions and general conditions in the data storage industry. The
breach of any such covenants or restrictions would result in a default under the
New Credit Facility that would permit the Lenders thereunder to declare all
amounts outstanding thereunder to be immediately due and payable, together with
accrued and unpaid
12
<PAGE> 20
interest, and terminate its commitments to make further extensions of credit
thereunder. See "Description of Indebtedness -- New Credit Facility."
EFFECTIVE SUBORDINATION; ENCUMBRANCES ON ASSETS
Under the New Credit Facility, the Company granted to the Lenders security
interests in substantially all of its current and future assets (other than the
real estate owned by the Company in San Diego, California on which its
headquarters is located), including a pledge of all or a portion of the issued
and outstanding shares of capital stock of the Company's material subsidiaries.
In the event of a default thereunder (whether as a result of the failure to
comply with a payment or other covenant, a cross-default, or otherwise), the
Lenders will have a prior secured claim on the capital stock of the Subsidiary
Guarantors and substantially all of the assets of the Company and the Subsidiary
Guarantors. As a result, the secured assets of the Company and the Subsidiary
Guarantors would be available to pay obligations on the New Notes and the New
Note Guarantees only after borrowings under the New Credit Facility and other
secured indebtedness, if any, have been paid in full. If the Lenders under the
New Credit Facility should attempt to foreclose on their collateral, the
Company's financial condition and the value of the New Notes and the New Note
Guarantees would be materially adversely affected. See "Description of
Indebtedness -- New Credit Facility." At December 31, 1997, on an as adjusted
basis after giving effect to the Note Offering (and the application of the
estimated net proceeds thereof), the New Notes and the New Note Guarantees would
have been effectively subordinated to approximately $3.2 million of secured
obligations of the Company and the Subsidiary Guarantors.
In addition, if the Company incurs any additional senior indebtedness which
would rank pari passu in right of payment with the New Notes, and even if such
indebtedness were not secured, the holder of such debt would be entitled to
share ratably with the holders of the New Notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization, dissolution or
other winding-up of the Company. This may have the effect of reducing the amount
of proceeds available to pay to holders of the New Notes upon the occurrence of
any such events.
RECENT NET LOSSES; RETAINED DEFICIT; CASH USED BY OPERATING ACTIVITIES
The Company had net losses of approximately $12.0 million and $5.5 million
for 1996 and 1997, respectively. Such losses and accrual of certain preferred
stock dividends and accretion for the redemption value of such preferred stock
have contributed to a retained deficit of approximately $23.2 million as of
December 31, 1997. In addition, the Company used cash for operating activities
of approximately $21.4 million and $6.4 million for 1996 and 1997, respectively.
There can be no assurance that the Company will achieve profitability or that it
will generate positive cash flow from operating activities in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results have fluctuated in the past and the Company
expects that its operating results will continue to fluctuate in the future from
quarter to quarter and year to year. These fluctuations have resulted from a
number of factors, including the size, timing and rescheduling or cancellation
of orders from, and shipments to, major customers; the timing of introductions
of new products and product enhancements by the Company or its competitors; the
Company's ability to develop, introduce and market new, technologically advanced
products; the cyclicality of the data storage industry; the rescheduling of
capital expenditures by the Company's customers; variations in the Company's
customer base and product mix; the level of any significant volume pricing
discounts provided by the Company; the availability and cost of key production
materials and components; the Company's ability to effectively manage its
inventory and to control costs; the financial stability of major customers; the
Company's success in expanding its operations overseas; personnel changes;
expenses associated with acquisitions; fluctuations in amortization and
write-downs of intangible assets; foreign currency exchange rate fluctuations
and general economic factors in the United States and certain foreign countries,
including Japan, South Korea, Singapore, Malaysia and other parts of Southeast
Asia.
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In addition to the foregoing, the Company's period-to-period operating
results may fluctuate in the future due to the rescheduling or cancellation of
specific orders by its major customers. The Company expects order delays and
reschedulings to occur in the future. Because the Company must incur expenses
and purchase inventory based on anticipated and actual customer orders, any
significant delay, rescheduling or cancellation of such orders would have a
material adverse effect on the Company's operating results. For example, during
the second and third quarters of 1997, the Company increased its inventory
substantially in anticipation of satisfying expected demand from three of the
Company's largest customers. A significant portion of this anticipated demand
has not materialized to date due primarily to overcapacity of certain process
and production-test equipment at these customers. This contributed to net sales
for 1997 of $184.7 million compared to $190.8 million in 1996. In addition,
these circumstances contributed to the Company's $26.2 million of adjusted
EBITDA (as defined in footnotes 2 and 5 in "Summary Selected Consolidated
Financial Data") for 1997 which amount was $13.0 million lower than the $39.2
million of adjusted EBITDA for 1996. Cash used for operating activities
decreased from $21.4 million in 1996 to $6.4 million in 1997 due to a smaller
net loss, smaller increases year over year in deferred income taxes, inventories
and income taxes receivable and a decrease in prepaid expenses and other assets
offset by decreases in depreciation, amortization and writedown of intangible
assets, purchased in-process research and development, an increase in accounts
receivable and larger decreases year over year in accounts payable and customer
deposits, accrued expenses and other liabilities. A net loss of $12.0 million in
1996 decreased to a net loss of $5.5 million in 1997 related primarily to
decreases in amortization and write-downs of intangible assets and purchased
in-process research and development expenses, offset by increases in research
and development and interest expense. See "Summary Selected Consolidated
Financial Data."
The Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indicators of future performance. Quarterly results in the future may fluctuate
due to the factors discussed above or other factors. Further, the Company's
historical operating results for 1993 through 1997 are not necessarily
indicative of future performance for any particular period in light of the
Company's acquisition activity during those periods. There can be no assurance
that any past revenue growth or past results of operations will continue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON AND CYCLICALITY OF DATA STORAGE INDUSTRY
The Company's business depends almost entirely upon capital expenditures by
manufacturers of disk drives and disk drive components, which in turn depend
upon market demand for their products. The data storage industry is cyclical and
historically has experienced varying growth rates and periods of oversupply
causing higher than anticipated inventory levels and intense price competition.
The disk drive industry is currently experiencing continuing weakness in demand
for its products, as well as increased competition resulting in significant
price decreases. This in turn causes reduced demand for and pricing pressures on
capital equipment used in the disk drive and disk drive component production
processes, including the type of equipment sold by the Company. In addition,
since the third quarter of 1997, certain of the Company's customers delayed
purchases of certain of the Company's products due to overcapacity of certain
process and production-test equipment at these customers. In the event the
weakness in demand for disk drives continues or customers continue to delay the
purchase of the Company's products, the Company's business, financial condition
and results of operations would be materially adversely affected.
The Company's future operating results will continue to be heavily
dependent on capital expenditures by manufacturers of disk drives and disk drive
components. In this regard, several major manufacturers of disk drives and disk
drive components have recently announced earnings that fell below expectations.
These earnings announcements have been accompanied by reduced earnings
expectations for future periods. There can be no assurance that these
announcements do not indicate the beginning of a slowdown in the growth of the
data storage industry. The Company's business, results of operations and
financial condition have been adversely affected by previous downturns in the
data storage industry. No assurance can be given that the Company's sales and
operating results will not continue to be adversely affected by periodic
downturns in
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world-wide capital equipment expenditures by data storage companies. Any such
slowdown would have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RAPID TECHNOLOGICAL CHANGE
The data storage industry is characterized by rapid technological changes
and evolving industry standards. The Company's customers strive to introduce new
products and enhancements frequently, with relatively short product life cycles,
typically between nine and 18 months. In addition, the Company's customers often
develop multiple products simultaneously, such that new products could be
introduced as frequently as every three months. New product introductions by the
Company's customers typically result in new technological challenges for the
Company, both with respect to its installed base and with respect to next
generation products. As a result, the Company must continue to enhance its
existing products and develop and manufacture new products with improved
capabilities. This has required and will continue to require substantial
investments by the Company in research and development. Although the Company
continually develops new products, there can be no assurance that the Company
will be able to accurately anticipate technological advances in the disk drive
market and develop products incorporating such advances in a timely manner or at
all. The Company's failure to develop, manufacture and market new or enhanced
products, would have a material adverse effect on its business, financial
condition and results of operations. The Company is highly dependent on its
close working relationships with certain of its key customers to advance its
technologies. The termination of any one of these key relationships for any
reason could have a material adverse effect on the Company's ability to
anticipate and develop necessary technological changes to its products.
The Company's customers are constantly striving to improve their production
processes, including improving the manufacturing of substrates, the deposition
of material on the substrate, the finish processing of magnetic media, and head
fabrication. To the extent that the Company's customers can improve product
quality by modifying their own design and internal production processes without
the need to add process and production-test equipment, demand for the Company's
equipment would likely decline. Further, unless the Company is able to
effectively respond to such changes, manufacturing process changes for disk
drives, disks and read/write heads could also have a material adverse effect on
the Company's business, financial condition and results of operations.
There can be no assurance that future technological innovations will not
reduce demand for disk drives. Competing technologies to disk drive based data
storage do exist, including solid state memory (flash memory), tape memory and
re-writable optical technology (CD and DVD technology). Although the current
core technology for rotating magnetic disk drive data storage has been the
predominant technology in the industry for many years, it is likely that some
day this technology will be replaced by an alternate technology. There can be no
assurance that the Company's products will be adaptable to any successor
technology. The Company's business, financial condition and results of
operations could be materially adversely affected by any significant migration
toward technology that would replace disk drives as a computer data storage
medium.
During 1995 and continuing through the first six months of 1997, the
Company experienced significant development and design problems and delays
during the attempted introduction of its MC950 series next generation disk
certifier product. These development and design problems diverted significant
research and development resources which could have been utilized for the
development of new products and various enhancements for other products. There
can be no assurance that the Company will not experience the same or similar
problems with future introductions of new products or enhancements.
CUSTOMER CONCENTRATION
There are a relatively small number of data storage manufacturers
throughout the world and the Company derives a significant portion of its net
sales from a relatively small number of customers. The Company expects that its
dependence on relatively few key customers will continue in the future.
Approximately 52.2%, 45.0% and 51.0% of the Company's net sales in 1995, 1996
and 1997, respectively, were
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derived from sales to the Company's three largest customers in each of those
periods. Even though the Company's customer mix will likely change from period
to period in the future, Seagate Technology, Inc. ("Seagate"), Komag
Incorporated ("Komag"), HMT Technology ("HMT"), Iomega Corporation ("Iomega")
and Trace Storage Technology USA Corporation ("Trace") have historically
accounted for a significant portion of the Company's net sales. For 1995, 1996
and 1997, Seagate accounted for 25.0%, 19.0% and 18.0%, respectively, of net
sales; Komag accounted for 10.7%, 14.5% and 15.9%, respectively, of net sales;
HMT accounted for 4.4%, 5.2% and 17.1%, respectively, of net sales; Iomega
accounted for 16.5%, 7.9% and 1.9%, respectively, of net sales and Trace
accounted for 6.8%, 11.5% and 4.4%, respectively, of net sales. If net sales to
these or any other significant customer of the Company were to decrease in any
material amount in the future, the Company's business, results of operations and
financial condition would be materially adversely affected.
In general, the Company's customers do not enter into long-term purchase
agreements with the Company. If completed orders are not replaced on a timely
basis by new orders from the same or other customers, the Company's net sales
would be materially adversely affected. In addition, the loss of a key customer;
any reduction in orders from any key customer or the rescheduling or
cancellation of a significant order from a key customer, including reductions,
delays or cancellations due to customer departures from recent buying patterns;
or economic or competitive conditions in the disk drive industry could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company has not to date incurred
significant bad debt expense as a result of the failure of any of its customers.
However, there can be no assurance that the Company will not face greater
difficulty in the future in collecting receivables or be required to offer more
favorable payment terms, particularly in a period of reduced demand for disk
drives. Any failure to collect or delay in collecting receivables could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
There has been a trend toward consolidation in the disk drive industry and
the Company expects this trend to continue. Certain of the Company's customers
have in the past and may in the future acquire competitors or be acquired by
competitors, causing further consolidation in the disk drive industry. Previous
acquisitions in the disk drive industry have often caused the purchasing
departments of the combined companies to reevaluate their purchasing decisions.
There can be no assurance that such acquisitions will not result in a change in
a current customer's purchasing habits, including a loss of the customer, a
decrease in orders from that customer or a rescheduling or cancellation of
orders previously made by a customer. Moreover, acquisitions involving existing
customers may cause the concentration of the Company's customer revenues to
increase thereby increasing the Company's dependence on fewer customers.
COMPETITION
The disk drive process and production-test equipment industry is highly
competitive. In each of the Company's product lines, the Company faces
substantial competition from established merchant suppliers of process and
production-test equipment, some of which have greater financial, engineering,
manufacturing, research and development and marketing resources than the
Company. For example, the Company faces competition from General Disk for
servowriters; Hitachi DECO and Sony Techtronics for disk certifiers; Swan
Instruments for MR head testers; Zygo Corporation for flying height testers,
Technastar for automation technology and Guzik Technical for spin-stands.
Historically, there has also been competition from entrepreneurs with focused
market knowledge and new technology. The Company also experiences intense
competition world-wide from Hitachi DECO, a large, full-line manufacturer of
process and production-test equipment. Hitachi DECO, a subsidiary of Hitachi
Limited Japan, has substantially greater financial, technical, marketing,
manufacturing, research and development and other resources than the Company.
The Company also experiences competition from other full-line and partial-line
manufacturers of process and production-test equipment. There can be no
assurance that the Company's competitors will not develop enhancements to, or
future generations of, competitive products that will offer price or performance
features superior to the Company's products, or that new competitors will not
enter the Company's markets. Finally, as many of the Company's competitors are
based in foreign countries, they have cost structures and equipment
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prices based on foreign currencies. Accordingly, currency fluctuations could
cause the Company's dollar-priced products to be less competitive than its
competitors' products priced in other currencies.
Many of the Company's competitors are investing heavily in the development
of new and enhanced products aimed at applications currently addressed by the
Company's products. The Company expects its competitors to continue to improve
the design and performance of their products and to introduce new products with
competitive price/performance characteristics. Competitive pressures often
necessitate price reductions which can adversely affect operating results. The
Company will be required to make a continued high level of investment in product
development and research, sales and marketing and ongoing customer service and
support to remain competitive. There can be no assurance that the Company will
have sufficient resources to continue to make such investments or that the
Company will be able to achieve the technological advances necessary to maintain
its competitive position.
The Company believes that its future success will be dependent, in part,
upon its ability to compete successfully in the Japanese, South Korean and
Southeast Asian markets. The Company's largest competitor, Hitachi DECO, is
headquartered in Japan which gives it a competitive advantage over the Company
in that market to the extent buying decisions are influenced by Hitachi DECO's
local presence. In addition, the Company's ability to compete in Japan, South
Korea and Southeast Asia in the future is dependent upon continuing free trade
between these countries and the United States, the continuing ability of the
Company to develop in a timely manner products that meet the technical
requirements of its foreign customers, and the continuing ability of the Company
to develop and maintain satisfactory relationships with leading companies in the
data storage industry in these areas. Moreover, the Company's sales in these
areas will be affected by the overall economies of Japan, South Korea and
Southeast Asia.
In addition to the competition the Company faces from other merchant
manufacturers of process and production-test equipment, most of the Company's
customers develop at least a portion of their own process and production-test
equipment needs internally, especially servowriters and read/write head test
equipment. Accordingly, the Company must compete against the internal
development efforts of this captive market. Manufacturers within this captive
market are often reluctant to change their production lines to incorporate
merchant-supplied process and production-test technology. Moreover, it is
possible that with the rapid changes in data storage technology, the development
of new process and production-test equipment will be so closely linked to the
Company's customers' product development cycles that certain customers and
potential customers will find it more efficient to develop their own process and
production-testing equipment needs internally, thereby placing the Company at a
competitive disadvantage.
Because of the foregoing competitive factors, there can be no assurance
that the Company will be able to compete successfully in the future. Increased
competitive pressure could cause the Company to lower prices for its products,
thereby adversely affecting the Company's business, financial condition and
results of operations.
PRODUCT CONCENTRATION
The Company derives its revenues primarily from sales of its process and
production-test systems and parts for such systems. The Company's products can
generally be categorized into four principal areas: (i) disk (media) testing and
processing, (ii) read/write head testing, (iii) disk drive testing and
processing and (iv) automation. The Company derives a significant portion of its
net sales from a relatively small number of products. In 1995, 1996 and 1997,
the Company derived approximately 44.0%, 47.0% and 58.9% of its net sales,
respectively, from sales of its media certifier products (excluding parts and
service), with the MG250 series constituting a majority of the Company's media
certifier sales over each of these periods. In June 1997, the Company introduced
its MC950 series media certifier products. The Company expects that net sales
from its media certifier products, including its MG250 series and its MC950
series, will continue to account for a substantial portion of the Company's
total net sales in the foreseeable future. Any material reduction in demand for
its media certifier products would have a material adverse effect on the
Company's business, results of operations and financial condition.
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DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon the establishment and
maintenance of proprietary technologies. Although the Company attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that the steps taken by
the Company to protect its proprietary technologies will be adequate to prevent
misappropriation by third parties or will be adequate under the laws of some
foreign countries, which may not protect the Company's proprietary rights to the
same extent as do laws of the United States. In addition, others could "reverse
engineer" the Company's products in order to determine their method of operation
and introduce competing products or develop competing technology independently.
Any such adverse circumstances could have a material adverse effect on the
Company's business, financial condition and results of operations.
Although the Company does not believe any of its products or proprietary
rights infringe the rights of third parties, there can be no assurance that
infringement claims will not be asserted against the Company in the future. Any
such claims, with or without merit, could divert the attention of management,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. If infringement were established, the Company could be
required to pay damages or be enjoined from making, using or selling the
infringing product. Likewise, there can be no assurance that a third party's
product, if infringing on the Company's proprietary rights, may be prevented
from doing so without litigation. Any of the foregoing could have a material
adverse effect on the Company's business, financial condition and results of
operations.
No assurance can be given that the claims allowed on any patents held by
the Company will be sufficiently broad to protect the Company's technology.
Moreover, there can be no assurance that any patent owned by the Company will
not be invalidated, deemed unenforceable, circumvented or challenged, that the
rights granted thereunder will provide competitive advantages to the Company or
that any of the Company's pending or future patent applications will be issued
with claims of the scope sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop similar products, duplicate the
Company's products or design around the patents owned by the Company. In
addition, there can be no assurance that foreign intellectual property laws or
the Company's agreements will protect the Company's intellectual property rights
in any foreign country. Any failure to protect the Company's intellectual
property rights could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company requires each of its employees to enter into a proprietary
rights and non-disclosure agreement in which the employee agrees to maintain the
confidentiality of all proprietary information of the Company and, subject to
certain exceptions, to assign to the Company all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment. In addition, the Company regularly enters into non-disclosure
agreements with third parties, such as consultants, potential joint venture
partners and customers. In spite of these precautions, it may be possible for
third parties to copy, develop or otherwise obtain and use the Company's
proprietary technology without authorization or to develop similar technology
independently.
MANUFACTURING RISKS
The Company's products have a large number of components and are highly
complex. The Company has experienced and may in the future experience
manufacturing delays due to technical difficulties. In addition, many of the
Company's products must be semi-customized to meet individual product
specification requirements. The customization of a customer order may require
new technical capabilities not previously incorporated successfully into the
Company's products. As a result, the Company may be unable to complete the
customized development or technical specifications of its customers in a timely
manner. Any significant failure in this regard would have a material adverse
effect on the Company's business, financial condition and results of operations
as well as its customer relationships. In addition, due to the semi-customized
nature of many of the Company's products, the Company has in the past and may in
the future incur substantial unanticipated costs in a product's development and
production, such as increased cost of components due to
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<PAGE> 26
expediting charges, other purchasing inefficiencies and greater than expected
engineering, quality control, installation, upgrade, post-installation service
and support and warranty costs which cannot be passed on to the customer. The
occurrence of any of such events in the future could materially adversely affect
the Company's business, financial condition and results of operations.
In certain instances the Company relies on a single source or a limited
group of suppliers for certain components and subassemblies used in its
products. Although the Company seeks to reduce its dependence on sole and
limited source suppliers, the partial or complete loss of these sources could
have at least a temporary material adverse effect on the Company's results of
operations and damage customer relationships due to the complexity of the
products they supply and the significant amount of time required to qualify new
suppliers. In addition, long lead times are often required to obtain critical
components and subassemblies used in certain of the Company's products from
these and other suppliers which could impede the Company's ability to quickly
respond to changes in demand and product specifications.
Shortages of critical components and subassemblies to manufacture the
Company's products have occurred in the past and there can be no assurance that
shortages will not occur in the future, or that materials will be available
without longer lead times. In addition, the manufacture and timely delivery of
products by the Company is often dependent on the ability of certain suppliers
to deliver subassemblies and other components in a timely manner. The failure of
such suppliers to deliver these components in a timely manner may delay the
delivery of products by the Company until alternative sourcing could be
developed. There can be no assurance that an alternative source could be located
in time to avoid penalties or cancellation of the Company's product orders. If a
significant order or orders were cancelled for this reason it could have a
material adverse effect on the Company's business, financial condition and
results of operations. Further, a significant increase in the price of one or
more components used to produce the Company's products would increase the cost
of producing the Company's products. See "Business -- Manufacturing."
The Company conducts its manufacturing activities at its facilities in San
Diego, Fremont, Concord and Hayward, California. The Company's manufacturing
facilities are located in seismically active areas. A major catastrophe (such as
an earthquake or other natural disaster) or other long-term disruption in the
Company's manufacturing activities could result in a prolonged interruption of
the Company's business. See "Business -- Manufacturing."
RISKS ASSOCIATED WITH ACQUISITIONS
While the Company currently has no commitments, agreements or
understandings with respect to any future acquisitions, its business strategy
includes the expansion of its business, products lines and technology through
acquisitions. The Company regularly reviews various acquisition prospects,
including companies, technologies or products complementary to the Company's
business and periodically engages in discussions regarding such possible
acquisitions. Acquisitions involve numerous risks, including evaluating new
technologies; difficulties in the assimilation of the operations, products,
personnel and cultures of the acquired companies; the ability to manage
geographically remote units; the diversion of management's attention from other
day-to-day business concerns; risks of entering markets in which the Company has
limited or no direct experience and the potential loss of key employees of the
acquired companies. In addition, acquisitions may result in dilutive issuances
of equity securities; the incurrence of additional debt; reduction of existing
cash balances; amortization expenses related to goodwill and other intangible
assets and other charges to operations that may materially adversely affect the
Company's results of operations. Moreover, there can be no assurance that any
equity or debt financings proposed in connection with any acquisition would be
available to the Company on acceptable terms or at all, when, and if, suitable
strategic acquisition opportunities arise. Although management expects to
carefully analyze any opportunity before committing the Company's resources,
there can be no assurance that any acquisition that is completed will result in
long-term benefits to the Company or its stockholders or that Phase Metrics'
management will be able to manage effectively the resulting business. See
"Business -- Competition."
The Company recorded write-downs totaling approximately $11.9 million and
$2.0 million for 1996 and 1997, respectively, related to impairment losses on
certain purchased technology recorded primarily in
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<PAGE> 27
connection with the Company's acquisitions of ART and certain assets of Cambrian
and ABI. Such impairment losses were generally the result of post-acquisition
technological changes that were developed independent of purchased technologies,
causing a decline in the carrying values of such purchased technologies. There
can be no assurance that such impairments will not occur in the future or that
future acquisitions will not result in similar write-downs of acquired assets.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 1 of Notes to Consolidated Financial Statements.
CAPITAL NEEDS
The Company believes that, in order to achieve its long-term strategic
objectives and maintain and enhance its competitive position, it will need
additional financial resources over the next several years to fund acquisitions,
service debt, make capital expenditures, fund working capital and pay for
research and development. The Company has added significant manufacturing
capacity and increased its fixed costs over the past two years while expanding
its facilities in Concord, Fremont and San Diego, California, and continues to
invest in new technologies and its international infrastructure. The Company's
fixed costs may also increase if the Company elects to expand its infrastructure
in South Korea, Japan, other parts of Asia, or other locations. Any liquidity
deficiency in the future could delay or change management's plans for the
Company including curtailing its acquisition strategy, capital expenditures,
facilities expansion and research and development expenditures, which could
materially adversely affect the ability of the Company to service its debt
(including indebtedness under the New Notes) and its business, financial
condition and results of operations.
Upon completion of the Exchange Offer, the Company will continue to have
limited cash resources and significant future obligations. The precise amount
and timing of the Company's funding needs cannot be determined at this time and
will depend upon a number of factors, including the market demand for the
Company's products, the availability of strategic opportunities, the progress of
the Company's product development efforts, technological challenges that must be
overcome in connection with existing and future products, the Company's
inventory management and the Company's management of its cash and accounts
payable. The Company may not be able to obtain additional financing as needed on
acceptable terms or at all. If the Company is unable to obtain sufficient
capital, it could be required to curtail its acquisition strategy, capital
expenditures, facilities expansion and research and development expenditures,
which could materially adversely affect the Company's business, financial
condition and results of operations. See "Use of Proceeds," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DEPENDENCE UPON KEY PERSONNEL
The Company's future performance depends in significant part upon the
continued service of its key technical and senior management personnel. The
Company is dependent on its ability to identify, hire, train, retain and
motivate high quality personnel, especially highly skilled engineers involved in
the ongoing developments required to develop and enhance the Company's products
and introduce new and enhanced future products and applications. The industry in
which the Company competes is characterized by a high level of employee mobility
and aggressive recruiting of skilled personnel. The Company's employees may
terminate their employment with the Company at any time. Accordingly, there can
be no assurance that any of the Company's current employees will continue to
work for the Company. Loss of services of key employees could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Employees."
INTERNATIONAL OPERATIONS
The Company's sales and operating activities outside of the United States
are subject to inherent risks, including fluctuations in the value of the United
States dollar relative to foreign currencies, tariffs, quotas, taxes and other
market barriers, political, economic and monetary instability, restrictions on
the export or import of technology, potentially limited intellectual property
protection, difficulties in staffing and managing international operations and
potentially adverse tax consequences. There can be no assurance that any of
these
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factors will not have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, although
substantially all of the Company's export sales to date have been denominated in
United States dollars, such sales may not be denominated in dollars in the
future. As a result, currency exchange fluctuations in countries where the
Company does business could have a material adverse effect on the Company's
business, financial condition and results of operations. In this regard, several
Asian countries including South Korea, Japan and Thailand, have recently
experienced significant economic downturns and significant declines in the value
of their currencies relative to the U.S. dollar. Due to these conditions, it is
possible that certain of the Company's customers will delay, reschedule or
cancel significant current or future orders for the Company's products. If any
such orders are delayed, rescheduled or cancelled, the Company's business,
financial condition and results of operations would be adversely affected.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture,
treatment and disposal of toxic or other hazardous substances, chemicals,
materials or waste. Any failure to comply with current or future regulations
could result in civil penalties or criminal fines being imposed on the Company,
or its officers, directors or employees, suspension of production, alteration of
its manufacturing process or cessation of operations. Such regulations could
require the Company to acquire expensive remediation or abatement equipment or
to incur expenses to comply with environmental regulations. Any failure by the
Company to properly manage the use, disposal or storage of, or adequately
restrict the release of, hazardous or toxic substances could subject the Company
to significant liabilities.
CONCENTRATION OF STOCK OWNERSHIP
The Company's directors and officers and their respective affiliates
beneficially own approximately 86.6% of the Company's capital stock. As a
result, these stockholders, acting together, would be able to effectively
control all matters requiring approval by the stockholders of the Company,
including the election of directors and approval of significant corporate
transactions. These stockholders are parties to a Securityholders Agreement
which, among other provisions, requires such stockholders to vote their shares
of capital stock for certain nominees for directors of the Company. See
"Management," "Certain Transactions" and "Principal Stockholders."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer laws, if, among other things, the
Company or any Subsidiary Guarantor, at the time it incurred the indebtedness
evidenced by the New Notes or the New Note Guarantees, as the case may be,
(i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or
(b) was or is engaged in a business or transaction for which the assets
remaining with the Company or such Subsidiary Guarantor constituted unreasonably
small capital or (c) intended or intends to incur, or believed or believes that
it would incur, debts beyond its ability to pay such debts as they mature and
(ii) the Company or such Subsidiary Guarantor received or receives less than
reasonably equivalent value or fair consideration for the incurrence of such
indebtedness or providing such guarantees, then the New Notes and the New Note
Guarantees could be voided or claims in respect of the New Notes or the New Note
Guarantees could be subordinated to all other debts of the Company or such
Subsidiary Guarantor, as the case may be. In addition, the payment of interest
and principal of the Company pursuant to the New Notes or the payment of amounts
by a Subsidiary Guarantor pursuant to a New Note Guarantee could be voided and
required to be returned to the person making such payment, or to a fund for the
credit of the creditors of the Company or such Subsidiary Guarantor, as the case
may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Subsidiary Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at a fair
valuation or if the present fair saleable value of its
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<PAGE> 29
assets were less than the amount that would be required to pay its probable
liabilities on its existing debts, including contingent liabilities, as they
become absolute and mature or (ii) it could not pay its debts as they become
due.
On the basis of historical financial information, recent operating history
as discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other factors, the Company and each Subsidiary
Guarantor believes that, after giving effect to the indebtedness incurred in
connection with the Note Offering, it was not insolvent, did not have
unreasonably small capital for the business in which it was engaged and had not
incurred debts beyond its ability to pay debts as they mature. There can be no
assurance, however, as to what standard a court would apply in making such
determinations or that a court would agree with the Company's or such Subsidiary
Guarantor's conclusions.
PAYMENT UPON A CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
the Company will be required to make an offer to repurchase all of the New Notes
issued and then outstanding under the Indenture at a purchase price equal to
101% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase. See "Description
of New Notes -- Repurchase at the Option of Holders -- Change of Control." Any
Change of Control under the Indenture would also constitute a default under the
New Credit Facility. Therefore, upon the occurrence of a Change of Control, the
Lenders under the New Credit Facility would have the right to accelerate their
loans and holders of the New Notes would have the right to require the Company
to repurchase their New Notes. See "Description of Indebtedness -- New Credit
Facility." If a Change of Control were to occur, it is unlikely that the Company
would be able to repay all of its obligations under the New Credit Facility, the
New Notes and any other indebtedness that may become payable in such event
without refinancing its obligations thereunder. There can be no assurance that
the Company would be able to obtain any such financing on commercially
reasonable terms, or at all, and consequently no assurance can be given that the
Company would be able to repurchase any of the New Notes upon a Change of
Control.
ABSENCE OF TRADING MARKET; RESTRICTIONS ON TRANSFERS
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for New Notes.
The New Notes will constitute a new issue of securities with no established
trading market. Although the New Notes will generally be permitted to be resold
or otherwise transferred by holders who are not affiliates of the Company
without compliance with the registration requirements under the Securities Act,
the Company does not intend to list the New Notes on any securities exchange or
to seek admission thereof to trading in the National Association of Securities
Dealers Automated Quotation System. Although DLJ has advised the Company that it
currently intends to make a market in the New Notes, DLJ is not obligated to do
so and may discontinue such market making at any time without notice. In
addition, such market making activity will be subject to the limits imposed by
the Exchange Act. If a trading market does not develop or is not maintained,
holders of the New Notes may experience difficulty in reselling the New Notes or
may be unable to sell them at all. If a market for the New Notes develops, any
such market may be discontinued at any time. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
COMPLIANCE WITH EXCHANGE OFFER PROCEDURES; RESTRICTIONS ON RESALES
Issuance of the New Notes in exchange for Notes pursuant to the Exchange
Offer will be made only after a timely receipt by the Exchange Agent of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for New Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to any tender of Notes for exchange. Notes that are
not tendered or are tendered but not accepted will, following the consummation
of the Exchange Offer,
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<PAGE> 30
continue to be subject to the existing restrictions upon transfer thereof and,
upon the Expiration Date, the principal registration rights under the
Registration Rights Agreement generally will terminate. In addition, any holder
of Notes who tenders in the Exchange Offer for the purpose of participating in
or otherwise intends to participate in a distribution of the New Notes will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale of the New Notes to third
parties. Each Participating Broker-Dealer that receives New Notes for its own
account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
the initial resale of such New Notes to third parties. To the extent that Notes
are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Notes could be adversely affected. See
"The Exchange Offer" and "Plan of Distribution."
YEAR 2000
The Company is assessing the readiness of its internal computer systems,
its products and its vendors for handling the Year 2000 issue. The Company does
not believe that the costs of any actions required as a result of such
assessment will have a material adverse effect on the Company's business,
financial condition or results of operations. There can be no assurance,
however, that the Company will successfully implement the correct solutions or
that there will be no delay in or increased costs associated with the Company's
Year 2000 readiness programs. The Company's inability to successfully implement
such changes could have a material adverse effect on the Company's business,
financial condition or results of operations.
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<PAGE> 31
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents related
to the Exchange Offer, copies of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part, and are incorporated by reference
herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Notes were sold by the Company on January 30, 1997, and were
subsequently resold to qualified institutional buyers pursuant to Rule 144A
under the Securities Act and to certain persons in transactions outside the
United States in reliance on Regulation S under the Securities Act. In
connection with the Note Offering, the Company entered into the Registration
Rights Agreement on the date of the Note Closing, which requires, among other
things, the Company and the Subsidiary Guarantors to (i) file with the SEC a
Registration Statement under the Securities Act with respect to an issue of new
notes of the Company identical in all material respects to the Notes, (ii) use
their best efforts to cause such Registration Statement to become effective
under the Securities Act and (iii) upon the effectiveness of that Registration
Statement, offer to the holders of the Notes the opportunity to exchange their
Notes for a like principal amount of New Notes, which would be issued without a
restrictive legend and may be reoffered and resold by the Holder without
restrictions or limitations under the Securities Act (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act). A copy of the Registration Rights Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part. The
term "Holder" as used in this Prospectus means any person in whose name the
Notes are registered on the books of the Company or Trustee, or any other person
who has obtained a properly completed bond power from the registered holder.
Because the Exchange Offer is for any and all Notes, the number of Notes
tendered and exchanged in the Exchange Offer will reduce the principal amount of
Notes outstanding. Following the consummation of the Exchange Offer, Holders of
the Notes who did not tender their Notes generally will not have any further
registration rights under the Registration Rights Agreement, and such Notes will
continue to be subject to certain restrictions on transfer. The Notes are
currently eligible for sale pursuant to Rule 144A through the PORTAL System of
the National Association of Securities Dealers, Inc. Because the Company
anticipates that most Holders of Notes will elect to exchange such Notes for New
Notes due to the absence of restrictions on the resale of New Notes under the
Securities Act, the Company anticipates that the liquidity of the market for any
untendered Notes remaining after the consummation of the Exchange Offer may be
substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered and not withdrawn prior to 12:00 midnight, New York City time,
on the Expiration Date. The Company will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Notes accepted
in the Exchange Offer. Holders may tender some or all of their Notes pursuant to
the Exchange Offer. Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Notes except that (i) the New Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (ii) the holders of the New Notes generally will not be entitled to any
further rights under the Registration Rights Agreement, which rights generally
will terminate upon consummation of the Exchange Offer. The New Notes will
evidence the same debt as the Notes and will be entitled to the benefits of the
Indenture.
Holders of Notes do not have any appraisal or dissenters' rights under the
Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange
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<PAGE> 32
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the SEC thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the New Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 12:00 midnight, New York City time,
on , 1998, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment by means of a supplement to this Prospectus that will be distributed
to the registered Holders, and, depending upon the significance of the amendment
and the manner of disclosure to the registered Holders, the Company will extend
the Exchange Offer for five to ten business days if the Exchange Offer would
otherwise expire during such five to ten business-day period.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the New Notes within the time periods set forth in the
Registration Rights Agreement, Liquidated Damages will accrue and be payable on
the New Notes either temporarily or permanently. See "Description of New
Notes -- Registration Rights; Liquidated Damages."
INTEREST ON NEW NOTES
The New Notes will bear interest from January 30, 1998, the date of the
Note Closing. Accordingly, Holders of Notes that are accepted for exchange will
not receive interest that is accrued but unpaid on the Notes at the time of
tender, but such interest will be payable on the New Notes on the first interest
payment date after the Expiration Date. Interest on the New Notes will be
payable semiannually on each February 1 and August 1, commencing on August 1,
1998.
PROCEDURES FOR TENDERING
Only a Holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a Holder must complete, sign and date the enclosed
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal and mail or otherwise
deliver such
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<PAGE> 33
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent so as to be received by the Exchange
Agent at the address set forth below prior to 12:00 midnight, New York City
time, on the Expiration Date. The Letter of Transmittal must be used to tender
Notes. Delivery of the Notes may be made by book-entry transfer in accordance
with the procedures described below. Confirmation of such book-entry transfer
must be received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of New Notes." The tender by a Holder and the acceptance
thereof by the Company will constitute an agreement between such Holder and the
Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered Holder promptly and instruct such registered
Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered Holder
as such registered Holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Notes at the Depository for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution that is a
participant in the Depository's system may make book-entry delivery of the Notes
by causing the Depository to transfer such Notes into the Exchange Agent's
account with respect to the Notes in accordance with the Depository's procedures
for such transfer. Although delivery of the Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Depository, an
appropriate Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to
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<PAGE> 34
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the Depository does not constitute delivery to the
Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
Holders of defects or irregularities with respect to tenders of Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered and as
to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose New Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder, the
certificate number(s) of such Notes and the principal amount of Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificates(s) representing the Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange
Agent's account at the Depository) and any other documents required by
the Letter of Transmittal, will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Notes into the Exchange Agent's account at
the Depository) and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 12:00 midnight New York City time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 12:00 midnight New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Notes to be withdrawn (the "Depositor"), (ii)
identify the Notes to be withdrawn
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<PAGE> 35
(including the certificate number(s) and principal amount of such Notes, or, in
the case of Notes transferred by book-entry transfer, the name and number of the
account at the Depository to be credited), (iii) be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal by which such
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Notes register the transfer of such Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Notes are to
be registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time or receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Notes so withdrawn are validly retendered. Any Notes
which have been tendered but which are withdrawn will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal or
termination of the Exchange Offer. Properly withdrawn Notes may be retendered by
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange New Notes for any Notes, and
may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if any law, statute, rule, regulation or
interpretation by the staff of the SEC is proposed, adopted or enacted, which,
in the reasonable judgment of the Company, might materially impair the ability
of the Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering Holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of Holders to withdraw such Notes or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a supplement to this Prospectus that will be
distributed to the registered Holders, and, depending upon the significance of
the waiver and the manner of disclosure to the registered Holders, the Company
will extend the Exchange Offer for a period of five to ten business days if the
Exchange Offer would otherwise expire during such five to ten business-day
period.
EXCHANGE AGENT
State Street Bank and Trust Company will act as Exchange Agent for the
Exchange Offer.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of a Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
By Registered or Certified Mail, Overnight Mail or Courier Service or in
Person by Hand:
The Exchange Agent
State Street Bank and Trust Company of California, N.A.
633 West 5th Street, 12th Floor
Los Angeles, California 90071
Attention: Jeanie Mar
By Facsimile:
(213) 362-7357
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith and pay other registration expenses, including fees and expenses of
the Trustee, SEC filing fees, blue sky fees, legal expenses and printing and
distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the New Notes or the Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes for New Notes pursuant to the
Exchange Offer as provided herein, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other person) will be payable
by the tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Notes,
which is the aggregate principal amount of the Notes, as reflected in the
Company's accounting records on the date of exchange. Accordingly, no gain or
loss for accounting purposes will be recognized in connection with the Exchange
Offer. The expenses of the Exchange Offer will be amortized over the term of the
New Notes.
RESALE OF NEW NOTES
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Notes may be offered for resale,
resold and otherwise transferred by any Holder of such New Notes (other than any
such Holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act; provided, that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder does not intend to participate, and has no arrangement or understanding
with any person to participate, in a distribution of such New Notes. Any Holder
who tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the New Notes may not rely on the
position of the staff of the SEC enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989), Morgan Stanley & Co., Incorporated
(available June 5, 1991) and Shearman & Sterling (available July 2, 1993), or
similar no-action letters, but rather must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Any such resale transaction should be covered by an
effective registration statement containing the selling securityholder's
information required by Item 507 or 508 of Regulation S-K of the Securities Act,
as applicable. In addition, each broker-dealer that receives New Notes for its
own account in exchange for Notes, where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
New Notes.
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is a Holder, (ii)
neither the Holder nor any such other person has an arrangement or understanding
with any person to participate in a distribution of such New Notes and (iii) the
Holder and such other person acknowledge that if they participate in the
Exchange Offer for the purpose of distributing the New Notes (a) they must, in
the absence
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<PAGE> 37
of an exemption therefrom, comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on the no-action letters referenced above and (b) failure
to comply with such requirements in such instance could result in such Holder
incurring liability under the Securities Act for which such Holder is not
indemnified by the Company. Further, by tendering in the Exchange Offer, each
Holder that may be deemed an "affiliate" (as defined under Rule 405 of the
Securities Act) of the Company will represent to the Company that such Holder
understands and acknowledges that the New Notes may not be offered for resale,
resold or otherwise transferred by that Holder without registration under the
Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the no-action letters referenced above with respect to resales of the New Notes
without compliance with the registration and prospectus delivery requirements of
the Securities Act. In connection with the Note Offering, the Company entered
into the Registration Rights Agreement pursuant to which the Company agreed to
file and maintain, subject to certain limitations, a registration statement that
would allow DLJ to engage in market-making transactions with respect to the New
Notes. The Company has agreed to bear all registration expenses incurred under
such agreement, including printing and distribution expenses, reasonable fees of
counsel, blue sky fees and expenses, reasonable fees of independent accountants
in connection with the preparation of comfort letters, and SEC and the National
Association of Securities Dealers, Inc. filing fees and expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled its principal obligations under the Registration Rights Agreement, and
Holders of Notes who do not tender their Notes generally will not have any
further rights under the Registration Rights Agreement. Accordingly, any Holder
of Notes that does not exchange that Holder's Notes for New Notes will continue
to hold Notes and will be entitled to all the rights and limitations applicable
thereto under the Indenture, except to the extent that such rights or
limitations, by their terms, terminate or cease to have further effectiveness as
a result of the Exchange Offer.
The Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only (i) to the Company (upon redemption thereof or otherwise), (ii) pursuant to
an effective registration statement under the Securities Act, (iii) so long as
the Notes are eligible for resale pursuant to Rule 144A, to a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, (iv) outside the United
States to a foreign person pursuant to the exemption from the registration
requirements of the Securities Act provided by Regulation S thereunder, (v)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available) or (vi) to an institutional accredited
investor in a transaction exempt from the registration requirements of the
Securities Act, in each case in accordance with any applicable securities laws
of any State of the United States. See "Risk Factors -- Absence of Trading
Market; Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take.
The Company may in the future seek to acquire any untendered Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plans to acquire any Notes that are not
tendered in the Exchange Offer or to file a registration statement to assist in
making resales of any untendered Notes.
30
<PAGE> 38
THE REFINANCING
The Note Offering was part of a plan to refinance all of Phase Metrics'
then-existing term loan and revolving credit indebtedness under its Former
Credit Facility and to make available to the Company additional cash for working
capital and certain capital expenditures. At February 28, 1998, the Company had
approximately $17.0 million of borrowing availability under the New Credit
Facility. Borrowings under the New Credit Facility are secured by substantially
all of the existing and future assets of the Company (other than the real estate
owned by the Company in San Diego, California on which its headquarters is
located) and are guaranteed on a secured basis by all Subsidiary Guarantors.
Accordingly, all borrowings under the New Credit Facility and the secured
guarantees of the Subsidiary Guarantors in favor of the Lenders will effectively
rank senior to the indebtedness evidenced by the New Notes, to the extent of the
assets securing such obligations.
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer. The net
proceeds to the Company from the sale of the Notes were approximately $105.9
million (after deducting discounts and commissions and Note Offering expenses
payable by the Company). The Company used all of such net proceeds, together
with the Initial Draw of approximately $1.6 million under the New Credit
Facility, to repay in full its then-existing term loan and revolving credit
indebtedness under the Former Credit Facility, including all accrued interest
thereunder to the date of repayment, and all expenses related to the
Refinancing.
31
<PAGE> 39
CAPITALIZATION
The following table sets forth, as of December 31, 1997, the capitalization
of the Company and the capitalization of the Company as adjusted to reflect the
Refinancing and the Note Offering (and the application of the net proceeds
thereof). See "The Refinancing" and "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 2,977 $ 1,220
======== ========
Debt (including current portion):
Existing term loan........................................ $ 79,200 $ --
Existing revolving credit facility........................ 30,700 --
New Credit Facility(1).................................... -- 2,959
Senior Notes due 2005..................................... -- 110,000
Convertible Subordinated Notes............................ 8,000 8,000
Capital lease obligations................................. 3,157 3,157
-------- --------
Total debt (including current portion)............ 121,057 124,116
Series B redeemable preferred stock, $.0001 par value,
192,864 shares authorized, issued and outstanding
(liquidation preference of $10,578)....................... 9,237 9,237
Stockholders' deficit:
Series A preferred stock, $.0001 par value, 412,500 shares
authorized, issued and outstanding (liquidation
preference of $9,000).................................. 3 3
Common stock, $.0001 par value, 70,000,000 shares
authorized;
5,627,431 shares issued and outstanding................ 6,090 6,090
Retained deficit(2)....................................... (23,166) (24,164)
Accumulated translation adjustment........................ (800) (800)
-------- --------
Total stockholders' deficit....................... (17,873) (18,871)
-------- --------
Total capitalization......................... $112,421 $114,482
======== ========
</TABLE>
- ---------------
(1) The Company had, at February 28, 1998, approximately $17.0 million of
borrowing availability under the New Credit Facility. See "Description of
Indebtedness -- New Credit Facility." The January 30, 1998 Initial Draw
under the New Credit Facility was approximately $1.6 million.
(2) The change in retained deficit results from the write off of $1.0 million of
previously deferred financing fees, net of taxes, related to the Existing
Credit Facility.
32
<PAGE> 40
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1995, 1996 and 1997, and the selected consolidated
balance sheet data as of December 31, 1996 and 1997, are derived from the
Company's audited Consolidated Financial Statements included elsewhere in this
Prospectus. The selected consolidated statement of operations data for the years
ended December 31, 1993 and 1994, and the selected consolidated balance sheet
data as of December 31, 1993, 1994 and 1995 are derived from the Company's
audited Consolidated Financial Statements not included in this Prospectus. The
following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and related
Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1994(1) 1995(1) 1996(1) 1997
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales................................................ $6,141 $ 20,064 $116,894 $190,773 $184,660
Gross profit............................................. 3,172 10,099 52,128 86,912 83,366
Operating expenses(2).................................... 2,821 8,530 40,161 98,332 81,131
Income (loss) from operations............................ 351 1,569 11,967 (11,420) 2,235
Interest expense......................................... -- 651 5,625 8,448 11,573
Income (loss) before income taxes and extraordinary
items.................................................. 361 943 6,193 (19,842) (9,812)
Income tax (benefit) expense(3).......................... -- (611) 1,524 (8,974) (4,268)
Income (loss) before extraordinary items................. 361 1,554 4,669 (10,868) (5,544)
Extraordinary loss, net of income taxes.................. -- -- -- (1,122) --
Net income (loss)........................................ 361 1,554 4,669 (11,990) (5,544)
OTHER DATA:
Cash provided by (used for) operating activities......... 387 (1,994) 18,300 (21,402) (6,392)
Cash used for investing activities....................... (122) (22,266) (11,102) (45,316) (17,169)
Cash provided by (used for) financing activities......... (10) 24,455 (3,099) 64,439 23,883
EBITDA(4)................................................ 420 2,782 27,864 21,533 24,107
Acquisition related earnouts(5).......................... -- -- 1,380 3,781 2,049
Purchased in-process research and development(6)......... -- -- -- 13,935 --
Adjusted EBITDA(7)....................................... 420 2,782 29,244 39,249 26,156
Depreciation, amortization and write-downs of intangible
assets................................................. 69 1,213 15,897 32,953 21,872
Capital expenditures..................................... 122 293 9,135 24,564 17,091
Ratio of earnings to fixed charges(8).................... 11.3x 1.6x 1.4x -- 0.2x
DECEMBER 31,
--------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 732 $ 917 $ 5,016 $ 2,737 $ 2,977
Working capital.......................................... 204 (15,616) (5,774) 42,681 66,075
Total assets............................................. 2,531 49,609 119,896 154,013 154,730
Long-term debt, including current portion................ 43 28,200 30,239 96,020 121,057
Redeemable preferred stock............................... -- 314 3,314 6,314 9,237
Stockholders' equity (deficit)(3)........................ 395 (310) 3,592 (9,031) (17,873)
</TABLE>
- ---------------
(1) In November 1994, the Company acquired ProQuip and certain net assets of
Cambrian. Between June 1995 and December 1996, the Company completed six
additional acquisitions, including Helios in June 1995, ART in July 1995,
certain net assets of Tahoe in July 1995, ABI in January 1996, SBM in
December 1996 and a portion of the business of Kirell in December 1996. See
Notes 1 and 3 of Notes to Consolidated Financial Statements. Each of these
acquisitions was accounted for as a purchase for financial reporting
purposes, and, as a result, the Company's consolidated statements include
the operating results of ProQuip, Cambrian, Helios, ART, Tahoe, ABI, SBM and
a portion of the business of Kirell from their respective acquisition dates.
(2) Includes restructuring costs in connection with the acquisitions of ProQuip
and Cambrian. The Company incurred approximately $1.0 million of
restructuring costs in 1994, primarily related to the elimination of
duplicate facilities and information systems.
(3) Prior to the Recapitalization (as defined herein), the Company was an S
Corporation for 1994 income tax purposes and, as such, taxable income and
losses were passed on to the sole stockholder of the Company as cash
distributions. Had the Company been a C corporation, assuming a combined
statutory
33
<PAGE> 41
income tax rate of 41%, income tax expense would have been approximately $.1
million and $.4 million for 1993 and 1994, respectively. The Company has not
declared or paid any cash dividends subsequent to its conversion to a C
Corporation and does not anticipate paying any cash dividends in the
foreseeable future. See "Certain Transactions."
(4) EBITDA represents income (loss) from operations before depreciation and
amortization and write downs of intangibles. EBITDA is presented because
management believes it is a commonly accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
(loss) as an indicator of operating performance and should not be considered
in isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. The Company
understands that, while EBITDA is frequently used by securities analysts in
the evaluation of companies, EBITDA as used herein is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation.
(5) Reflects earnout costs incurred by the Company in connection with the
acquisitions of Helios, ART, Tahoe and ABI. See Note 9 of Notes to
Consolidated Financial Statements. The combined stated maximum obligations
under the material arrangements totaled $14.1 million, of which $10.2
million had been earned as of December 31, 1997.
(6) The Company expensed certain research and development projects that had not
reached technological feasibility and had no alternative future use,
primarily in connection with the acquisitions of ABI, SBM and a portion of
the business of Kirell. See Note 3 of Notes to Consolidated Financial
Statements.
(7) Adjusted EBITDA represents EBITDA (see footnote 4 above) before acquisition
related earnouts and purchased in-process research and development expense.
(8) For purposes of determining this ratio, earnings consist of income (loss)
before income taxes (benefits) and extraordinary items. Fixed charges
consist of interest expense, a portion of operating lease rental expense
that is representative of the interest factor (deemed to be one-third of
operating lease rental expense) and dividends on preferred stock. For the
year ended December 31, 1996, earnings were inadequate to cover fixed
charges by $22.8 million.
34
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company commenced operations in 1989 as a specialized merchant supplier
of production-test equipment for the data storage industry. From its inception
to November 1994, the Company was primarily engaged in developing and selling
its flying height tester systems to read/write head manufacturers. In order to
expand its operations and capitalize on the growing demand for process and
production-test equipment for the data storage industry, in November 1994 the
Company completed the Recapitalization and commenced a series of acquisitions of
other specialized suppliers of process and production-test equipment. In
November 1994, the Company acquired ProQuip and Cambrian, suppliers of advanced
process and production-test equipment for disks and read/write heads. In June
1995, the Company acquired Helios, a supplier of advanced servowriter and other
related equipment used in the production of disk drives. In July 1995, the
Company acquired both ART, a supplier of advanced integrated automation systems
for process and production-test equipment, and Tahoe, a developer of advanced
quasi-static MR head testers used for testing MR read/write heads. In January
1996, the Company acquired ABI, a supplier of advanced air bearing spindles and
other related components used in the Company's products and by others. In
December 1996, the Company acquired both SBM, a developer of advanced spinstands
and micropositioner equipment and technology used by data storage manufacturers,
and a portion of the business of Kirell, a supplier of advanced laser
texturizers used in the production of disks. See "Certain Transactions --
Recapitalization."
The Company accounted for each of its acquisitions as a purchase, and, as a
result, the Company's consolidated statements of operations include the
operating results of the acquired businesses from their respective dates of
acquisition. In connection with certain of the acquisitions, the Company agreed
to make earnout payments based on future sales of certain products acquired in
the acquisitions. The combined stated maximum obligations under the material
arrangements totaled $14.1 million, of which $3.3 million was considered certain
and, accordingly, allocated to the original purchase price, and the remainder of
which is being charged to compensation expense as incurred. Of the $14.1 million
obligation, $10.2 million had been earned as of December 31, 1997. The remaining
$3.9 million will be paid depending on actual sales of the defined products.
Also, in connection with the acquisitions, the Company recorded capitalized
intangible assets totaling $61.2 million. Capitalized intangible assets consist
primarily of purchased technology and are being amortized over approximately
three years from the respective acquisition dates. The net book value of such
capitalized intangible assets was $5.0 million as of December 31, 1997.
There are a relatively small number of data storage manufacturers
throughout the world. The Company derives a significant portion of its net sales
from a relatively small number of customers and expects such dependence on
relatively few key customers to continue in the future. Approximately 52.2%,
45.0% and 51.0% of the Company's net sales in 1995, 1996 and 1997, respectively,
were derived from sales to the Company's three largest customers in each of
those periods. Even though the Company's customer mix will likely change from
period to period in the future, Seagate, Komag, HMT, Iomega and Trace have
historically accounted for a significant portion of the Company's net sales. For
1995, 1996 and 1997, Seagate accounted for 25.0%, 19.0% and 18.0%, respectively,
of net sales; Komag accounted for 10.7%, 14.5% and 15.9%, respectively, of net
sales; HMT accounted for 4.4%, 5.2% and 17.1%, respectively, of net sales;
Iomega accounted for 16.5%, 7.9% and 1.9%, respectively, of net sales and Trace
accounted for 6.8%, 11.5% and 4.4%, respectively, of net sales. If net sales to
these or any other significant customer of the Company were to decrease in any
material amount in the future, the Company's business, results of operations and
financial condition would be materially adversely affected.
The Company has no long-term contracts with its customers, and, in general,
the Company's customers may cancel, change or reschedule their orders with
limited or no penalty. The Company's customers often submit master purchase
orders against which they release specific product orders from time to time,
often with little lead time. Any cancellation, reduction, rescheduling or
significant delay of anticipated or actual orders from significant customers
could have a material adverse effect on the Company's business, results of
35
<PAGE> 43
operations and financial condition. Each of the Company's customers has some
unique product specification requirements which requires the Company to provide
semi-customized products. As a result, per unit sales prices for the Company's
products will generally vary by customer and sales order. If production costs
with respect to the customization work are underestimated, there could be an
adverse impact on the Company's gross profits. In addition, the Company's
products often require post-installation, on-site customization and integration
in order to tailor products to customer specifications. Revenue and
corresponding expenses for significant post-installation services are recognized
in the period such services are provided. Inaccurate estimation of such on-site
service costs could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company derives its revenues primarily from sales of its process and
production-test systems and parts for such systems. The Company's products can
generally be categorized into four principal areas: (i) disk (media) testing and
processing, (ii) read/write head testing, (iii) disk drive testing and
processing and (iv) automation. The Company derives a significant portion of its
net sales from a relatively small number of products. In 1995, 1996 and 1997,
the Company derived approximately 44.0%, 47.0% and 58.9% of its net sales,
respectively, from sales of its media certifier products (excluding parts and
service), with the MG250 series constituting a majority of the Company's media
certifier sales over each of these periods. However, since its introduction in
June 1997, sales of the Company's MC950 series media certifier products have
become an increasingly higher percentage of its media certifier product sales.
Moreover, the Company expects that net sales from its media certifier products,
including its MG250 series and its MC950 series, will continue to account for a
substantial portion of the Company's total net sales in the foreseeable future.
Any significant reduction in demand for its media certifier products would have
a material adverse effect on the Company's business, results of operations and
financial condition.
The Company's operating results have fluctuated in the past and the Company
expects that its operating results will continue to fluctuate in the future from
quarter to quarter and year to year. These fluctuations have resulted from a
number of factors including the size and timing of orders from, and shipments
to, major customers; the timing of introductions of new products and product
enhancements by the Company or its competitors; the Company's ability to
develop, introduce and market new, technologically advanced products; the
cyclicality of the data storage industry; the rescheduling of capital
expenditures by the Company's customers; variations in the Company's customer
base and product mix; the level of any significant volume pricing discounts
provided by the Company; the availability and cost of key production materials
and components; the Company's ability to effectively manage its inventory and to
control costs; the financial stability of major customers; the Company's success
in expanding its operations overseas; personnel changes; expenses associated
with acquisitions; fluctuations in amortization and write-downs of intangible
assets; exchange rate fluctuations and general economic factors.
In addition to the foregoing, the Company's period-to-period operating
results may fluctuate in the future due to the rescheduling or cancellation of
specific orders by its major customers. The Company expects order delays and
reschedulings to occur in the future. Because the Company must incur expenses
and purchase inventory based on anticipated and actual customer orders, any
significant delay, rescheduling or cancellation of such orders would have a
material adverse effect on the Company's operating results. For example, during
the second and third quarters of 1997, the Company increased its inventory
substantially in anticipation of satisfying expected demand from three of the
Company's largest customers. A significant portion of this anticipated demand
has not materialized to date due to overcapacity of certain process and
production-test equipment at these customers. This contributed to net sales for
1997 of $184.7 million compared to $190.8 million for 1996. Moreover, adjusted
EBITDA (as defined in footnotes 4 and 7 in "Selected Consolidated Financial
Data") for 1997 was $26.2 million compared to $39.2 million of adjusted EBITDA
for 1996. Cash used for operating activities decreased from $21.4 million in
1996 to $6.4 million in 1997 due to a smaller net loss, smaller increases year
over year in deferred income taxes, inventories and income taxes receivable and
a decrease in prepaid expenses and other assets, offset by decreases in
depreciation, amortization and write-downs of intangible assets, purchased
in-process research and development, an increase in accounts receivable and
larger decreases year over year in accounts payable and customer deposits,
accrued expenses and other liabilities. A net loss of $12.0 million in 1996
decreased to a net loss of $5.5 million
36
<PAGE> 44
in 1997 related primarily to decreases in amortization and write-downs of
intangible assets and purchased in-process research and development expenses,
offset by increases in research and development and interest expense. See
"Selected Consolidated Financial Data."
The Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indicators of future performance. Quarterly results in the future may fluctuate
due to the factors discussed above or other factors. Further, the Company's
historical operating results for any past period are not necessarily indicative
of future performance for any particular period in light of the Company's
acquisition activity during those periods.
37
<PAGE> 45
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated certain
consolidated statement of operations data in dollars, as well as such data
expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $116,894 $190,773 $184,660
Cost of sales............................................... 64,766 103,861 101,294
-------- -------- --------
Gross profit.............................................. 52,128 86,912 83,366
Operating expenses:
Research and development.................................. 11,372 31,110 43,572
Selling, general and administrative....................... 15,695 24,631 22,968
Amortization and write-downs of intangibles............... 13,094 28,656 14,591
Purchased in-process research and development............. -- 13,935 --
-------- -------- --------
Income (loss) from operations............................... 11,967 (11,420) 2,235
Interest expense............................................ 5,625 8,448 11,573
Other (income) expense -- net............................... 149 (26) 474
-------- -------- --------
Income (loss) before income taxes and extraordinary items... 6,193 (19,842) (9,812)
Income tax (benefit) expense................................ 1,524 (8,974) (4,268)
-------- -------- --------
Income (loss) before extraordinary items.................... 4,669 (10,868) (5,544)
Extraordinary loss, net of income taxes..................... -- (1,122) --
-------- -------- --------
Net income (loss)........................................... $ 4,669 $(11,990) $ (5,544)
======== ======== ========
OTHER DATA:
Cash flows provided by (used for) operating activities...... $ 18,300 $(21,402) $ (6,392)
Cash flows used for investing activities.................... (11,102) (45,316) (17,169)
Cash flows provided by (used for) financing activities...... (3,099) 64,439 23,883
EBITDA(1)................................................... 27,864 21,533 24,107
Adjusted EBITDA(1).......................................... 29,244 39,249 26,156
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 55.4 54.4 54.9
------- -------- --------
Gross profit.............................................. 44.6 45.6 45.1
Operating expenses:
Research and development.................................. 9.7 16.3 23.6
Selling, general and administrative....................... 13.4 12.9 12.4
Amortization and write-downs of intangibles............... 11.2 15.0 7.9
Purchased in-process research and development............. -- 7.3 --
------- -------- --------
Income (loss) from operations............................... 10.2 (6.0) 1.2
Interest expense............................................ 4.8 4.4 6.3
Other (income) expense -- net............................... 0.1 -- .3
------- -------- --------
Income (loss) before income taxes and extraordinary items... 5.3 (10.4) (5.3)
Income tax (benefit) expense................................ 1.3 (4.7) (2.3)
------- -------- --------
Income (loss) before extraordinary items.................... 4.0 (5.7) (3.0)
Extraordinary loss, net of income taxes..................... -- (0.6) --
------- -------- --------
Net income (loss)........................................... 4.0 (6.3) (3.0)
======= ======== ========
OTHER DATA:
Cash flows provided by (used for) operating activities...... 15.7% (11.2)% (3.5)%
Cash flows used for investing activities.................... (9.5) (23.8) (9.3)
Cash flows provided by (used for) financing activities (2.7) (33.8) 12.9
EBITDA(1)................................................... 23.8 11.3 13.1
Adjusted EBITDA(1).......................................... 25.0 20.6 14.2
</TABLE>
- ---------------
(1) See "Selected Consolidated Financial Data" for definitions of EBITDA and
Adjusted EBITDA.
38
<PAGE> 46
Net Sales
Net sales consist primarily of revenue from sales of the Company's process
and production-test equipment and, to a lesser extent, related upgrades and
parts. Net sales decreased 3.2% from $190.8 million for 1996 to $184.7 million
for 1997. This decrease was primarily due to decreased sales of the Company's
servowriter and automation systems, which was partially offset by increased
sales of media certification systems over these periods.
Net sales increased 63.2% from $116.9 million for 1995 to $190.8 million
for 1996. This increase was due primarily to increased sales of the Company's
media certifier systems and automation systems for 1996 compared to 1995.
Approximately one-half of this increase in net sales for 1996 was attributable
to the effect of the Company's 1995 acquisitions of Helios, ART and Tahoe and
the inclusion of their net sales for the entire 1996 period and the Company's
acquisition of ABI and the inclusion of its net sales from the date of its
acquisition in January 1996.
Gross Profit
Cost of sales includes material costs, direct labor and overhead costs
related to the production and delivery of the Company's products, in addition to
warranty and other service costs. Gross profit decreased from $86.9 million for
1996 to $83.4 million for 1997. Gross profit as a percentage of net sales
("gross margin") decreased from 45.6% for 1996 to 45.1% for 1997. The Company is
unable to control with any degree of certainty its product sales mix from period
to period and therefore the Company's gross margin in future periods may
fluctuate from those achieved in past periods. In any period when the Company
experiences an unfavorable product sales mix and/or is required to provide
significant volume pricing discounts, the Company's gross margin may decrease.
Gross profit increased from $52.1 million for 1995 to $86.9 million for
1996. Gross margin increased from 44.6% for 1995 to 45.6% for 1996. The
increased gross margin was primarily due to a more favorable product sales mix
and certain volume production efficiencies achieved for 1996 compared to 1995.
This increase was partially offset by the impact of volume pricing offered by
the Company.
Research and Development Expense
Research and development expense consists primarily of salaries and related
costs of personnel and contract labor, project materials and other costs
associated with the Company's ongoing research and product development. Research
and development expense increased from $31.1 million for 1996 to $43.6 million
for 1997. Research and development expense as a percentage of net sales
increased from 16.3% for 1996 to 23.6% for 1997. This increase was primarily the
result of increased purchases and use of project materials and increased
personnel related to significant design improvements for existing products, and
research and development related to new and next generation products. The
Company anticipates that it will continue to devote a significant amount of
financial resources to research and product development for the foreseeable
future.
Research and development expense increased from $11.4 million for 1995 to
$31.1 million for 1996. Research and development expense as a percentage of net
sales increased from 9.7% for 1995 to 16.3% for 1996. This increase was
attributable to the effect of the Company's 1995 acquisitions of Helios, ART and
Tahoe and the inclusion of their research and development expenses for the
entire 1996 period and the Company's acquisition of ABI and the inclusion of its
research and development expense from the date of its acquisition in January
1996.
Selling, General and Administrative Expense
Selling, general and administrative expense primarily consists of salaries
and related personnel costs, including certain acquisition related earnout costs
incurred in connection with the Company's acquisitions of Helios, ART, Tahoe and
ABI. See Note 9 of Notes to Consolidated Financial Statements. Selling, general
and administrative expense decreased from $24.6 million for 1996 to $23.0
million for 1997. Selling, general
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and administrative expense as a percentage of net sales decreased from 12.9% for
1996 to 12.4% for 1997. The decrease in absolute dollars was principally due to
the payment of $1.5 million in special, one-time bonuses to certain senior
executive officers of the Company in December of 1996 and lower earnout costs of
$2.0 million incurred for 1997 compared to $3.8 million for 1996, which were
offset by increased personnel costs.
Selling, general and administrative expense increased from $15.7 million
for 1995 to $24.6 million for 1996. Selling, general and administrative expense
as a percentage of net sales decreased from 13.4% for 1995 to 12.9% for 1996 due
to increased net sales over these periods. The increase in absolute dollars for
1996 was primarily attributable to (i) the effect of the Company's 1995
acquisitions of Helios, ART and Tahoe and the inclusion of their selling,
general and administrative expenses for the entire 1996 period and the Company's
acquisition of ABI and the inclusion of its selling, general and administrative
expense from the date of its acquisition in January 1996; (ii) the payment of
$1.5 million in special, one-time bonuses to certain senior executive officers
of the Company in December 1996 and (iii) higher earnout costs of $3.8 million
incurred for 1996 compared to $1.4 million for 1995.
Amortization and Write-Downs of Intangibles
Amortization and write-downs of intangibles primarily consist of the
amortization of intangible assets, including intangible assets acquired in
connection with the acquisitions of ProQuip, Cambrian, Helios, ART and ABI
(principally purchased technology and covenants not to compete) and write-downs
related to the impairment of such assets. See Notes 1 and 3 of Notes to
Consolidated Financial Statements.
Amortization and write-downs of intangibles decreased from $28.7 million
for 1996 to $14.6 million for 1997. This decrease was the result of write-downs
to fair value in 1996 related to impairment of certain intangible assets
recorded in connection with the Company's acquisitions of ART and Cambrian,
partially offset by write-downs to fair value in 1997, related to impairment of
certain intangible assets recorded in connection with the Company's acquisition
of ABI. Such impairments were generally the result of post-acquisition
technological changes that were developed independent of purchased technologies
causing a decline in the carrying values of such purchased technologies.
Amortization and write-downs of intangibles increased from $13.1 million
for 1995 to $28.7 million for 1996, reflecting the result of (i) a full year of
1996 amortization expense related to intangible assets recorded in connection
with the Company's June and July 1995 acquisitions of Helios, ART and a portion
of the business of Tahoe, (ii) 1996 amortization expense related to intangible
assets recorded in connection with the Company's January 1996 acquisition of ABI
and (iii) write-downs to fair value related to impairment of certain intangible
assets recorded in connection with the Company's acquisitions of ART and
Cambrian. Such impairment was generally the result of post-acquisition
technological changes that were developed independent of purchased technologies
causing a decline in the carrying values of such purchased technologies.
Purchased In-Process Research and Development
In connection with certain of the Company's acquisitions in 1996, the
Company acquired research and development projects that had not reached
technical feasibility and had no probable alternative future uses. The amount
allocated to purchased in-process research and development for the acquisition
of ABI was based on an independent third party valuation and was expensed as of
the date of the acquisition. Purchased in-process research and development
expense related to the Company's acquisition of ABI was $11.0 million for 1996.
Purchased in-process research and development expense relating, in substantial
part, to the Company's acquisition of ABI, SBM and a portion of the business of
Kirell was $13.9 million for all of 1996.
Interest Expense
Interest expense increased from $5.6 million for 1995 to $8.4 million for
1996 and to $11.6 million for 1997. These increases primarily reflect the
increased debt levels outstanding during the respective periods.
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Income Taxes
Income tax expense (benefit) was $1.5 million for 1995, $(9.0) million for
1996 and $(4.3) million for 1997, equating to effective income tax (benefit)
rates of 24.6%, (45.2%) and (43.5%), respectively, for such periods. For these
periods, the effective income tax rates differed from the applicable statutory
rates due primarily to utilization of income tax credits available for research
and development expenses and, for 1995 and 1996, to foreign sales.
Extraordinary Items
Extraordinary items, net of income taxes, were $1.1 million for 1996, and
consisted of the write-off of unamortized debt issuance costs in connection with
the refinancing of the Company's then-existing credit agreements in January and
December 1996, respectively.
Cash Flow from Operating Activities
Cash flow from operating activities is computed based on net income (loss)
plus depreciation, amortization and write-downs of intangibles assets, purchased
in-process research and development costs and changes in assets and liabilities.
Cash used for operating activities decreased from $21.4 million in 1996 to
$6.4 million in 1997 due to a smaller net loss, smaller increases year over year
in deferred income taxes, inventories and income taxes receivable and a decrease
in prepaid expenses and other assets, offset by decreases in depreciation,
amortization and writedown of intangible assets, purchased in-process research
and development, an increase in accounts receivable and larger decreases year
over year in accounts payable and customer deposits, accrued expenses and other
liabilities.
Cash provided by (used for) operating activities decreased from $18.3
million provided in 1995 to $21.4 million used in 1996 due to the 1996 net loss,
decreases in accounts payable and customer deposits, accrued expenses and other
liabilities, an increase in income tax receivable, as well as larger increases
year over year in deferred income taxes, prepaid expenses and other assets
offset by increases in depreciation, amortization and writedown of intangible
assets and purchased in-process research and development and a decrease in
accounts receivable.
EBITDA and Adjusted EBITDA
EBITDA represents income (loss) from operations before depreciation and
amortization and write downs of intangibles. Adjusted EBITDA represents EBITDA
before acquisition related earnouts and purchased in-process research and
development expense. EBITDA and Adjusted EBITDA are presented because management
believes EBITDA is a commonly accepted financial indicator used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA and Adjusted EBITDA are not intended to represent
cash flows for the period, nor have they been presented as an alternative to
operating income (loss) as an indicator of operating performance and should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
Adjusted EBITDA decreased from $39.2 million for 1996 to $26.2 million for
1997. This decrease resulted primarily from an increase in research and
development expense, partially offset by decreases in gross profit and selling,
general and administrative expenses.
Adjusted EBITDA increased from $29.2 million for 1995 to $39.2 million for
1996. This increase was due to increased gross profit, partially offset by
increased research and development and selling, general and administrative
expenses.
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LIQUIDITY AND CAPITAL RESOURCES
Since the Recapitalization in November 1994, the Company has financed its
capital requirements through (i) sales of common and preferred stock, (ii) term
and revolving debt under certain credit facilities and (iii) cash generated by
operations in 1995.
Following this Exchange Offer, the Company's principal sources of liquidity
will be cash flow from operations and borrowing availability under the New
Credit Facility. The Company's principal requirements for cash will be debt
service requirements, capital expenditures and working capital.
The New Credit Facility provides the Company with up to $25.0 million of
revolving credit, subject to certain conditions, which limit could be increased
to $40.0 million at the sole discretion of the Lenders. Borrowing availability
under the New Credit Facility is based on a borrowing base test that includes
75% of the Company's eligible receivables. If the Company meets certain
financial tests, the borrowing base test will be increased to 80% of the
Company's eligible receivables and will be expanded to include 25% of the
Company's eligible inventory (subject to a cap of $10.0 million). At February
28, 1998, the Company had approximately $17.0 million of borrowing availability
under the New Credit Facility. Indebtedness under the New Credit Facility
matures in January 2001. The Initial Draw under the New Credit Facility was
approximately $1.6 million. Borrowings under the New Credit Facility bear
interest, at the Company's option, based on LIBOR (as defined herein) plus 3.0%
or a base rate (based on the prime rate) plus 1.0%. The Company's obligations
under the New Credit Facility are secured by substantially all of the Company's
current and future assets (other than the real estate owned by the Company in
San Diego, California on which its headquarters is located), including a pledge
of the capital stock of all of its direct and indirect subsidiaries, subject to
certain limitations with respect to foreign subsidiaries. In addition, the
Subsidiary Guarantors have guaranteed on a secured basis the obligations of the
Company under the New Credit Facility. Accordingly, all borrowings under the New
Credit Facility and the guarantees of the Subsidiary Guarantors in favor of the
Lenders effectively rank senior to indebtedness under the New Notes, to the
extent of the assets securing such obligations. The New Credit Facility contains
customary covenants and events of default, including substantial restrictions on
the Company's ability to incur additional indebtedness. See "The Refinancing"
and "Description of Indebtedness -- New Credit Facility."
As of December 31, 1997, the Company's outstanding indebtedness included
$109.9 million under the Former Credit Facility, $8.0 million under its
Convertible Subordinated Notes and approximately $3.2 million of capital lease
obligations. The $109.9 million of indebtedness was refinanced with the Notes,
which bear interest at 10.75%, and the Initial Draw. At December 31, 1997, the
Company had $6.1 million of accrued interest on indebtedness outstanding on the
Convertible Subordinated Notes. The Convertible Subordinated Notes (including
all accrued interest thereon) are convertible into 5,142,720 shares of Common
Stock at the option of the holders thereof and will automatically convert upon
the consummation of an initial public offering of the Company's Common Stock.
See "Description of Indebtedness -- Convertible Subordinated Notes."
Cash used for investing activities was $45.3 million in 1996 and consisted
of cash used in connection with the acquisitions of ABI, SBM and a portion of
the business of Kirell as well as investments in property and equipment. Cash
used for investing activities was $17.2 million in 1997 and consisted of
purchases of property and equipment. Cash provided by financing activities was
$64.4 million in 1996 and consisted of the net proceeds from the Company's
January 1996 and December 1996 refinancings of its then-existing credit
facilities, as well as the sale-lease back of the Company's information and
telecommunications systems. Cash provided by financing activities was $23.9
million in 1997 and consisted of the net proceeds from the Company's existing
revolving credit facility.
The Company plans approximately $6.0 million in capital expenditures during
the next 12 months. The Company has no material outstanding commitments with
respect to such planned expenditures.
The Company believes the net proceeds from the Note Offering, together with
cash generated from operations, borrowing availability under the New Credit
Facility and existing cash balances will be adequate to fund its operations for
at least the next 12 months. While operating activities may provide cash in
certain
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periods, continued expansion of the Company's operations may require additional
sources of financing. The Company may also from time to time consider additional
acquisitions of complementary businesses, products or technologies, which may
require additional financing. Additional sources of funding could include
additional debt and/or equity financings. Upon completion of this Exchange
Offer, the Company will continue to have limited capital resources and
significant future obligations and expects that it will require additional
capital to support future growth, if any. The existence of certain restrictive
covenants in the New Credit Facility and the Indenture for the New Notes may
inhibit the Company's ability to raise additional financing. There can be no
assurance that the Company will be able to obtain alternative sources of
financing on favorable terms, if at all, at such time or times as the Company
may require such capital. See "Risk Factors -- Substantial Leverage; Ability to
Service Indebtedness."
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BUSINESS
The Company is the world's leading supplier of technologically advanced
process and production-test equipment for the data storage industry. The
Company's systems are used primarily by manufacturers of disk drives and disk
drive components (disks and read/write heads) at critical stages of their
production processes. The Company's systems, substantially all of which
incorporate significant amounts of proprietary technology and are software
intensive, include (i) media certifiers, burnishers, glide height testers,
optical scanners and laser texturizers which are used in the production of
thin-film disks (media), (ii) servowriters and electronic testers used in the
production of disk drives and high capacity disk cartridges, (iii) flying height
testers and quasi-static magnetoresistive ("MR") head testers used in the
production of read/write heads and (iv) integrated automation systems for the
disk drive, disk and read/write head test and manufacturing processes. The
Company's production-test systems (e.g., media certifiers, glide testers, flying
height testers and quasi-static MR head testers) are designed to provide in-line
testing, measurement and analysis throughout the manufacturing process, enabling
manufacturers to detect defects, sort products by performance grade and make
real-time process improvement decisions that can significantly impact product
yields, time-to-market, profitability and return on investment. The Company's
process systems (e.g., servowriters, disk burnishers and disk laser texturizers)
perform precise manufacturing process functions. Phase Metrics' customers
include substantially all of the world's leading data storage companies.
INDUSTRY BACKGROUND
The increasing demand for process and production-test equipment for the
data storage industry is driven by three primary factors: (i) the overall demand
for disk drives and disk drive components; (ii) rapid advances in data storage
technology and (iii) yield management challenges and margin pressure facing data
storage manufacturers.
Demand for Disk Drives and Disk Drive Components
Demand for PCs and workstations and the growing use of network servers is
stimulating strong demand for disk drives and disk drive components. According
to International Data Corporation ("IDC"), combined world-wide shipments of PCs,
workstations and servers are expected to reach approximately 91 million units in
1998, growing to approximately 116 million units by 2000. Moreover, unit growth
rates for disk drives and disk drive components are expected to exceed unit
growth rates for PCs, workstations and servers, due to a variety of factors,
including the rapidly increasing demand for high performance replacement disk
drives and high-capacity, removable-disk storage devices.
Increasing demand for greater data storage capacity is further stimulating
unit sales growth in disk drives and disk drive components. Factors contributing
to this increasing demand for greater storage capacity include:
- The development of more storage intensive operating systems and larger
software "suites"
- The continuing migration to networked architectures with greater storage
requirements
- Demand for more storage intensive software applications such as data
warehousing, digital image storing, enhanced graphics, multimedia and
video on demand
- Rapidly increasing Internet usage, including the ready availability of
data-intensive files which can be downloaded to a user's disk drive
Stimulated by these underlying market drivers, unit shipments of disk
drives and disk drive components have been growing rapidly over the past ten
years. According to IDC, world-wide shipments of hard disk drives are expected
to reach approximately 150 million units in 1998, growing to approximately 209
million units by 2000. In addition, according to DISK/TREND, Inc., world-wide
shipments of high-capacity, removable-disk drives are expected to reach
approximately 18 million units in 1998, growing to approximately 32 million
units by 2000. Strong world-wide demand for disk drives has resulted in a
growing demand for disks and read/write heads. According to TrendFOCUS, Inc.
("TrendFOCUS"), the number of disks and
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read/write heads produced is expected to reach approximately 449 million and 868
million units, respectively, in 1998, growing to approximately 602 million and
1,204 million units, respectively, in 2000. The increasing demand for disk
drives, disks and read/write heads requires manufacturers to expand their
production capacity. Based on industry data, the Company believes that major
disk drive and disk drive component manufacturers spent approximately $2.2
billion in 1997 on expanding their facilities and purchasing capital equipment
to increase production capacity.
Disk Drive Technology
The principal components of a hard disk drive are disks (media), read/write
heads, spindle, actuator mechanics and electronics. Today, each disk drive
typically contains from one to ten disks that are attached to a spindle/motor
assembly. The read/write head is a small magnetic transducer that, when the disk
is spinning, "flies" just above the disk surface. Data are written on data
storing tracks on the disk when the disk drive's electronics send current pulses
to the head. These pulses cause the magnetic layer within the disk and under the
recording head to become magnetized, resulting in the storage of data on the
disk. During the read-back process, as the read/write head scans over the disk,
magnetic flux from the disk is picked up by the head and induces an electrical
current which is converted into voltage. The voltage is then transformed into
digital data by the disk drive's electronics. Recently introduced,
high-capacity, removable-disk storage devices operate under substantially the
same principals with the added benefit of disk removability and portability. The
following diagram illustrates the principal components of a disk drive:
Disk Drive Diagram
Technological Change
The performance characteristics of disk drives are continually advancing
which in turn are requiring concurrent advancements in process and
production-test equipment technology. The critical performance characteristics
of a disk drive are: (i) capacity -- the amount of data stored, measured in
megabytes or gigabytes; (ii) transfer rate -- the speed with which data can be
transferred between the disk drive and computer, measured in megabits per second
and (iii) access speed -- the time it takes to locate data on the disk, measured
in milliseconds. Demand for greater storage capacity, faster transfer rates and
faster access speeds, all within the same or smaller form factors, has resulted
in rapid and constant advances in disk drive technology. In general, disk drive
capacity can be improved by increasing the areal density of data on a disk.
According to the International Disk Drive Equipment and Materials Association
("IDEMA"), areal density has been growing at an average compound rate of
approximately 60% per year since 1991. Areal density is the amount of data
(bits) that can be stored in a square inch on the disk and is determined by
multiplying track density (tracks per inch) by average bit density on each inch
of track (bits per inch). Therefore, the capacity of a disk drive can be
increased by increasing the number of tracks on the disk and/or increasing the
number
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of bits of data in an inch of track. Lower head flying heights over the disk
surface area are necessary to achieve the small bit sizes required by increasing
areal density. The lower the head flies above the disk surface, the more
accurately the head can read the magnetic signal, allowing a smaller magnetized
region on the track to store each bit of data. Accordingly, the flying height of
read/write heads on very high areal density capacity disk drives has been
reduced to less than one microinch in some cases. In addition to increasing the
capacity of a disk by increasing areal density, the transfer rate and access
time performance characteristics of a disk drive can be improved by rotating the
disk at a faster rate. In disk drives today, the spindle/motor assembly rotates
the disk at 4,500 to 10,000 revolutions per minute, compared to 3,600 to 7,200
revolutions per minute less than three years ago.
Although increases in areal density and improved disk drive performance
characteristics have resulted in significant advancements for disk drives,
demand for even greater performance enhancements is continually stimulating
development and introduction of entirely new disk drive technologies. This is
evidenced by the recent introduction of MR heads. MR heads are significantly
more sensitive than inductive heads in reading data from disks with higher areal
densities. As a result, disk drive, disk and read/write head manufacturers are
rapidly transitioning to MR technologies. According to TrendFOCUS, MR heads
represented only 12% of the overall head market in 1995, but are expected to
grow to approximately 55% of the overall head market in 1997 and over 90% by
1999.
While technological advancements are enabling manufacturers to produce
significantly higher capacity disk drives with greater transfer rates and faster
access times, they are also presenting significant technological challenges and
increasing the complexity of manufacturing processes. For example, the ability
of disk manufacturers to produce disks capable of higher areal densities is
directly related to manufacturers' ability to control critical disk attributes
such as (i) increasing the magnetic strength or "coercivity" of a disk by
providing higher quality magnetic domains and thereby reducing the potential for
"noise"; (ii) limiting surface imperfections to reduce the amount of unusable
space on a disk and (iii) controlling smoothness and flatness to allow for lower
head flying heights without head/disk contact. In addition, even though smaller
read/write heads facilitate increasing areal densities, they are more easily
damaged and are more difficult to manufacture. MR heads in particular are
difficult to manufacture because of their small size and the presence of the
delicate MR element which is highly sensitive to electro-static discharge.
Faster access speeds and greater transfer rates require both advanced channel
technology to improve data communications and increasing disk rotation speeds.
As a result of these complexities, disk drive and disk drive component
manufacturers are installing increasingly sophisticated manufacturing processes.
The growing complexity of disk drive manufacturing is in turn increasing test
and production times per product and creating pressure on manufacturing costs.
These trends have resulted in greater demand for sophisticated process and
production-test equipment.
Yield Management
As data storage technology advances and manufacturing processes become more
complex, maximizing yield is increasingly critical to the data storage industry.
The ability to rapidly achieve and maintain high product yield is one of the
most important determinants of profitability in this highly competitive
industry. However, as disk drives and disk drive components are designed within
more precise tolerances, product yield becomes more sensitive to increasingly
smaller irregularities in the manufacturing process. Manufacturers must
therefore rely on yield management and process monitoring equipment to improve
their product yields and remain competitive. Process and production-test
equipment enables manufacturers to increase yield more quickly when a product is
new and improve a product's time to volume. In addition, early detection of
defects in the manufacturing process with the use of production-test equipment
allows manufacturers to improve yield through the availability of test data and
on-line analysis capabilities that enable real-time process improvements.
Moreover, production processes in the data storage industry involve numerous
sequential costly process steps. Production-test equipment enables manufacturers
to identify non-conforming products early in the manufacturing process, thus
avoiding additional costly manufacturing steps and/or the addition of expensive
componentry which is later scrapped. These pressures have also resulted in
increased demand for process and production-test equipment.
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Market for Process and Production-Test Equipment
Major manufacturers of disk drives and disk drive components require a
variety of high precision process and production-test equipment. These
technologically advanced products combine significant amounts of software with
high precision electro-mechanical componentry to provide real-time, high
throughput processing and production management capabilities. Process equipment
is used by manufacturers to perform manufacturing processes within increasingly
precise tolerances enabling the production of higher performance data storage
devices. Such process equipment includes servowriters for writing servo tracks
on nearly completed disk drives, burnishers for removing bumps from the surface
of a disk and laser texturizers for providing required bumps on a portion of a
disk's surface to prevent "stiction," namely the head sticking to the surface of
a disk. Production-test equipment is used by manufacturers to perform precise
inline testing, measurement and analysis throughout the manufacturing process
enabling manufacturers to detect defects and make real-time production
improvement decisions that can significantly impact customers' product yield and
profitability. Production-test equipment is also used in research and
development laboratories. Production-test equipment includes media certifiers to
verify the magnetic integrity of a disk and an optical media scanner to verify
the physical integrity of the disk surface, flying height testers to determine
the height a head flies above a disk and quasi-static MR head testers to measure
MR head characteristics.
The process and production-test equipment market for the data storage
industry is served by both merchant suppliers as well as the "captive" or
internal departments of data storage companies that develop and manufacture
process and production-test equipment for their own use. Historically, disk
drive and disk drive component manufacturers developed much of their own process
and production-test equipment internally and purchased a lesser amount of such
equipment from merchant suppliers. As the production process becomes more
complex and production capacity becomes more expensive to build and maintain,
however, data storage manufacturers are focusing more on their own core
competencies -- product design and production -- to remain competitive. This in
turn has caused increasing reliance on merchant suppliers of process and
production-test equipment. The enabling tools developed by such merchant
suppliers allow disk drive and disk drive component manufacturers to incorporate
more advanced production techniques into their manufacturing processes and more
accurately measure the conformity of component parts of the disk drive to their
specifications. The growing demand for digital data storage capacity and the
increasing complexity of data storage technology and related manufacturing
challenges have caused demand for process and production-test equipment to grow
rapidly in recent years. According to Peripheral Research Corporation, merchant
suppliers are expected to sell approximately $484 million of process and
production-test equipment to the data storage industry in 1998, growing to
approximately $616 million in 1999.
The process and production-test equipment industry was characterized by a
relatively fragmented group of specialized independent equipment suppliers.
These suppliers often had limited technological competence and narrow product
offerings. In addition, most of these specialized suppliers lacked the critical
mass to support extensive research and development programs and world-wide
customer service and support. As data storage manufacturers focus more on their
own core competencies in an increasingly global marketplace they are
increasingly seeking process and production-test capital equipment suppliers
that can play a strategic role in their ongoing product development and
manufacturing processes and at the same time provide world-wide service and
support.
COMPETITIVE STRENGTHS
The Company believes that it possesses key competitive strengths that have
enabled it to become the leading supplier of technologically advanced process
and production-test equipment for the data storage industry. These competitive
strengths include:
Broad Product Line and Extensive Technology Base. The Company believes that
it is a technological leader in designing, manufacturing and servicing process
and production-test systems that perform critical applications throughout the
disk drive and disk drive component production processes. These systems contain
a significant amount of proprietary software, sophisticated electronics, and
high precision mechanics. As evidence of its technological leadership, the
Company believes it was the first to market with systems
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incorporating numerous important new technologies, including (i) in 1993, the
first testing system capable of accurately measuring the flying height of a
read/write head below one microinch; (ii) in 1995, the first disk (media)
certifier with integrated optical defect scanning and also the first certifier
with digital glide certification; (iii) in 1996, the first family of MR head
testers to address each stage of the manufacturing process for the rapidly
growing MR head market and (iv) in 1997, the first disk drive servowriter to
incorporate non-contact, laser positioning technology. The Company currently
holds 27 patents in the United States, with an additional 72 patent applications
pending in the United States. The Company also holds a number of foreign patents
and has filed a number of foreign patent applications.
Largest World-Wide Installed Base of Systems. Based in part on published
industry data, the Company believes it has the largest world-wide installed base
of process and production-test systems serving the data storage industry. The
Company is able to leverage this installed base by selling these customers
additional systems, as well as upgrades to existing systems to address rapidly
changing industry requirements. The Company believes that such upgrades are
becoming an increasingly important source of revenue for the Company.
Focused Research and Development. In response to rapidly changing
technical requirements in the data storage industry and to maintain its
technological leadership, the Company is continually engaged in efforts to
improve its systems and introduce innovative products and technologies. With
approximately 200 engineers focused on research and development, the Company
believes that it maintains the largest engineering group in the world focusing
on technological solutions for data storage manufacturers. Moreover, in 1996,
the Company formed an advanced research department focused exclusively on
developing and procuring critical technologies for next-generation systems. In
1997, the Company invested approximately $43.6 million in its research and
development efforts and expects to continue to devote significant resources
toward maintaining its technological leadership.
Extensive Global Infrastructure. In addition to its extensive sales and
customer service and support infrastructure in the United States, since the
beginning of 1996 the Company has established sales and customer service and
support offices in Japan, South Korea, Singapore, Thailand and Taiwan. The
Company believes that substantial growth opportunities exist for sales of its
systems to domestic and foreign-based customers for use in their manufacturing
facilities located in Southeast Asia. Therefore, the Company currently has 40
dedicated customer service and support engineers and technicians in Southeast
Asia, which the Company believes is the largest foreign-based group of customer
service and support personnel of any domestic supplier of process and
production-test equipment to the data storage industry.
Experienced Management Team With Significant Ownership. The Company's
Chairman and Chief Executive Officer, John F. Schaefer, and its Vice President,
Finance and Chief Financial Officer, R. Joseph Saunders, joined the Company in
November 1994. Working with Arthur J. Cormier, the founder and previous
President of the Company, the Company assembled a group of experienced officers,
middle managers and senior technologists. Mr. Cormier is currently serving as a
director of and consultant to the Company. This senior management team has grown
the Company's sales, both internally and through acquisitions, from
approximately $20.1 million in 1994 to approximately $184.7 million for 1997.
The Company's directors and officers and their respective affiliates
beneficially own approximately 86.6% of the Company's capital stock.
Demonstrated Ability to Integrate Acquisitions. In order to expand its
operations and capitalize on the growing demand for process and production-test
equipment for the data storage industry, since November 1994, the Company's
management team has acquired seven specialized suppliers of process and
production-test systems or technologies. The Company believes that it has
successfully integrated each of these acquisitions into its operations.
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GROWTH STRATEGY
The Company believes that it is well-positioned to grow future revenue and
cash flow. The key elements of the Company's growth strategy are as follows:
Maintain Leadership in Core Technologies. The Company intends to remain a
technological leader in its markets by continuing to work with customers,
academic institutions and independent third parties to identify emerging data
storage technology trends early in the development process and contribute to the
development of standards related to process and production-test for the data
storage industry. Because the Company's systems are integral to its customers'
manufacturing processes, the Company believes that it is well-positioned to
utilize its research and development resources to partner with its customers in
the development of next-generation products.
Leverage Installed Base of Systems. The Company intends to leverage its
installed base of systems by selling new systems to existing customers and by
continuing to develop and aggressively market system upgrade solutions in
response to rapidly changing industry requirements. In addition, because data
storage manufacturers are required to focus increasingly on their own core
competencies, the Company believes that there is a significant opportunity to
increase its sales by supplying certain process and production-test equipment to
data storage manufacturers that currently develop such systems internally.
Leverage and Expand Global Infrastructure. Due to its extensive global
service and support infrastructure, the Company believes it is well-positioned
to increase productivity and profitability. In particular, the Company believes
that it will be able to leverage the significant investment it has made in
establishing a sales and customer service and support infrastructure in
Southeast Asia to capitalize on the increasing activity in the data storage
industry in that region. As data storage manufacturers require equipment
suppliers to support their increasingly global operations, the Company intends
to continue to expand its world-wide service and support network.
Pursue Complementary Acquisitions. As with many other industries, data
storage manufacturers are increasingly attempting to rationalize their vendor
bases. As a result, there has been an increasing trend toward consolidation of
data storage equipment suppliers. The Company intends to continue to capitalize
on this trend by completing complementary acquisitions of additional product
lines, technologies and related businesses. The Company believes that its market
leadership position and demonstrated ability to successfully integrate strategic
acquisitions will continue to attract additional strategic opportunities.
PRODUCTS
The Company's process and production-test products are an integral part of
the process of manufacturing disk drives, disks and read/write heads. The
Company's products address the increasingly complex disk drive and disk drive
component production processes and the constant pressure to improve
manufacturing yields. The Company's products combine substantial proprietary
technology, including extensive software, custom electronic componentry,
micro-positioning systems, high-performance air bearing spindles, optical
detectors, and various other internally designed probes required for detection
and measurement, together with commercially available components such as high
performance lasers, DC motors and optical encoders. The proprietary software
incorporated into each of the Company's products enable real-time process and
production-test capabilities without off-line processing. The Company believes
that its proprietary software offers a competitive advantage due to its powerful
signal processing and analysis capabilities, flexible user-interface, and
adaptability to specific customer applications.
The Company's products are categorized into four principal areas: (i) disk
(media) process and production-test equipment; (ii) read/write head
production-test equipment; (iii) disk drive process and production-test
equipment and (iv) production automation equipment. The Company's products are
predominantly used in an in-line production mode by the Company's customers. As
such, the customers integrate the Company's products into their processes, using
multiple variations of test protocols available on the systems. The Company's
software facilitates this adaptation process and, accordingly, substantially all
of the Company's products are semi-customized to satisfy each customer's unique
product specifications and test
49
<PAGE> 57
requirements. The Company anticipates more extensive customization of its
products in the future due to the increasing complexity of the technology and
production processes for data storage devices. Therefore, the Company
continually endeavors to enhance its products with new features and
functionality. The Company has demonstrated the ability to provide required
customizations and product upgrades in response to changes in data storage
technology. With its substantial product development and research capability and
commitment to maintaining close relationships with its customers, the Company
believes it is well positioned to continue to provide cost-effective solutions
to the rapidly changing data storage industry.
The following tables include the Company's principal current products and
products expected to be introduced during the first nine months of 1998.
DISK (MEDIA) PROCESS AND PRODUCTION-TEST EQUIPMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRODUCT INTRODUCTION DATE APPLICATIONS
---------------------------- ---------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
MEDIA CERTIFIERS
- ---------------------------------------------------------------------------------------------------------------
MG250 February 1995 Burnishing (removes bumps and particles from the
MC950 June 1997 surface
MG250APS January 1996 of a finished disk)
MG250EPS January 1998
MC950EPS Second Quarter of 1998 Optical Scanning ("EPS" Option optically scans
MSA950 Second Quarter of 1998 the
surface of a finished disk for defects that could
damage the
glide head)
Glide Certification (verifies that the surface of
a finished
disk does not have protrusions in excess of
certain specified
limits)
Media Certification (verifies that data can be
written and
read from a finished disk within certain
specifications)
OPTICAL INSPECTION SYSTEMS
- ---------------------------------------------------------------------------------------------------------------
PS5000 September 1997 Optical Scanning (scans for defects on disk
substrates and/or finished disks)
LASER TEXTURIZER
- ---------------------------------------------------------------------------------------------------------------
LT1000 April 1997 Laser Texturizing (creates precise surface bumps
on disks for head landing zones)
MEDIA BALANCE TESTER
- ---------------------------------------------------------------------------------------------------------------
MB1000 November 1996 Media Balancing (verifies that disk substrates or
finished disks are in balance within required
specifications)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 58
HEAD PRODUCTION-TEST EQUIPMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRODUCT INTRODUCTION DATE APPLICATIONS
---------------------------- ---------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
MR QUASI-STATIC HEAD
TESTERS
- ---------------------------------------------------------------------------------------------------------------
MRH(HGA-level Tester) September 1995 MR Quasi-static Testing (conducts critical tests
MRW(Wafer-level Tester) September 1996 at the wafer, bar, slider or HGA level of MR head
MRS(Slider-level Tester) June 1997 production, including resistance, amplitude,
MRB(Bar-level Tester) September 1997 asymmetry and stability tests)
HGA RESONANCE TESTER
- ---------------------------------------------------------------------------------------------------------------
HRT June 1994 Mechanical Resonance Testing (tests HGA for
mechanical resonance characteristics within
required specifications)
FLYING HEIGHT TESTERS
- ---------------------------------------------------------------------------------------------------------------
DFHT II September 1995 Flying Height Testing (measures head to disk
DFHT III January 1998 spacing ("flying height") under various dynamic
FH3000 June 1996 test conditions)
FH4000 September 1996
SPINSTAND
- ---------------------------------------------------------------------------------------------------------------
Metric 133 May 1998 Mechanics platform for head and disk testing
(used for multiple testing tasks, includes a
precision air bearing spindle, X, Y, and Z stages
and a micropositioner)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
DISK DRIVE PROCESS AND PRODUCTION-TEST EQUIPMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRODUCT INTRODUCTION DATE APPLICATIONS
---------------------------- ---------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
SERVOWRITERS
- ---------------------------------------------------------------------------------------------------------------
HS5100 March 1997 Servowriting Drives (establishes reference tracks
HS6100 September 1997 on hard disk drives to provide track/head
HS7000 September 1997 position information essential to operation)
Servowriting Media (establishes reference tracks
on high capacity removable storage devices
(cartridges), both floppy and hard disk, to
provide track/head position information essential
to operation)
DISK DRIVE SIMULATOR
- ---------------------------------------------------------------------------------------------------------------
Proteus July 1991 Electronic Disk Drive Simulator (tests disk drive
electronics)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
PRODUCTION AUTOMATION EQUIPMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PRODUCT INTRODUCTION DATE APPLICATIONS
---------------------------- ---------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
AUTOMATION
- ---------------------------------------------------------------------------------------------------------------
Media Certifier Workcell August 1995 Production Media Handling (provides automated
Optical Inspection Workcell October 1997 handling of disks with certifiers, and sorts
disks into grades according to test results)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 59
Disk (Media) Process and Production-Test Equipment
The Company's disk-related test and certification products are used in-line
to test, certify and sort disks. The Company believes that its disk-related
products were used to test over half of the approximately 449 million disks
produced worldwide in 1997. The Company's customers also use these products to
provide quality control and to develop new products. The Company's two media
certifier product series and its optical inspection product perform one or more
of the following functions: (i) burnishing -- removing bumps and particles from
the surface of a finished disk; (ii) optical scanning -- optically scanning the
surface of a finished disk for defects that could damage the glide head; (iii)
glide certification -- verifying that the surface of a finished disk does not
have protrusions in excess of certain specified limits; and (iv) media
certification -- verifying that data can be written and read from a finished
disk within certain specifications. The Company's disk-related automation
products provide automated handling of disks with certifiers, and sort disks
into grades according to test results. The Company's laser texturizer creates
precise surface bumps on disks for head landing zones, i.e., the area of the
disk where the head rests when the disk drive is not in operation. This process
reduces the potential for stiction (head sticking to the disk). The Company's
media balance tester verifies that disk substrates or finished disks are in
balance within required specifications.
Designed to provide maximum throughput in high-volume, tightly controlled
disk manufacturing environments, the Company's disk-related products are
selected by Phase Metrics' customers to improve product yield, quality, and
production throughput. Based in part on published industry data, the Company
believes it has the largest installed base worldwide of disk production-test
equipment with approximately 4,000 stations.
MG250 and MG250EPS Media Certifiers. The MG250 product series certifies
disks to ensure that their magnetic integrity and physical properties meet the
stringent requirements of disk drive manufacturers. The single spindle,
spiral-type MG250 certifier incorporates the following functions: burnishing,
optical scanning (optional), glide testing, and certifying finished disks. The
MG250 offers an innovative MR-capable spiral certification approach, which
provides high process throughput. This MR-capable product is designed to perform
over a wide range of disk test conditions while operating at test frequencies up
to 50 MHz with low-glide technology to accommodate high areal density media. The
MG250 features a user-friendly interface, a fully programmable analog channel,
and automatic internal calibration algorithm. The MG250EPS incorporates
pre-glide optical scanning of the disk, which reduces operating costs by
increasing the useful life of the glide head used in the test process.
MC950 and MC950EPS Media Certifiers. The recently introduced MC950 product
series also certifies disks to ensure that their magnetic integrity and physical
properties meet the stringent requirements of disk drive manufacturers. The
MC950 incorporates two spindles and provides the functionality provided by the
MG250. However, the MC950 uses the classic step-and-repeat technology for media
certification favored by certain major customers, as opposed to the spiral
certification approach employed by the MG250. The MC950EPS will incorporate
pre-glide optical scanning of the disk, which will reduce operating costs by
increasing the useful life of the glide head used in the test process. The "EPS"
optical scanning option is expected to be available in the second quarter of
1998.
PS5000 Disk Inspection System. The PS5000 is an optical scanning system
that scans for defects on disk substrates and/or finished disks. The PS5000
stand-alone system is used by hard disk drive, substrate and media manufacturers
for failure analysis in both engineering and production environments. An
automated workcell configuration provides in-line inspection to allow substrate
or finished disk manufacturers to control and improve key process steps
producing up to 500 disks per hour and resulting in higher production yields,
output and product quality. The PS5000 has industry leading submicron-level
defect detection capability and features a spiral scanning technique for high
throughput.
LT1000 Laser Texturizer. The LT1000 is used to create precise surface bumps
on disks for head landing zones. The LT1000 also provides texture verification
to ensure that all disks are properly textured before moving to the next process
step.
52
<PAGE> 60
MB1000 Media Balance Tester. The MB1000 verifies that disk substrates or
finished disks are in balance within required specifications. Increasing
rotation speeds used in high-end disk drives combined with more disks per drive
has tended to cause an increased sensitivity to media balance. The MB1000, which
incorporates an advanced air bearing spindle and a design that facilitates fast
disk loading and alignment, provides rapid pass/fail testing for adjustable
balance criteria. Testing may be performed at both substrate as well as finished
disk levels.
Head Production-Test Equipment
The Company's head testing products are used by leading disk drive head
manufacturers in the development, design and testing of their products to
improve manufacturing yields, product performance and reliability. Based on
industry sources, approximately 870 million HGAs (head gimbal assemblies) will
be shipped in 1997, all of which required multiple tests for critical
performance characteristics. The majority of head tests are completed "in-line,"
or during the head manufacturing process, and are completed on 100% of the heads
produced. The Company believes that it is well positioned to benefit from this
high growth market by providing the following head production-test equipment:
(i) flying height testers -- which measure head flying heights under various
dynamic test conditions; (ii) MR quasi-static testers -- which conduct critical
tests at the wafer, bar, slider or HGA level of MR head production, including
resistance, amplitude, asymmetry and stability tests; (iii) spinstands for use
with dynamic electrical head tester electronics -- which verify the actual
working performance capabilities of HGAs while being tested on a real disk and
(iv) HGA resonance testers -- which test HGAs for mechanical resonance
characteristics within required specifications.
The maximum possible hard disk drive storage capacity is a function of the
signal to noise ratio provided by the read/write head and media combination.
Since head output increases exponentially as a function of the spacing between
the disk and head, head to disk spacing, i.e., flying height, is the most
critical head/disk interface parameter related to higher drive capacity. Lower
flying heads provide greater areal density by permitting higher tracks per inch
(tpi) on the disk and greater bit per inch (bpi) on each track. In 1993, the
Company established market leadership in measuring flying height by providing
the first flying height tester to accurately measure below one microinch. The
Company's flying height testers have maintained their market leadership position
and become the industry standard by providing the best gauge repeatability and
accuracy available.
MR Quasi-static Head Testers. The Company's MR quasi-static head testers
include MRW (wafer-level tester), MRB (bar-level tester), MRS (slider-level
tester), and MRH (HGA-level tester). They are designed to provide fast, accurate
and repeatable testing of MR heads at multiple locations in the manufacturing
process from the wafer to HGA levels. With production yields often below 50% in
the MR head manufacturing process, the ability to test MR elements early in the
manufacturing process to identify nonconforming products can result in
significant cost savings. In product development, MR quasi-static head testers
also assist in the design improvement process.
HRT Resonance Tester. The HRT is a tester used by read/write head and
suspension manufacturers and disk drive manufacturers to check and analyze the
mechanical resonance characteristics of HGAs within required specifications. The
HRT is designed for testing resonant frequencies of the head suspension to
facilitate improved access times, and is capable of measuring mechanical
resonance in a wide range of suspension types and heads. The HRT's removable HGA
mounting blocks simplify setup and facilitate high throughput operation.
DFHT III and FH3000 Flying Height Testers. The DFHT III flying height
tester is the recognized disk drive industry standard for flying height testing
with what the Company believes is the largest installed base in the industry.
Flying height requirements continue to be reduced which requires constant
improvements in flying height measurement technology. Featuring the Company's
patented dynamic interferometry technology, the DFHT III provides accurate,
repeatable and correlatable flying height test measurements of both MR and
inductive heads below one microinch in both engineering and production
applications. The FH3000 Flying Height Tester utilizes the same detector
technology, electronics and software as the DFHT III with a high speed loading
capability, thus increasing throughput. The DFHT III product is used by
read/write head
53
<PAGE> 61
manufacturers in HGA production and product development; hard disk drive
manufacturers for research, product development and incoming quality assurance;
media manufacturers to check glide head performance and special head
manufacturers for product development and in-line testing in manufacturing.
FH4000 Flying Height Tester. The FH4000 flying height tester utilizes the
same technology as the DFHT III with the addition of altitude chamber
technology, which addresses the difficult task of measuring flying height at
different atmospheric pressures to simulate altitude changes. Since altitude can
have a significant effect on flying height, this critical product provides the
Company's customers with a method of analyzing altitude effects on flying
height.
Metric 133 Spinstand. The Metric 133 Spinstand will offer the
micropositioning control and mechanics required for advanced MR and GMR
read/write head development and production testing. Micropositioning is required
for critical off-track testing as TPI (tracks per inch) continues to increase in
new disk drive designs. The Metric 133 will use an advanced micropositioner
embedded into the linear-motor X-Y stages to accurately locate the head gap to
the track position with a resolution of 0.04 microinches and a repeatability of
better than one microinch. This product is expected to be available in May 1998.
Disk Drive Process and Production-Test Equipment
The Company's disk drive processing equipment consists of servowriters and
an electronic disk drive simulator. All hard disk drives and high capacity
removable cartridges require servowriting, a process whereby precision
servowriting equipment establishes reference tracks on disk drives to provide
track/head position information essential to operation. Until servo tracks are
written, hard disks drives and high capacity removable cartridges are not
functional. Therefore, the servowriter is a critical in-line process tool for
completing drives and cartridges. Historically, larger disk drive manufacturers
produced their own servowriters due to the critical nature of this equipment and
the lack of adequate outside sources for servowriting systems.
As disk drive capacities continue to increase, the track density on disk
drives also continues to increase. The Company's research and development
efforts are designed to keep pace with this trend. Since servowriters represent
a sizable capital investment for disk drive manufacturers, there is significant
value placed on flexibility (ability to support multiple drive programs), and
upgradeability (ability to change the core positioning technology to keep pace
with increasing TPI requirements). The Company's family of hard disk drive
servowriters provide industry leading capabilities in both of these areas.
Servowriting is also a critical function in the manufacture of high-capacity
floppy disks and high-capacity removable storage cartridges. The Company is the
leading supplier of servowriters to manufacturers in this rapidly growing
segment of the data storage market.
HS5100 Servowriter. The HS5100 servowriter is designed for conventional
hard disk drives. The HS5100 incorporates optical encoder based positioning to
15,000 tracks per inch for higher accuracy and increased reliability. The HS5100
is fully compatible with MR technology, utilizes a small footprint, minimizing
cleanroom capital costs, and has been designed for high throughput and yield.
HS6100 Servowriter. The HS6100 servowriter is designed for high capacity,
removable-disk storage devices and single disk servowriting. The HS6100 combines
the features of the HS5100 with an advanced air bearing spindle with rotating
speeds up to 13,000 r.p.m. for high precision spinning of the disk during the
servowriting operation. The HS6100 also employs customized fixturing for
cartridges and disks to accommodate the various emerging standards in this
rapidly growing segment of the data storage market.
HS7000 Servowriter. The HS7000 servowriter is designed for conventional
hard disk drives and is suited for very high track density servowriting up to
20,000 tracks per inch and servo operating frequencies up to 100 MHz. The HS7000
utilizes advanced laser diode detection and positioning technology with optical
encoders. Incorporating recently introduced, non-contact, dual servo positioning
systems to eliminate contact with the drive arm, this product has been designed
for high throughput and product yield and, with the March 1998 introduction of
the HS7500, the option to utilize the system outside the cleanroom environment.
The HS7000 and HS7500 are fully compatible with MR head technology.
Proteus. The Proteus electronically simulates the mechanical head and disk
assembly (HDA) drive and provides completely programmable simulation of head
signals. This facilitates disk drive electronics testing
54
<PAGE> 62
and development. This engineering development tool is used to test the servo
electronics of a disk drive to facilitate rapid development of servo patterns
thereby decreasing the time to market for new disk drive designs.
Production Automation Equipment
The Company's automation workcells are sold with the disk production-test
equipment. Disk manufacturers demand automated handling of disks to meet
requirements for throughput, quality control, cleanliness, and process feedback.
The Company's workcells provide the disk manufacturers with the ability to
automatically sort product (disks) by different performance criteria for their
different customers. High throughput, flexibility, and statistical process
control features combine to provide low overall costs and high quality control.
Media Certifier Workcell. These automated disk handling systems offer
seamless workcell integration of the Company's MG250 and MC950 disk test
products. With advanced disk handling tools and process management and control
software, the Company's media test workcells have the highest manufacturing
throughput available. Although workcell output is a function of the product
being tested and the test set-up file being used, typical MC950 and MG250
workcells can test and sort between 3,500 and 5,000 disks per day.
Optical Inspection Workcell. The Optical Inspection Workcell incorporates
most of the certifier workcell technology, but involves different mechanical
interfaces (end effectors) and software to facilitate optical testing versus
certification. Throughput levels of up to 500 disks per hour are achievable.
CUSTOMERS, MARKETING AND SALES
The Company sells its products to virtually every major disk drive, disk
and read/write head manufacturer in the world. The following table sets forth
certain of the Company's customers during the past two years:
<TABLE>
<CAPTION>
DISK DRIVE SYSTEMS DISK SYSTEMS READ/WRITE HEAD SYSTEMS AUTOMATION
- ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C>
Avatar Systems HMT Technology Applied Magnetics HMT Technology
Corporation Corporation Corporation Corporation
Fuji Photo Film HOYA Corporation Fujitsu Limited HOYA Corporation
Company, Ltd. Komag, Incorporated International Business Seagate Technology,
Iomega Corporation MaxMedia Division, Machines Corporation Inc.
JTS Corporation Hyundai Electronics Mitsumi Electric Co., StorMedia,
Samsung Electronics America Ltd. Incorporated
Company, Ltd. Seagate Technology, Quantum Corporation Trace Storage
Inc. Read-Rite Corporation Technology
StorMedia, SAE Magnetics (H.K.) Corporation
Incorporated Ltd. Western Digital
Trace Storage Corporation
Technology
Corporation
Western Digital
Corporation
</TABLE>
There are a relatively small number of data storage manufacturers
throughout the world and the Company derives a significant portion of its net
sales from a relatively small number of customers. The Company expects that its
dependence on relatively few key customers will continue in the future.
Approximately 52.2%, 45.0% and 51.0% of the Company's net sales in 1995, 1996
and 1997, respectively, were derived from sales to the Company's three largest
customers in each of those periods. Even though the Company's customer mix will
likely change from period to period in the future, Seagate, Komag, HMT, Iomega
and Trace have historically accounted for a significant portion of the Company's
net sales. For 1995, 1996 and 1997, Seagate accounted for 25.0%, 19.0% and
18.0%, respectively, of net sales; Komag accounted for 10.7%, 14.5% and 15.9%,
respectively, of net sales; HMT accounted for 4.4%, 5.2% and 17.1%,
respectively, of net sales; Iomega accounted for 16.5%, 7.9% and 1.9%,
respectively, of net sales and Trace accounted for 6.8%, 11.5% and 4.4%,
respectively, of net sales during these periods. If net sales to these or any
other significant customer of the Company were to decrease in any material
amount in the future, the Company's business, results of operations and
financial condition would be materially adversely effected.
A substantial majority of the Company's sales are repeat sales to
long-standing customers in the data storage industry. Usually, multiple units
are purchased with automation as a customer either completes a
55
<PAGE> 63
major fabrication facility or upgrades an existing installed base of the
Company's products. In most instances, the decision to purchase the Company's
products is based on the customers' comparisons of multiple performance
measures, including specifications, throughput, product yield, compatibility to
the existing installed base and overall cost of the Company's product in the
process. The purchases often involve large purchase orders, against which the
customers authorize shipment releases. The substantial majority of the Company's
machines sell for between $100,000 and $200,000 per unit, with an average per
unit price of approximately $130,000. Products are often purchased in multiple
units with automation, known as work cells.
The Company has no long-term contracts with its customers. The Company's
customers often submit master purchase orders against which they "release"
specific product orders from time to time, often with little lead time. Any
cancellation, reduction, rescheduling or significant delay of orders from
significant customers could have a material adverse effect on the Company's
business, results of operations and financial condition. Each of the Company's
customers has some unique product specification requirements which requires the
Company to provide semi-customized products. As a result, per unit sales prices
for the Company's products will generally vary by customer and sales order. If
development or service costs with respect to the customization work are
underestimated, there could be an adverse impact on the Company's gross profits.
In addition, the Company's products often require post-installation, on-site
customization and integration in order to tailor products to customer
specifications. Revenue and corresponding expenses for such post-installation
services is recognized in the period such services are provided. Inaccurate
estimation of such on-site service costs could have a material adverse impact on
the Company's business, results of operations and financial condition.
The Company sells its products primarily through its direct sales force.
The sales process for the Company's systems focuses on responding to each
customer's specific needs. As a result, the selling process for the Company's
products is often a multi-level, long-term process involving individuals from
marketing, engineering, operations, customer service and senior management. The
Company's other sales and marketing activities include participating in trade
shows, publishing articles in trade journals, presenting at technical meetings
and conferences, participating in industry trade groups and consortiums and
distributing promotional literature.
In 1995, 1996 and 1997, the Company's export sales to unaffiliated
customers constituted approximately 23.0%, 57.0% and 49.0%, respectively, of net
sales for such periods. The export sales were primarily to domestic data storage
companies with major production facilities located in Singapore, Malaysia and
other parts of Asia. Even though the Company exports a majority of its products,
the purchasing decision for such sales is usually made by purchasing personnel
located in the United States. The Company's direct sales staff focuses on these
types of sales as well as all of the Company's sales in the United States. In
Japan, the Company sells its products both through its wholly-owned subsidiary
and Nissho Iwai, a leading distributor in Japan. In Southeast Asia and South
Korea, the Company sells its products directly through its wholly-owned
subsidiaries. The Company's own direct sales force and a third party distributer
cover markets in Hong Kong and China. The Company expects that export sales will
continue to represent a significant portion of its net sales in the foreseeable
future. See "Risk Factors -- International Operations."
CUSTOMER SERVICE AND SUPPORT
As of February 28, 1998, the Company had a world-wide customer service and
support staff of 99 persons, consisting of applications engineers, service
engineers and technicians. The Company believes that providing highly
responsive, uninterrupted, world-wide customer service and support is essential
to providing value-added solutions for its customers. The Company's commitment
to world-wide customer support and service is evidenced by its sales and
customer support offices in South Korea, Japan, Singapore, Malaysia, Thailand
and Taiwan. To supplement its direct service and support efforts, the Company's
distributors and sales representatives in Hong Kong and Japan offer a range of
other customer service and support using personnel trained by Phase Metrics.
The Company has structured its direct service and support operations into
distinct service units based on its product lines. Each of these units offers
product installation, on-going process support, emergency system repair,
internal training programs, external customer training, documentation and
formation of customer user
56
<PAGE> 64
groups. In general, the Company provides a 90-day to one-year warranty on all
equipment it sells, depending on the sales contract and geographic location of
the sale.
BACKLOG
The Company's sales have historically been made pursuant to purchase orders
rather than long-term contracts. These purchase orders are generally subject to
cancellation, modification, quantity reductions or rescheduling on short notice
and with little or no penalty. Certain of the Company's customers have recently
begun to submit master purchase orders to the Company against which they
"release" specific product orders from time to time, often with little lead time
between the order date and the expected shipment date. The Company's backlog of
purchase orders requesting delivery in the following quarter was approximately
$12.1 million as of December 31, 1997, compared to $19.0 million as of December
31, 1996. The Company does not believe its backlog as of any particular date is
indicative of sales or operating results for any future period.
COMPETITION
The disk drive process and production-test equipment industry is highly
competitive. The Company believes that the most important competitive factors in
its industry are technological innovation; equipment reliability, throughput and
uptime; customer service and support and cost of ownership. The Company believes
it competes favorably with respect to each of these factors. In each of the
Company's product lines, the Company faces substantial competition from
established merchant suppliers of process and production-test equipment, some of
which have greater financial, engineering, manufacturing, research and
development and marketing resources than the Company. For example, the Company
faces competition from General Disk for servowriters; Hitachi DECO and Sony
Techtronics for disk certifiers; Swan Instruments for MR head testers; Zygo
Corporation for flying height testers; Technastar for automation technology and
Guzik Technical for spin-stands. Historically, there has also been competition
from entrepreneurs with focused market knowledge and new technology. The Company
also experiences competition world-wide from Hitachi DECO, a large, full-line
manufacturer of process and production-test equipment. Hitachi DECO, a
subsidiary of Hitachi, Limited, has substantially greater financial, technical,
marketing, manufacturing, research and development and other resources than the
Company. The Company also experiences competition from other full-line and
partial-line manufacturers of process and production-test equipment. There can
be no assurance that the Company's competitors will not develop enhancements to,
or future generations of, competitive products that will offer price or
performance features superior to the Company's products or that new competitors
will not enter the Company's markets.
Many of the Company's competitors are investing heavily in the development
of new and enhanced products aimed at applications currently addressed by the
Company's products. The Company expects its competitors to continue to improve
the design and performance of their products and to introduce new products with
competitive price/performance characteristics. Competitive pressures often
necessitate price reductions which can adversely affect operating results. The
Company will be required to make a continued high level of investment in product
development and research, sales and marketing and ongoing customer service and
support to remain competitive. There can be no assurance that the Company will
have sufficient resources to continue to make such investments or that the
Company will be able to achieve the technological advances necessary to maintain
its competitive position.
The Company believes that its future success will be dependent, in part,
upon its ability to compete successfully in the Japanese, South Korean and
Southeast Asian markets. The Company's largest competitor, Hitachi DECO, is
headquartered in Japan which gives it a competitive advantage over the Company
in that market to the extent buying decisions are influenced by its local
presence. In addition, the Company's ability to compete in Japan, South Korea
and Southeast Asia in the future is dependent upon continuing free trade between
these countries and the United States, the continuing ability of the Company to
develop in a timely manner products that meet the technical requirements of its
foreign customers and the continuing ability of the Company to develop and
maintain satisfactory relationships with leading companies in the data storage
57
<PAGE> 65
industry in these areas. Moreover, the Company's sales in these areas will be
affected by the overall economies of Japan, South Korea and Southeast Asia.
In addition to the competition the Company faces from other merchant
manufacturers of process and production-test equipment, most of the Company's
customers develop at least a portion of their own process and production-test
equipment needs internally, especially servowriters and read/write head test
equipment. Accordingly, the Company must compete against the internal
development efforts of this captive market. Manufacturers within this captive
market are often reluctant to change their production lines to incorporate
merchant supplied process and production-test technology. Moreover, it is
possible that with the rapid changes in data storage technology, the development
of new process and production-test equipment will be so closely linked to the
Company's customers' product development cycles that certain customers and
potential customers will find it more efficient to fulfill their own process and
production-testing equipment needs internally, thereby placing the Company at a
competitive disadvantage.
RESEARCH AND DEVELOPMENT
The market for process and production-test equipment is characterized by
rapid technological changes and product innovation. The Company continually
endeavors to understand how changing data storage technology will impact its
customers' requirements for process and production-test equipment in the future.
The Company encourages its customers to work closely with its product
development and research personnel during the development cycle of new and
enhanced data storage products. In 1996, the Company formed an advanced research
department which is responsible for working with the Company's customers,
academic institutions and independent third parties to (i) identify emerging
data storage technology trends early in the development process, (ii) identify
and develop new core technologies for the Company's systems and (iii) contribute
to the development of process and production-test standards for the data storage
industry. The Company believes that continued and timely development of new
products and enhancements to its existing products are necessary to maintain its
competitive position. As of February 28, 1998, the Company employed a total of
approximately 200 degreed engineers focused on product development and research.
Research and development expenses were approximately $11.4 million, $31.1
million and $43.6 million for 1995, 1996 and 1997, respectively. The Company
anticipates that it will continue to devote a significant amount of financial
resources to product development and research for the foreseeable future.
MANUFACTURING
The Company conducts its manufacturing activities at its facilities in San
Diego, Fremont, Concord and Hayward, California. The Company's principal
manufacturing activities consist of quality assurance and assembling of
components designed and developed by the Company as well as other components and
subassemblies which are acquired from third party suppliers and then integrated
into the Company's finished products. Most of these components, including
substantially all of the electronic circuit boards and optical componentry
incorporated into the Company's systems, are made to the Company's exacting
specifications.
The Company's manufacturing strategy is to produce high precision,
technologically advanced, reliable products and replacement parts. To achieve
these goals, the Company must continually adjust to changes in technology. As a
result, the Company focuses on the engineering/manufacturing interface in its
product development efforts. The Company also continuously seeks to improve its
materials procurement and control processes to increase throughput and reduce
inventory levels. The Company enhanced its fully integrated computer system for
all materials procurement and control functions. The Company also continues to
consolidate its supplier base and increase its utilization of third-party
outsourcing arrangements for certain subassembly and performance test functions.
Such outsourcing arrangements provide for just-in-time delivery when possible.
In order to meet customer delivery requirements, the Company is working to
reduce the time required to manufacture its products. However, due to periodic
increases in the Company's backlog, technological advances that must be
incorporated into the Company's products, customization issues and other
reasons, the average time between order and shipment of the Company's products
may increase in the future. The
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<PAGE> 66
Company's ability to quickly increase its manufacturing capacity could be
limited given (i) the complexity of the manufacturing process, especially if the
Company is partially customizing its products to its customers' specifications;
(ii) the lengthy lead times necessary to obtain critical components and (iii)
the need for highly skilled personnel.
In certain instances the Company relies on a single source or a limited
group of suppliers for certain components and subassemblies used in its
products. Although the Company seeks to reduce its dependence on sole and
limited source suppliers, the partial or complete loss of these sources could
have a material adverse effect on the Company's results of operations and damage
customer relationships due to the complexity of the products they supply and the
significant amount of time required to qualify new suppliers. In addition, long
lead times are often required to obtain critical components and subassemblies
used in certain of the Company's products from these and other suppliers which
could impede the Company's ability to quickly respond to changes in demand and
product specifications.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company believes that due to the rapid pace of innovation within the
data storage industry in general, the Company's protection of patent and other
intellectual property rights is less important than factors such as its
technological expertise, product innovation, the Company's installed base, the
marketing ability of its sales force and the ability to provide world-wide
support and service to its customers. The Company does attempt, however, to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures.
The Company currently holds 27 United States patents and has applied for 72
additional patents in the United States. The Company also holds a number of
foreign patents and has filed a number of foreign patent applications. No
assurance can be given that the claims allowed on any patents held by the
Company will be sufficiently broad to protect the Company's technology.
Moreover, there can be no assurance that any patent owned by the Company will
not be invalidated, deemed unenforceable, circumvented or challenged, that the
rights granted thereunder will provide competitive advantages to the Company or
that any of the Company's pending or future patent applications will be issued
with claims of the scope sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop similar products, duplicate the
Company's products or design around the patents owned by the Company. In
addition, there can be no assurance that foreign intellectual property laws or
the Company's agreements will protect the Company's intellectual property rights
in any foreign country. Any failure to protect the Company's intellectual
property rights could have a material adverse effect upon the Company's
business, financial condition and results of operations.
Although the Company does not believe any of its products or proprietary
rights infringe the rights of third parties, there can be no assurance that
infringement claims will not be asserted against the Company in the future. Any
such claims, with or without merit, could divert the attention of management,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. If infringement were established, the Company could be
required to pay damages or be enjoined from making, using or selling the
infringing product. Likewise, there can be no assurance that a third party's
product, if infringing on the Company's proprietary rights, may be prevented
from doing so without litigation. Any of the foregoing could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
The Company requires each of its employees to enter into a proprietary
rights and non-disclosure agreement in which the employee agrees to maintain the
confidentiality of all proprietary information of the Company and, subject to
certain exceptions, to assign to the Company all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment. In addition, the Company regularly enters into non-disclosure
agreements with third parties, such as consultants, potential joint venture
partners and customers. In spite of these precautions, it may be possible for
third parties to copy, develop or otherwise obtain and use the Company's
proprietary technology without authorization or to develop similar technology
independently.
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<PAGE> 67
EMPLOYEES
As of February 28, 1998, the Company had 668 full-time employees, including
207 in product development and research, 236 in manufacturing, 37 in sales and
marketing, 99 in service and support, and 89 in finance and administration
activities. Many of the Company's employees have specialized skills of
significant value to the Company, and the Company's future success will depend
in large part upon its ability to attract and retain highly skilled technical,
managerial, financial and marketing personnel, who are in great demand. The
Company believes that attracting and motivating skilled technical personnel is
vital to its success and there can be no assurance that the Company will be
successful in retaining or recruiting these and other key personnel. No employee
is represented by a union or covered by a collective bargaining agreement, and
the Company has not had a work stoppage or strike. The Company considers its
employee relations to be good.
PROPERTIES
The Company owns three buildings with a total of approximately 123,000
square feet on approximately nine acres of land in San Diego, California; leases
three buildings with a total of 175,000 square feet under leases expiring in
November and December 2000 and August 2003 in Fremont, California; leases two
buildings with a total of 38,000 square feet under leases expiring in September
1998 and May 1999 in Concord, California; and leases a 12,000 square foot
building under a month-to-month lease in Hayward, California. The Company
conducts manufacturing and research and development at all of these sites and
also has service and support capabilities at each of these locations, except
Hayward. The Company's domestic sales and marketing functions are headquartered
in its Fremont facility. For its Pacific Rim operations, the Company also leases
1,900 square feet in Tokyo, Japan; 2,700 square feet in AnSen City, South Korea;
3,300 square feet in Singapore; 800 square feet in Thailand and 1,000 square
feet in Taiwan. These facilities are primarily used as technical, applications,
and sales and service support centers for the Company's Pacific Rim customers.
The Company believes that its facilities are adequate for its current level of
business and does not anticipate any material difficulty in renewing any of its
leases as they expire or securing replacement facilities, in each case on
commercially reasonable terms.
LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
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<PAGE> 68
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below is certain information regarding the directors and
executive officers of the Company as of February 28, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John F. Schaefer........................... 55 Chairman of the Board, President and Chief
Executive Officer
David L. Bultman........................... 50 Vice President, Product Development, Disk
Drive and Media Products
Neil A. Brumberger......................... 50 Vice President and President, Phase Metrics
Automation
Wayne G. Erickson.......................... 40 Vice President, Sales and Marketing
Dennis J. Geurts........................... 48 Vice President, Fremont Operations
Dr. Michael R. Madden...................... 55 Vice President, San Diego Operations
Ronald Y. Miyahara......................... 48 Vice President and General Manager, Japan
and Korea Operations
Michael G. Rogowski........................ 43 Vice President, Customer Engineering
R. Joseph Saunders......................... 60 Vice President, Finance, Chief Financial
Officer and Assistant Secretary
Dr. Heiner Sussner......................... 49 Vice President, Research and Development
and Chief Technical Officer
Arthur J. Cormier(1)....................... 41 Director
Thompson Dean(1)(2)........................ 39 Director
Robert Finzi(1)(2)......................... 44 Director
Dr. Gilbert F. Amelio(1)................... 54 Director
William E. Terry(2)........................ 64 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John F. Schaefer has been Chairman of the Board and Chief Executive Officer
since November 1994 and President since February 1997. From 1992 to 1994, Mr.
Schaefer was President, Chief Operating Officer and Director of McGaw
Incorporated, a provider of intravenous products and devices. From 1989 to 1991,
Mr. Schaefer was President, Chief Executive Officer and Director of Levolor
Corporation ("Levolor"), a manufacturer of window blinds and similar products.
Prior to joining Levolor in 1989, Mr. Schaefer was employed by Baker Hughes,
Inc., where he was President of the Process Equipment Group, Executive Vice
President of the Corporation, and a Director.
David L. Bultman has been Vice President, Product Development, Disk Drive
and Media Products since July 1996. From December 1994 to July 1996, Mr. Bultman
was employed by Storage Dimensions, Inc., serving as Senior Vice President,
Engineering. From November 1993 to October 1994, Mr. Bultman was Vice President,
Engineering at DKI. Prior to joining DKI, Mr. Bultman was Vice President,
Engineering at Ministor Peripherals.
Neil A. Brumberger has been a Vice President of the Company and President
of the Company's Automation Division since the Company's acquisition of ART in
July 1995. Mr. Brumberger founded ART, a manufacturer of integrated automation
systems for process and production-test equipment, in 1984 and, prior to that
time, he was a Project Manager and Director of Engineering for the Bay Area
Rapid Transit District for nine years.
Wayne G. Erickson has been Vice President Sales and Marketing since
November 1992. From January 1985 to November 1992, Mr. Erickson was employed by
Quantum/Plus Development Corporation
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("Quantum"), a leading supplier of read/write head systems, serving as OEM
Marketing Manager, Product Line Manager and National Sales Manager, Retail
Channels. Prior to joining Quantum, Mr. Erickson was Engineer and Program
Manager at Shugart Corporation.
Dennis J. Geurts has been Director of Fremont Operations since October 1995
and was promoted in March 1996 to Vice President of Fremont Operations. Prior to
October 1995, Mr. Geurts held various senior management positions in the
operations, manufacturing and materials divisions of Applied Materials Inc., an
equipment supplier to the semiconductor industry, over a thirteen-year period.
Before joining Applied Materials, Mr. Geurts was Senior Manager at General
Electric -- Nuclear Division.
Dr. Michael R. Madden has been Director of Operations, San Diego since
February 1995 and was promoted to Vice President, Technology Transfer in June
1995. Prior to February 1995, Dr. Madden managed the High Reliability Products
Division of UDT Sensors, Inc. He also served as Vice President, Research
Development, for Advanced Photonix, Inc. From 1977 to 1987, Dr. Madden was the
Chief Executive Officer of Centronics Electro-Optics, Inc. and Silicon Detector
Corporation.
Ronald Y. Miyahara has been Vice President, Japan and Korea Operations for
the Company since November 1995, having previously served as Vice President,
Operations from November 1994 through October 1995. Mr. Miyahara previously
served as President of ProQuip, Inc., a supplier of advanced process and
production-test equipment for disk manufacturers, which the Company acquired in
November 1994. Prior to the acquisition, Mr. Miyahara served in various
positions at ProQuip, Inc., including President and General Manager from 1991 to
1994, Vice President of Operations from 1989 to 1991, and Chief Financial
Officer from 1984 to 1991.
Michael G. Rogowski has been Director of Customer Engineering since
November 1994 and was promoted in March 1996 to Vice President of Customer
Engineering. Prior to joining the Company, Mr. Rogowski was Vice President of
Manufacturing/Test Engineering for Cambrian Systems, Inc., a supplier of
advanced process and production-test equipment for disk and read/write head
manufacturers, which the Company acquired in November 1994. From 1992 to 1994,
Mr. Rogowski was the Director of Test Engineering at Akashic Memories. Between
1979 and 1992, Mr. Rogowski held various positions in engineering and management
in the Mechanical Integration, Test Equipment Development, and Manufacturing
Test Engineering organizations within IBM Corporation.
R. Joseph Saunders has been Vice President, Chief Financial Officer and
Assistant Secretary of the Company since November 1994. Mr. Saunders joined the
Company from Southwest Water Company, owner of two regulated public water
suppliers, where he served as Vice President-Finance, Chief Financial Officer
and Secretary between 1992 and November 1994. From 1975 to 1992, Mr. Saunders
served in a series of senior financial management positions with Baker Hughes,
Inc., including Group Vice President of Finance.
Dr. Heiner Sussner has been Vice President, Research and Development and
Chief Technical Officer since October 1996. From 1992 until October 1996, Dr.
Sussner served IBM Corporation as an executive consultant for technology
investments in Europe, as director of IBM's Almaden research facility for data
storage technology and as a manager/senior research scientist. Prior to 1992,
Dr. Sussner served in various capacities for IBM over a period of 16 years. Dr.
Sussner was awarded the IEEE Medal for Engineering Excellence for Leadership in
1994.
Arthur J. Cormier has been a consultant to the Company since February 1997.
Mr. Cormier founded the Company and has served as a Director since the Company's
inception in 1989. He has served as President and Chief Operating Officer of the
Company since its inception until February 1997. He held the position of Chief
Executive Officer until the Company's recapitalization in November 1994. From
1987 to 1989, Mr. Cormier was Applications Engineer for National Micronetics
Incorporated. Prior to joining National Micronetics, Mr. Cormier was employed by
Eastman Kodak Company from 1985 to 1987, where he was an Engineering Program
Manager.
Thompson Dean has been a Director of the Company since November 1994. Since
January 1997, Mr. Dean has been Managing Partner of DLJ Merchant Banking, Inc.,
an affiliate of DLJ. Prior to that Mr. Dean had been a Managing Director of DLJ
Merchant Banking, Inc. since May 1992. Prior to that time,
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<PAGE> 70
Mr. Dean served as a Managing Director of DLJ, and was employed by that firm in
various capacities from September 1988 until September 1992.
Robert Finzi has been a Director of the Company since November 1994. Since
May 1991, Mr. Finzi has been a Vice President of Sprout Group, a division of DLJ
Capital Corporation, which is the managing general partner of Sprout Growth II,
L.P. and an affiliate of DLJ. Mr. Finzi is also a general partner of a series of
investment funds managed by Sprout Group and a limited partner of the general
partner of ML Ventures II, L.P. From 1984 to 1991, Mr. Finzi was a Vice
President of Merrill Lynch Venture Capital. Mr. Finzi also serves on the Board
of Directors of The Cerplex Group, Inc., Gentle Dental Services Co. and four
privately-held companies.
Dr. Gilbert F. Amelio has been a Director of the Company since June 1995.
From 1994 until July 1997, Dr. Amelio served as a Director of Apple Computer,
Inc. ("Apple") and from February 1996 until July 1997 he served as Chairman of
the Board and Chief Executive Officer of Apple. Prior to joining Apple, Dr.
Amelio was Chairman of the Board, President and Chief Executive Officer of
National Semiconductor Corporation for five years. Dr. Amelio is an IEEE Fellow,
holder of 16 patents and is the co-author of two books, "Profit from Experience:
The National Semiconductor Story of Transformation Management" and "On the
Firing Line: My 500 Days at Apple." Dr. Amelio is currently Partner and Director
of The Parkside Group, LLC and serves on the Board of Directors of SBC
Communications.
William E. Terry has been a Director since August 1997. From 1986 until his
retirement in November 1993, Mr. Terry served as Executive Vice President and a
Director of Hewlett-Packard. Prior to that, Mr. Terry served in a number of
other senior executive positions with Hewlett-Packard. Mr. Terry currently
serves on the Board of Directors of Key Tronic Corporation and Altera
Corporation.
The Board of Directors has a Compensation Committee (the "Compensation
Committee") which is responsible for making determinations regarding salaries,
bonuses and other compensation matters for the Company's executive officers. The
members of the Compensation Committee are Mr. Dean, Mr. Finzi and Mr. Terry.
None of these individuals were at any time during 1996 an officer or employee of
the Company.
The Board of Directors also has an Audit Committee (the "Audit Committee")
which supervises and makes recommendations and decisions with respect to the
periodic audits of the Company's financial results. The members of the Audit
Committee are Mr. Cormier, Mr. Dean, Mr. Finzi and Dr. Amelio.
DIRECTOR COMPENSATION
Except as described below, the directors do not receive cash compensation
for services on the Board of Directors or any Committee thereof.
Dr. Amelio and Mr. Terry are each paid a retainer by the Company of $1,000
per month for their services on the Board of Directors. Dr. Amelio and Mr. Terry
also each receive $1,000 for each meeting of the Board of Directors or committee
thereof that they attend. In addition, the Company granted Dr. Amelio an option
to purchase 100,000 shares of Common Stock under the 1995 Option Plan at an
exercise price of $1.00 per share when he joined the Board in June 1995 and Mr.
Terry was granted an option to purchase 50,000 shares of Common Stock under the
1995 Option Plan at an exercise price of $8.75 per share when he joined the
Board in August, 1997. These options are immediately exercisable for all the
option shares, but any shares purchased under the option will be subject to
repurchase by the Company at the option exercise price paid per share if Dr.
Amelio or Mr. Terry cease serving on the Board prior to vesting in their
respective shares. As of February 28, 1998, Dr. Amelio had vested in 53,333
option shares and Mr. Terry had vested in no option shares. Dr. Amelio will vest
in his remaining option shares over his period of Board service in a series of
successive equal monthly installments upon completion of each additional month
of Board service. Mr. Terry will vest in 10,000 option shares in August 1998,
and will vest in the remaining option shares over his period of Board service in
a series of successive equal monthly installments upon completion of each
additional month of Board service.
All non-employee Board members are reimbursed for their out-of-pocket
expenses in serving on the Board of Directors.
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EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and its four other
most highly compensated executive officers (the "Named Executive Officers")
whose total salary and bonus for 1997 exceeded $100,000, for services rendered
to the Company in all capacities during that year. No executive who would
otherwise have been includable in such table on the basis of salary and bonus
earned for 1997 has resigned or otherwise terminated employment during 1997.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND -------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION(S) SALARY BONUS OPTIONS COMPENSATION(1)
<S> <C> <C> <C> <C>
John F. Schaefer................................. $325,000 $105,000 -- $ 6,658
Chairman and Chief Executive Officer
Dr. Heiner Sussner............................... 230,000 19,688 -- 6,019
Vice President, R&D and Chief Technical Officer
David L. Bultman................................. 230,000 40,000 -- 155,825(2)
Vice President, Product Development
Disk Drive and Media Products
Neil A. Brumberger............................... 200,000 75,000 -- 7,387
Vice President and President, Phase Metrics
Automation
R. Joseph Saunders............................... 200,000 21,558 -- 7,038
Vice President, Finance, Chief Financial
Officer and Assistant Secretary
</TABLE>
- ---------------
(1) Includes the Company's matching contribution under its 401(k) Plan and the
value of personal use of company automobiles.
(2) Includes forgiven loans and signing bonuses totalling $150,000.
STOCK OPTIONS AND STOCK APPRECIATE RIGHTS
The following table contains information concerning the stock options
granted to the Named Executive Officers during 1997. All the grants were made
under the Company's 1995 Plan (as defined herein). No stock appreciation rights
were granted to the Named Executive Officers during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
---------------------------------------------------------------------
MARKET POTENTIAL REALIZATION
NUMBER PRICE OF VALUE AT ASSUMED
OF PERCENT OF SECURITIES ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE UNDERLYING PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTIONS OPTION TERM(2)
OPTIONS EMPLOYEES IN PER ON DATE EXPIRATION ----------------------
NAME GRANTED 1997 SHARE OF GRANT DATE 5% 10%
---- ---------- --------------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John F. Schaefer...... -- -- -- -- -- -- --
Dr. Heiner Sussner.... 60,000 5.5% $8.75 $8.75 8/01/07 $330,170 $836,715
David L. Bultman...... 25,000 2.3 8.75 8.75 8/01/07 137,571 348,631
Neil A. Brumberger.... -- -- -- -- -- -- --
R. Joseph Saunders.... -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Option grants are immediately exercisable for all the option shares, but any
shares purchased under such option will be subject to repurchase by the
Company at the option exercise price paid per share.
(2) There can be no assurance provided to any executive officer or other holder
of the Company's securities that the actual stock price appreciation over
the ten-year option term will be at the assumed 5% and 10%
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<PAGE> 72
levels or at any other defined level. Unless the market price of the Common
Stock appreciates over the option term, no value will be realized from those
option grants which were made to the Named Executive Officers with an
exercise price equal to the fair market value of the option shares on the
grant date.
AGGREGATE OPTION EXERCISES IN 1997 AND YEAR-END VALUES
The following table provides information, with respect to each of the Named
Executive Officers, concerning the exercise of options during 1997 and
unexercised options held by them at the end of that fiscal year. None of the
Named Executive Officers exercised any options during 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE
NUMBER OF UNEXERCISED OPTIONS MONEY OPTIONS AT
AT DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
------------------------------- -------------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
---- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
John F. Schaefer...................... -- -- -- --
Dr. Heiner Sussner.................... 150,000(2) -- $112,500(2) --
David L. Bultman...................... 125,000(3) -- 125,000(3) --
Neil A. Brumberger.................... -- -- -- --
R. Joseph Saunders.................... -- -- -- --
</TABLE>
- ---------------
(1) Based upon the fair market value of $8.75 per share determined by the Board
of Directors at December 31, 1997, less the option exercise price payable
per share.
(2) Although the options are fully exercisable, only 21,000 options had vested
as of December 31, 1997. The option shares issuable upon exercise of such
options are, prior to vesting, subject to a right of repurchase in favor of
the Company.
(3) Although the options are fully exercisable, only 28,333 options had vested
as of December 31, 1997. The option shares issuable upon exercise of such
options are, prior to vesting, subject to a right of repurchase in favor of
the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPENSATION PLANS AND ARRANGEMENTS
Employment Contracts and Change in Control Arrangements
In November 1994, the Company entered into an employment contract with Mr.
Schaefer providing for his employment as Chief Executive Officer and Chairman of
the Board of the Company. The employment contract is terminable at will by
either Mr. Schaefer or the Company upon 30-days' notice. The employment contract
provides for an annual minimum base salary of $325,000. In addition, beginning
in 1996, Mr. Schaefer became eligible to receive a bonus under the Company's
bonus plan for officers. If the employment contract is terminated by the Company
other than for cause or by Mr. Schaefer due to breach of the agreement or
certain other actions by the Company, the Company must pay Mr. Schaefer, in
addition to all accrued and unpaid salary and benefits, his salary and certain
benefits for a period of 12 months from the date of such termination. If the
Company terminates Mr. Schaefer's employment upon his permanent disability,
subject to reduction for any insurance benefits received, Mr. Schaefer is
entitled to receive his salary and benefits for 12 months from the date of such
termination.
In July 1995, in connection with the acquisition of ART, the Company
entered into an employment contract with Mr. Brumberger providing for his
employment as Vice President of the Company and President, Phase Metrics
Automation. The employment contract is for a minimum term of three years and is
terminable at will by Mr. Brumberger upon 30-days notice. The employment
contract provides for an annual base salary of $200,000 and a minimum annual
bonus of $75,000.
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In connection with any change of control of the Company, subject to certain
limitations, outstanding options held by Dr. Sussner and Messrs. Bultman and
Saunders (as well as certain other senior executive officers) will either
immediately vest in full, or will subsequently vest in full upon the involuntary
termination of the individual's employment within 12 months thereafter.
Bonus Plan for Officers and Certain Key Employees
The Company has an established bonus plan for officers and certain key
employees, including the Named Executive Officers. Payment of bonuses under this
plan is dependent on the Company achieving its financial goals established
annually by the Compensation Committee, as well as the employee achieving
certain priorities as established by Company management. Bonus targets range
from a low of 10% of base salary for certain employees to a high of 50% of base
salary for the Chief Executive Officer. Employees can earn up to 150% of their
bonus targets, depending upon the performance of both the employee and the
Company.
1995 Stock Incentive Plan
The Company's 1995 Stock Option Plan (the "1995 Plan") became effective
when adopted by the Board of Directors (the "Board") and approved by the
Company's shareholders in April 1995. A total of 6,300,000 shares of Common
Stock have been authorized for issuance over the term of the 1995 Plan, subject
to adjustment in the event of any stock dividends, stock splits or other similar
changes affecting the Company's outstanding Common Stock.
Employees (including officers), non-employee Board members and consultants
and other advisors in the service of the Company or any parent or subsidiary
company may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock at an exercise price not less than 85% of the
fair market value per share on the grant date.
The 1995 Plan is currently administered by the Board. However, the Board
may at any time delegate such administration to the Compensation Committee. The
Plan Administrator (whether the Board or such committee) has complete discretion
to determine which eligible persons are to receive option grants, the time or
times when such grants are to be made, the number of shares subject to each such
grant, the status of an option as either an incentive stock option or a
non-statutory stock option under the federal tax laws, the vesting or exercise
schedule in effect for the option and the maximum term for which any option will
remain outstanding. No option granted under the 1995 Plan may have a term in
excess of 10 years and will be subject to earlier termination following the
optionee's cessation of service with the Company.
Option grants under the 1995 Plan may either become exercisable for the
option shares in a series of installments over the optionee's period of service
with the Company or may be immediately exercisable for all the option shares,
but any shares purchased under such an immediately exercisable option will be
subject to repurchase by the Company, at the option exercise price paid per
share, should the optionee leave the Company's service prior to vesting in those
shares. The Company will also have a right of first refusal with respect to any
proposed sales or transfers of the shares of Common Stock issued under the 1995
Plan. Accordingly, the Company will have the opportunity to match any
third-party offer to acquire those shares. However, all first refusal rights
under the 1995 Plan will terminate in the event the Company's Common Stock is
publicly held.
The option exercise price will normally be payable in cash at the time of
exercise. However, the Plan Administrator may allow the optionee to deliver a
promissory note in payment of the exercise price and any withholding taxes
incurred in connection with the exercise. Any such note will bear interest at
the minimum rate required under the federal tax laws and will be secured by the
purchased shares. Following an initial public offering of the Common Stock, the
exercise price may be paid in shares of Common Stock valued at fair market value
or through a cashless exercise procedure pursuant to which the purchased option
shares are sold immediately and a portion of the sale proceeds equal to the
option exercise price for those shares are remitted to the Company.
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Should the Company be acquired by merger or asset sale, all outstanding
options will immediately vest in full, except to the extent those options are
assumed by the successor entity. In the event the price payable per share of
Common Stock in the acquisition (determined on a fully-diluted basis) is at
least $7.00, the shares subject to the outstanding options under the 1995 Plan
will, whether or not those options are to be assumed by the successor entity,
vest for some option holders immediately upon such acquisition and will vest for
the remaining option holders upon the subsequent termination of their service
with the Company or the successor entity within 18 months following such
acquisition.
As of February 28, 1998, options for 2,150,134 shares of Common Stock were
outstanding under the 1995 Plan, options for 1,453,480 shares had been
exercised, and 2,696,386 shares of Common Stock were available for future option
grant. To the extent any outstanding options terminate or expire unexercised,
the shares of Common Stock subject to those options will be available for
subsequent option grants.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the 1995 Plan in return for the grant of new options
for the same or different number of option shares with an exercise price per
share based upon the fair market value of the Common Stock on the new grant
date.
The Board may amend or modify the 1995 Plan at any time. The 1995 Plan will
terminate on April 1, 2005, unless sooner terminated by the Board.
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CERTAIN TRANSACTIONS
Since January 1, 1997, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or is
to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than five percent of the
outstanding capital stock of the Company had or will have a direct or indirect
material interest other than compensation and other arrangements, which are
described where required under "Management" and the transactions described
below.
RECAPITALIZATION
In November 1994, the Company completed a recapitalization (the
"Recapitalization") and in connection therewith entered into a Securities
Purchase Agreement (the "Securities Purchase Agreement") with DLJ Merchant
Banking Partners, L.P., a Delaware limited partnership ("DLJMBP"), DLJ
International Partners, C.V., a Netherlands Antilles limited partnership
("DLJIP"), DLJ Offshore Partners, C.V., a Netherlands Antilles limited
partnership ("DLJOP"), DLJ Merchant Banking Funding, Inc., a Delaware
corporation ("DLJMBF"), DLJ Capital Corporation, a Delaware corporation
("DLJCC"), Sprout Growth II, L.P., a Delaware limited partnership and venture
capital affiliate of DLJ ("Sprout II") and Sprout Capital VI, L.P., a Delaware
limited partnership and venture capital affiliate of DLJ ("Sprout VI")
(collectively, "DLJ and the Sprout Entities"), Mr. Arthur J. Cormier and Mr.
John T. Schaefer. In connection with the Recapitalization, the Company also (i)
entered into a Securityholders Agreement with DLJ and the Sprout Entities, Mr.
Cormier and Mr. Schaefer (the "Securityholders Agreement"), (ii) exchanged its
existing capital stock for shares of its Series A and B Preferred Stock, (iii)
issued and sold shares of its Common Stock and (iv) issued and sold $8.0 million
aggregate principal amount of its Convertible Subordinated Notes. As part of the
Recapitalization, Mr. Cormier sold his Series B Preferred Stock and certain
shares of his Series A Preferred Stock to DLJ and the Sprout Entities and Mr.
Schaefer. See "Description of Capital Stock."
In 1995, DLJMBF transferred $671,975 in aggregate principal amount of its
Convertible Subordinated Notes and 161,920 shares of its Series B Preferred
Stock to DLJ First ESC, L.L.C., a Delaware limited liability corporation ("DLJ
First"). As part of that transaction, DLJ First became a party to the Securities
Purchase Agreement and the Securityholders Agreement and is one of the "DLJ and
the Sprout Entities" as defined herein.
The outstanding shares of Series A Preferred Stock and Series B Preferred
Stock are convertible into an aggregate of 12,107,280 shares of Common Stock.
The Convertible Subordinated Notes issued to DLJ and the Sprout Entities are
convertible into an aggregate of 5,142,720 shares of Common Stock of the Company
and are subordinated in right of payment and with respect to certain other
rights to all senior debt of the Company, including indebtedness evidenced by
the New Notes and outstanding indebtedness under the New Credit Facility. See
"Description of Capital Stock."
BRIDGE FINANCING
In November 1994, the Company entered into a Bridge Securities Purchase
Agreement (the "Bridge Financing Agreement") with PM Funding, Inc., a Delaware
corporation ("PM Funding"), an affiliate of DLJ and the Sprout Entities. Under
the Bridge Financing Agreement, the Company borrowed $20.0 million from PM
Funding and issued warrants to PM Funding, DLJCC, Sprout II and Sprout VI, which
are exercisable for an aggregate of 800,000 shares of Common Stock at an
exercise price of $1.55 per share, subject to adjustment (the "Bridge Note
Warrants"). The Bridge Note Warrants expire on November 23, 2004. The loan with
PM Funding was repaid by the Company in March 1995.
SECURITYHOLDERS AGREEMENT
The Securityholders Agreement, as amended, provides that each of Messrs.
Schaefer and Cormier, DLJMBP and Sprout II, shall be entitled to designate one
director to the Company's Board, and Messrs. Schaefer and Cormier, with the
consent of DLJ and the Sprout Entities, shall have the right to designate the
fifth and sixth directors to the Company's Board. The Securityholders Agreement
also contains
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certain restrictions on the ability of the parties thereto to sell their shares
of stock; registration rights; preemptive rights in connection with the issuance
by the Company of additional equity securities other than upon certain defined
events, including an initial public offering by the Company; certain rights of
first refusal and other matters customary for such agreements. The rights of the
parties to the Securityholders Agreement with respect to certain restrictions on
transfer and the preemptive rights under such Agreement terminate in connection
with certain public offerings of Common Stock by the Company. Under the
Securityholders Agreement, the Company is obligated until November 23, 1998, to
use DLJ as its exclusive financial advisor and investment banker. In
consideration for DLJ's services, the Company has agreed to pay DLJ an annual
retainer of $200,000. In each of 1996 and 1997, the Company paid DLJ $200,000 in
fees for financial advisory and certain investment banking services provided to
the Company.
DLJ acted as the initial purchaser in the Note Offering and received an
underwriting discount of $3.575 million in connection therewith.
FORMER CREDIT FACILITY
In connection with the refinancing of its then-outstanding indebtedness in
January and December of 1996, the Company paid fees of $1.2 million for debt
issuance costs to DLJ Capital Funding, Inc. ("DLJCF"), the syndicate agent.
DLJCF is an affiliate of DLJ.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock as of February 28, 1998, by
(i) each person (or group of affiliated persons) known by the Company to
beneficially own more than five percent of any class of its capital stock, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated, the address for each stockholder is c/o Phase Metrics,
Inc., 10260 Sorrento Valley Road, San Diego, California 92121.
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON STOCK(2) PREFERRED(3) PREFERRED(4) TOTAL(5)
------------------- ------------------- ------------------- --------------------
BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DLJ and the Sprout Entities
(6)............................ 5,942,720 51.5% 2,000,000 24.2% 3,857,280 100.0% 11,800,000 49.9%
Arthur J. Cormier (7)............ -- -- 4,500,000 54.5 -- -- 4,500,000 25.4
John F. Schaefer (8)............. 2,750,000 49.0 1,750,000 21.2 -- -- 4,500,000 25.4
Neil A. Brumberger(9)............ 450,000 7.6 -- -- -- -- 450,000 2.5
Wayne G. Erickson (10)........... 300,000 5.3 -- -- -- -- 300,000 1.7
R. Joseph Saunders (11).......... 150,000 2.7 -- -- -- -- 150,000 *
Dr. Heiner Sussner (12).......... 150,000 2.6 -- -- -- -- 150,000 *
David L. Bultman (13)............ 125,000 2.2 -- -- -- -- 125,000 *
Dr. Gilbert F. Amelio (14)....... 100,000 1.7 -- -- -- -- 100,000 *
William E. Terry (15)............ 50,000 * -- -- -- -- 50,000 *
Thompson Dean (6)................ -- -- -- -- -- -- -- --
Robert Finzi (6)................. -- -- -- -- -- -- -- --
All directors and executive
officers as a group (15
persons) (16).................. 4,384,567 72.0 6,250,000 75.8 -- -- 10,634,567 58.4
</TABLE>
- ---------------
* Less than one percent.
(1) Except as indicated by footnote, the Company understands that the persons
named in the table above have sole voting and investment power with respect
to all shares shown as beneficially owned by them, subject to community
property laws where applicable.
(2) Reflects the beneficial ownership of the Company's Common Stock, assuming
the conversion of the Convertible Subordinated Notes and the Bridge Note
Warrants. Shares of Common Stock subject to options, warrants or notes
which are currently exercisable or exercisable within 60 days of February
28, 1998, are deemed outstanding for computing the percentages of the
person holding such options, warrants or notes, but are not deemed
outstanding for computing the percentages of any other person. Percentage
ownership is based on 5,607,480 shares of Common Stock outstanding as of
February 28, 1998.
(3) The number of shares reflects the number of shares of Common Stock in the
aggregate issuable upon the conversion of the Series A Preferred Stock held
by each person. Each share of Series A Preferred Stock is convertible into
20 shares of Common Stock. See "Description of Capital Stock -- Series A
Preferred Stock."
(4) The number of shares reflects the number of shares of Common Stock in the
aggregate issuable upon the conversion of the Series B Preferred Stock held
by each person. Each share of Series B Preferred Stock is convertible into
20 shares of Common Stock. See "Description of Capital Stock -- Series B
Preferred Stock."
(5) Reflects the beneficial ownership of the Company's capital stock, assuming
the conversion of the Series A Preferred Stock, Series B Preferred Stock,
Convertible Subordinated Notes and the Bridge Note Warrants. Shares of
Common Stock subject to options, warrants or notes which are currently
exercisable or exercisable within 60 days of February 28, 1998, are deemed
outstanding for computing the percentage of the person holding such
options, warrants or notes, but are not deemed outstanding for computing
the percentage of any other person.
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(6) Consists of shares held directly by DLJMBP, DLJIP, DLJOP, DLJMBF, DLJCC,
DLJ First, PM Funding, Sprout II and Sprout VI. See "Certain Transactions."
The address of each of DLJMBP, DLJMBF, DLJCC, DLJ First and PM Funding is
277 Park Avenue, New York, New York 10172. The address of DLJIP and DLJOP
is John B. Gorsiraweg 14, Willemstad, Curacao, Netherlands Antilles. The
address of Sprout II and Sprout VI (the "Sprout Group") is 3000 Sand Hill
Road, Building 3, Suite 170, Menlo Park, California 94025. Mr. Dean, as a
Managing Director of DLJMBP, and Mr. Finzi, as a General Partner of the
Sprout Group, may be deemed to share voting and investment power over such
shares. Messrs. Dean and Finzi disclaim beneficial interest in such shares,
except to the extent of their respective interests in DLJ and the Sprout
Entities. Includes 800,000 shares of Common Stock issuable upon the
exercise of the Bridge Note Warrants at an exercise price of $1.55 per
share held by DLJCC and PM Funding. Includes an aggregate of 5,142,720
shares of Common Stock issuable upon the exercise of the Convertible
Subordinated Notes.
(7) Includes 130,000 shares held by Mr. Cormier's children and other relatives
for which Mr. Cormier maintains voting control.
(8) Includes 98,700 shares of Common Stock which are held by Mr. Schaefer's
children and other relatives for which Mr. Schaefer maintains voting
control and 657,500 shares held by Mr. Schaefer's wife as her separate
property.
(9) Includes 43,333 shares that are subject to a right of repurchase in favor
of the Company that lapse in a series of monthly installments ending in
July 2000.
(10) Includes 8,000 shares held in trust for Mr. Erickson's children for which
Mr. Erickson maintains voting control. Includes 95,000 shares that are
subject to a right of repurchase in favor of the Company that lapse in a
series of monthly installments ending in November 1999.
(11) Includes 47,500 shares that are subject to a right of repurchase in favor
of the Company that lapse in a series of monthly installments ending in
November 1999.
(12) Includes immediately exercisable options to purchase 150,000 shares.
Because of limitations under the federal tax laws for Incentive Stock
Options, only options to purchase 113,543 shares are currently exercisable
or exercisable within 60 days of February 28, 1998. The option shares
issuable upon exercise of such option are, prior to vesting, subject to a
right of repurchase in favor of the Company that lapse in a series of
monthly installments ending in October 2001.
(13) Includes immediately exercisable options to purchase 125,000 shares.
Because of limitations under the federal tax laws for Incentive Stock
Options, only options to purchase 92,449 shares are currently exercisable
or exercisable within 60 days of February 28, 1998. The option shares
issuable upon exercise of such option are, prior to vesting, subject to a
right of repurchase in favor of the Company that lapse in a series of
monthly installments ending in July 2001.
(14) Includes immediately exercisable options to purchase 100,000 shares. The
option shares issuable upon exercise of such option are, prior to vesting,
subject to a right of repurchase in favor of the Company that lapse in a
series of monthly installments ending in June 2000.
(15) Includes immediately exercisable options to purchase 50,000 shares. The
option shares issuable upon exercise of such option are, prior to vesting,
subject to a right of repurchase in favor of the Company that will lapse in
a series of annual and monthly installments ending in August 2002.
(16) See Notes 7, 8, 9, 10, 11, 12, 13, 14 and 15. Includes options exercisable
for 485,559 shares of Common Stock under the 1995 Option Plan, and 730,000
shares of Common Stock of which 248,500 shares are subject to a right of
repurchase in favor of the Company that lapses in a series of monthly
installments ending in August 2002. Excludes shares held by DLJ and the
Sprout Entities. See Note 6 above.
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DESCRIPTION OF INDEBTEDNESS
The following sets forth information concerning indebtedness of the
Company.
NEW CREDIT FACILITY
In connection with the Refinancing, the Company entered into the New Credit
Facility with the Lenders by amending and restating its Former Credit Facility.
The following is a summary of the material terms and conditions of the New
Credit Facility and is subject to the detailed provisions of the amended and
restated credit agreement with the Lenders and the various documents related
thereto.
The New Credit Facility provides the Company with up to $25.0 million of
revolving credit, subject to certain conditions, which limit could be increased
to $40.0 million at the sole discretion of the Lenders. The New Credit Facility
is secured by substantially all of the Company's current and future assets
(other than the real estate owned by the Company in San Diego, California on
which its headquarters is located) and guaranteed on a secured basis by the
Subsidiary Guarantors. The guarantees of the Subsidiary Guarantors in favor of
the Lenders are secured by substantially all of the existing and future assets
of the Subsidiary Guarantors. The Company's obligations under the New Credit
Facility are also secured by a pledge of all or a portion of the outstanding
capital stock of the Company's direct and indirect material subsidiaries,
subject to certain exceptions. With certain exceptions, the Company and the
Subsidiary Guarantors are prohibited from pledging any of their assets other
than under the New Credit Facility. Indebtedness under the New Credit Facility
and the related guarantees of the Subsidiary Guarantors in favor of the Lenders,
to the extent of the assets securing such obligations, effectively rank senior
to indebtedness outstanding under the New Notes and the New Note Guarantees.
Borrowings under the New Credit Facility are available for working capital
and general corporate purposes, including the issuance of letters of credit,
subject to a borrowing base test and the achievement of certain financial ratios
and compliance with certain conditions and covenants. As of February 28, 1998,
the Company had approximately $17.0 million of borrowing availability under the
New Credit Facility.
All indebtedness outstanding under the New Credit Facility will mature in
January 2001. The initial interest rate for borrowings under the New Credit
Facility will be, at the option of the Company, LIBOR plus 3.0% or the Base Rate
plus 1.0%. The Company may elect interest periods of one, three or six months
for LIBOR borrowings. Calculation of interest will be on the basis of actual
days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in
the case of Base Rate loans). The Company is obligated to pay a quarterly
commitment fee on the aggregate unused amount of the New Credit Facility at an
annual rate of 0.75% (which amount may be decreased to 0.50% beginning in 1999
under certain circumstances). The "Base Rate" is the higher of (i) the prime
commercial lending rate of Fleet National Bank and (ii) the Federal Funds
Effective Rate plus 0.5%. "LIBOR" is defined as the rate displayed for deposits
in dollars for a period equal to the relevant interest period on page 3750 of
the Telerate Screen (or such other page as may replace such page on such service
for the purpose of displaying the London interbank offered rate of major Banks
for deposits in dollars) two business days prior to the first day of the
relevant interest period. LIBOR will at all times include statutory reserves to
the extent actually incurred.
Indebtedness under the New Credit Facility may be prepaid in whole or in
part without premium or penalty (subject in some cases to interest rate breakage
costs) and the Lenders' commitments relative thereto reduced or terminated upon
such notice and in such amounts as may be agreed upon.
The New Credit Facility contains customary and appropriate representations
and warranties, including, without limitation, those relating to due
organization and authorization, no conflicts with agreements, financial
condition, no material adverse changes, litigation, compliance with laws and
environmental liabilities.
The New Credit Facility also contains, in addition to the borrowing base
test, customary and appropriate conditions to all borrowings under the New
Credit Facility including satisfaction of requirements relating to prior written
notice of borrowing, the accuracy of representations and warranties and the
absence of any default or event of default.
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The New Credit Facility also contains customary affirmative and negative
covenants, including, without limitation, limitations on other indebtedness,
liens, investments and guarantees, restricted payments, mergers and
acquisitions, sales of assets, capital expenditures, leases and affiliate
transactions. The New Credit Facility also contains financial covenants relating
to minimum interest coverage, minimum net worth, minimum cash flow and
profitability and maximum leverage.
Events of default under the New Credit Facility include those relating to
non-payment of interest, principal or fees payable under the New Credit
Facility; non-performance of certain covenants; cross default to other material
debt of the Company and its subsidiaries (including indebtedness under the New
Notes); bankruptcy or insolvency; judgments in excess of specified amounts;
default under certain related loan documents; materially inaccurate or false
representations or warranties and change of control.
CONVERTIBLE SUBORDINATED NOTES
In connection with the Recapitalization, the Company issued and sold $8.0
million principal amount of its Convertible Subordinated Notes (the "Convertible
Subordinated Notes") to DLJ and the Sprout Entities, pursuant to the Securities
Purchase Agreement.
The Convertible Subordinated Notes mature in July 2005. Interest accrued at
an annual rate of 25.0% for the three-year period between November 23, 1994 (the
"Original Issue Date") and November 23, 1997, and thereafter accrues at an
annual rate equal to the greater of 12.5% and the prime rate plus 2.0%. Interest
is payable at maturity. In the event the Company enters into any transaction
constituting a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, the Company is obligated to redeem the Convertible
Subordinated Notes in cash at a price equal to the aggregate principal amount
thereof plus accrued interest (the "Accreted Amount"). The Convertible
Subordinated Notes (including all accrued interest thereon) are convertible into
an aggregate of 5,142,720 shares of the Company's Common Stock at the option of
the holders thereof, and, upon the Company's initial public offering, are
automatically convertible into that number of shares of Common Stock.
The Convertible Subordinated Notes also contain customary anti-dilution
rights and protective voting provisions that, among other things and subject to
certain qualifications, limit the Company's ability to (i) amend, alter or
repeal its Certificate of Incorporation or the charter documents of its
subsidiaries in any manner adverse to the preferences, privileges, voting rights
and powers of the holders of the Convertible Subordinated Notes; (ii)
voluntarily liquidate, dissolve or wind up the Company or any of its
subsidiaries; (iii) voluntarily convey, exchange or transfer all or
substantially all of the Company's assets; (iv) other than indebtedness
outstanding under the New Notes and the New Credit Facility, incur, assume,
refinance, renew, discharge, repay (other than pursuant to regularly scheduled
payments thereof) or cancel any indebtedness of the Company or any of its
subsidiaries, (v) pay dividends or make distributions on capital stock of the
Company and its subsidiaries and (vi) except as required under the terms of the
Indenture related to the New Notes, redeem or repurchase any shares of capital
stock of the Company, without the written consent of the holders of at least 75%
in aggregate Accreted Amount of the Convertible Subordinated Notes.
Events of default under the Convertible Subordinated Notes include, among
other things, (i) a default continuing in payment of all or any part of the
principal or interest payable thereunder when due; (ii) a default under other
Material Debt (as defined in the Convertible Subordinated Notes) of the Company
or any of its subsidiaries or under any mortgage, indenture or other instrument
under which there may be issued or by which there may be secured or evidenced
any Material Debt of the Company or any of its subsidiaries which results in the
acceleration of such indebtedness prior to its stated maturity and (iii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
subsidiaries. Upon the occurrence of an event of default, the holders of a
majority of the aggregate Accreted Amount of the Convertible Subordinated Notes
may declare all outstanding amounts under the Convertible Subordinated Notes to
be immediately due and payable.
The Convertible Subordinated Notes are expressly subordinated to all senior
debt of the Company, including the indebtedness outstanding under the New Notes,
as well as any indebtedness outstanding under the New Credit Facility. The
Convertible Subordinated Notes may be amended with the written consent of the
holders of a majority in aggregate Accreted Amount of the Convertible
Subordinated Notes then outstanding.
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DESCRIPTION OF NEW NOTES
GENERAL
The Notes were, and the New Notes will be, issued pursuant to the Indenture
dated as of January 30, 1998, among the Company, the direct or indirect domestic
Restricted Subsidiaries of the Company (together, the "Subsidiary Guarantors")
and State Street Bank and Trust Company of California, N.A., as trustee (the
"Trustee"). The terms of the New Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The New Notes are subject to all
such terms, and Holders of New Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The terms of the New Notes are identical
in all material respects to the Notes, except that the New Notes have been
registered under the Securities Act and, therefore, will not bear restrictive
legends with respect to such registration and will not contain certain
provisions providing for an increase in the interest rate thereon under certain
circumstances described in the Registration Rights Agreement, the provisions of
which will terminate upon the consummation of the Exchange Offer. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
proposed form of Indenture are available as set forth below under "-- Additional
Information." The definitions of certain terms used in the following summary are
set forth below under "-- Certain Definitions." For purposes of this summary,
the term "Company" refers only to Phase Metrics, Inc. and not to any of its
Subsidiaries.
The New Notes will be general unsecured obligations of the Company and will
rank pari passu in right of payment with all current and future unsecured senior
Indebtedness of the Company. The Company's obligations under the New Notes will
be fully and unconditionally guaranteed on an unsecured senior basis by, and
will be joint and several obligations of, the Subsidiary Guarantors. See
"-- Note Guarantees." As of December 31, 1997, on an as adjusted basis giving
effect to the Note Offering and the application of the net proceeds thereof, the
New Notes and the New Note Guarantees would have been effectively subordinated
to approximately $3.2 million of secured obligations of the Company and the
Subsidiary Guarantors. The Indenture will permit the incurrence of additional
secured Indebtedness in the future. A copy of the Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
The operations of the Company are conducted in part through its
Subsidiaries, and the Company may, therefore, be dependent upon the cash flow of
its Subsidiaries to meet its debt obligations, including its obligations under
the New Notes. All of the existing domestic Restricted Subsidiaries of the
Company are, and all future domestic Restricted Subsidiaries are expected to be,
Subsidiary Guarantors. As of the date of the Indenture, all of the Company's
Subsidiaries will be Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be limited in aggregate principal amount to $110.0
million and will mature on February 1, 2005. Interest on the New Notes will
accrue at the rate of 10 3/4% per annum and will be payable semiannually in
arrears on February 1 and August 1 of each year, commencing on August 1, 1998,
to Holders of record on the immediately preceding January 15 and July 15.
Interest on the New Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium and Liquidated Damages, if
any, and interest on the New Notes will be payable at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders of the New Notes at their
respective addresses set forth in the register of Holders of New Notes; provided
that all payments of principal, premium and Liquidated Damages, if any, and
interest with respect to New Notes the Holders of which have given wire transfer
instructions to the Company will be required to be
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made by wire transfer of immediately available funds to the accounts specified
by the Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The New Notes will be issued in denominations of $1,000 and
integral multiples thereof.
NEW NOTE GUARANTEES
The Company's payment obligations under the New Notes will be fully and
unconditionally guaranteed by the Subsidiary Guarantors on a joint and several
basis. The New Note Guarantees will be general unsecured obligations of the
Subsidiary Guarantors, will rank senior in right of payment to all subordinated
Indebtedness of the Subsidiary Guarantors and pari passu in right of payment to
all existing and future senior Indebtedness of the Subsidiary Guarantors, if
any. The obligations of any Subsidiary Guarantor under its New Note Guarantee
will be limited so as not to constitute a fraudulent conveyance under applicable
law.
The Indenture will provide that no Subsidiary Guarantor may consolidate
with or merge with or into (whether or not such Subsidiary Guarantor is the
surviving Person), another corporation, Person or entity whether or not
affiliated with such Subsidiary Guarantor unless, subject to the provisions of
the following paragraph, (i) the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) assumes all
the obligations of such Subsidiary Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee, under
the New Notes and the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Subsidiary
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction) equal to or greater than the Consolidated Net Worth of such
Subsidiary Guarantor immediately preceding the transaction and (iv) the Company
would be permitted by virtue of its pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such transaction, to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described below under
the caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock." The requirements of clauses (i), (iii) and (iv) of this
paragraph will not apply in the case of a consolidation with or merger with or
into the Company or another Subsidiary Guarantor.
The Indenture will provide that (i) in the event of a sale or other
disposition of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Subsidiary Guarantor, or (ii) in the event that the Company
designates a Subsidiary Guarantor to be an Unrestricted Subsidiary, or such
Subsidiary Guarantor ceases to be a Subsidiary of the Company, then such
Subsidiary Guarantor (in the event of a sale or other disposition, by way of
such a merger, consolidation or otherwise, of all of the capital stock of such
Subsidiary Guarantor or any such designation) or the entity acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligations
under its New Note Guarantee; provided, that the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions of
the Indenture. See "--Repurchase at the Option of Holders." In the case of a
sale, assignment, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of a Subsidiary Guarantor, upon the assumption
provided for in clause (ii) of the covenant described under the caption
"-- Certain Covenants -- Merger, Consolidation, or Sale of Assets," such
Subsidiary Guarantor shall be discharged from all further liability and
obligation under the Indenture.
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OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Company's option prior to
February 1, 2002. Thereafter, the New Notes will be subject to redemption at any
time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on February 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 105.375%
2003........................................................ 102.688%
2004 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to February 1, 2001, the
Company may redeem up to 33% of the original aggregate principal amount of New
Notes at a redemption price of 110.75% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
redemption date, with the net cash proceeds of a Public Equity Offering;
provided, that at least 67% of the original aggregate principal amount of New
Notes remains outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption shall occur within 90 days of the
date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, that no New Notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any New
Note is to be redeemed in part only, the notice of redemption that relates to
such New Note shall state the portion of the principal amount thereof to be
redeemed. A new note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original New Note. New Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
New Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase
(the "Change of Control Payment"). Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase New Notes on the date specified in such notice, which date shall
be no earlier than 30 days and no later than 60 days from the date such notice
is mailed (the "Change of Control Payment Date"), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange
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<PAGE> 84
\Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the New
Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the New Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of New Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
New Notes so tendered the Change of Control Payment for such New Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new note equal in principal amount to any unpurchased
portion of the New Notes surrendered, if any; provided, that each such new note
will be in a principal amount of $1,000 or an integral multiple thereof.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that the Company
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of that phrase under applicable
law. Accordingly, the ability of a Holder of New Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of (a) cash or Cash Equivalents or (b) property or assets that are
used or useful in a Permitted Business, or Capital Stock of any Person primarily
engaged in a Permitted Business if, as a result of the acquisition by the
Company or any Restricted Subsidiary thereof, such Person becomes a Restricted
Subsidiary; provided, that the amount of (x) any liabilities of the Company or
any Restricted Subsidiary (other than contingent liabilities and liabilities of
the Company that are by their terms subordinated to the New Notes or any
guarantee thereof) that are assumed by the transferee of any such assets
pursuant to the customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary into
cash or Cash Equivalents (to the extent of the cash or Cash Equivalents
received) within 180 days following the closing of such Asset Sale, will be
deemed to be cash for purposes of this provision; provided, further, that the
75% limitation referred to above shall not apply to any sale, transfer or other
disposition of assets in which the cash portion of the consideration received
therefor, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax net proceeds would have been had such
transaction complied with the aforementioned 75% limitation.
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<PAGE> 85
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently repay
Indebtedness outstanding under the New Credit Facility (and to correspondingly
reduce commitments with respect to the revolving borrowings thereunder) or other
Pari Passu Indebtedness; provided, that if the Company shall so repay other Pari
Passu Indebtedness, it will equally and ratably reduce Indebtedness under the
New Notes if the New Notes are then redeemable or, if the New Notes may not be
then redeemed, the Company shall make an offer to all Holders to purchase at
100% of the principal amount thereof the amount of New Notes that would
otherwise be redeemed or (b) to an investment in property, capital expenditures
or assets that are used or useful in a Permitted Business, or Capital Stock of
any Person primarily engaged in a Permitted Business if, as a result of the
acquisition by the Company or any Restricted Subsidiary thereof, such Person
becomes a Restricted Subsidiary. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the preceding sentence of this paragraph will
be deemed to constitute "Excess Proceeds." Pending the final application of any
such Net Proceeds, the Company may temporarily reduce the revolving Indebtedness
under the New Credit Facility or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $15.0 million, the Company will be required to
make an offer to all Holders of New Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of New Notes that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of New Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of New Notes surrendered
by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the New Notes to be purchased on a pro rata basis. Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that from and after the date of the Indenture
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company; (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any Pari
Passu Indebtedness or any Indebtedness which is subordinated to the New Notes,
except scheduled payments of interest or principal at Stated Maturity of such
Indebtedness or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
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(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clause (ii) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company (other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) if any Unrestricted Subsidiary (A) the assets of
which are used or useful in, or which is engaged in, one or more Permitted
Businesses is redesignated as a Restricted Subsidiary, the fair market
value of such redesignated Subsidiary (as determined in good faith by the
Board of Directors) as of the date of its redesignation or (B) pays any
cash dividends or cash distributions to the Company or any of its
Restricted Subsidiaries, 50% of any such cash dividends or cash
distributions made after the date of the Indenture.
The provisions of the immediately preceding paragraph will not prohibit (i)
the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied with
the provisions of the Indenture; (ii) the redemption, repurchase, retirement,
defeasance or other acquisition of any Indebtedness subordinated to the New
Notes or Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale or issuance (other than to a
Restricted Subsidiary of the Company) of, other Equity Interests of the Company
(other than any Disqualified Stock); (iii) the defeasance, redemption,
repurchase or other acquisition of Pari Passu Indebtedness or Indebtedness
subordinated to the New Notes with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a
Restricted Subsidiary of the Company to the holders of its Equity Interests on a
pro rata basis; (v) optional and mandatory prepayments on any revolving credit
Indebtedness incurred under the New Credit Facility or (vi) any other Restricted
Payment which, together with all other Restricted Payments made pursuant to this
clause (vi) after the date of the Indenture, does not exceed $5.0 million in the
aggregate (in each case, after giving effect to all subsequent reductions in the
amount of any Restricted Investment made pursuant to this clause (vi) either as
a result of (A) the repayment of disposition thereof for cash or (B) the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary (valued
proportionate to the Company's equity interest in such Subsidiary at the time of
such redesignation), but, in the case of clauses (A) and (B), not to exceed the
amount of such Restricted Investment previously made pursuant to this clause
(vi); provided that in the case of each of clauses (i) through (vi) no Default
or Event of Default shall have occurred and be continuing after making such
Restricted Payment.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or Event
of Default; provided, that in no event shall the business currently operated by
any Subsidiary Guarantor be transferred to or held by an Unrestricted
Subsidiary. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation (as determined in good faith by the Board of Directors). Such
designation will only be permitted if
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such Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined in good faith by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Trustee; such determination will be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $1.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "-- Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 to 1 if the date on which the Indebtedness
is incurred is prior to February 1, 2000, and at least 2.5 to 1 if the date on
which the Indebtedness is incurred is on or after February 1, 2000, determined
on a pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i)the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness pursuant to the New Credit Facility; provided, that the
aggregate principal amount of all such Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company thereunder) outstanding under the New Credit
Facility after giving effect to such incurrence does not exceed the sum of
$40.0 million;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the New Notes and the New Note Guarantees,
respectively;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case (other than
in the case of a mortgage financing secured by the real estate (and
personal property associated with such real estate) owned by the Company in
San Diego, California on which the Company's headquarters is located on the
date of the Indenture) incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Restricted Subsidiary (whether through the direct purchase of assets or the
Capital Stock of any Person owning such Assets), in an aggregate principal
amount not to exceed $10.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets
or a new Restricted Subsidiary; provided, that such Indebtedness was
incurred by the prior owner of such assets or such Restricted Subsidiary
prior to such acquisition by
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the Company or one of its Subsidiaries and was not incurred in connection
with, or in contemplation of, such acquisition by the Company or one of its
Subsidiaries; provided, further, that the principal amount (or accreted
value, as applicable) of such Indebtedness, together with any other
outstanding Indebtedness incurred pursuant to this clause (v), does not
exceed $5.0 million;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted by the Indenture to be incurred;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between the Company and any of
its Wholly Owned Restricted Subsidiaries or between one Wholly Owned
Restricted Subsidiary and another Wholly Owned Restricted Subsidiary;
provided, however, that (a) if the Company is the obligor on such
Indebtedness and the payee is not a Subsidiary Guarantor, such Indebtedness
is expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes; (b) if a Wholly Owned Restricted
Subsidiary that is not a Subsidiary Guarantor is the obligor on such
Indebtedness, such Indebtedness, to the extent owing to the Company or any
Subsidiary Guarantor, does not exceed $5.0 million in aggregate principal
amount at any time outstanding and (c) (x) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary and (y) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (vii);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging (a) currency risk or interest rate risk with respect to
any floating rate Indebtedness that is permitted by the terms of this
Indenture to be outstanding or (b) exchange rate risk with respect to
agreements or Indebtedness of such Person payable denominated in a currency
other than U.S. dollars; provided, that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder;
(ix) the Guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of
the Company that was permitted to be incurred by another provision of this
covenant;
(x) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(xi) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation to letters of credit in respect to workers' compensation claims
or self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(xii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, asset or Subsidiary, other
than guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing
such acquisition; provided, that (a) such Indebtedness is not reflected on
the balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in a footnote to financial statements and not
otherwise reflected on the balance sheet will not be deemed to be
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reflected on such balance sheet for purposes of this clause (a)) and (b)
the maximum assumable liability in respect of all such Indebtedness shall
at no time exceed the gross proceeds including non-cash proceeds (the fair
market value of such non-cash proceeds being measured at the time received
and without giving effect to any subsequent changes in value) actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition;
(xiii) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(xiv) the incurrence by Foreign Subsidiaries which are not Guarantors
of Indebtedness in connection with the financing of accounts or notes
receivable outside of the United States in an aggregate principal amount at
any time outstanding, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (xiv) not to exceed $10.0 million; provided, that
neither the Company nor any Guarantor shall have guaranteed or provided
credit support of any kind (including any undertaking, agreement or
instrument which would constitute Indebtedness) with respect to such
Indebtedness; and
(xv) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness, incurred after the date of the
Indenture, in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (xv), not to exceed $15.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xv) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien (other than Permitted Liens) upon
any of their property or assets, now owned or hereafter acquired.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i) (a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the New Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; provided, that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive in the aggregate with
respect to such dividend and other payment restrictions than those contained in
the New Credit Facility as in effect on the date of the Indenture, (c) the
Indenture and the Notes, (d) any applicable law, rule, regulation or order, (e)
any instrument governing Indebtedness or Capital Stock of a Person acquired by
the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such
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acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; provided, that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) Permitted Refinancing Indebtedness; provided, that the
material restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, and (i) contracts for
the sale of assets, including without limitation customary restrictions with
respect to a Subsidiary pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; (iv) except in the
case of a merger of the Company with or into a Wholly Owned Restricted
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock," and (v) each
Subsidiary Guarantor, unless it is the other party to the transactions described
above, shall have by supplemental indenture confirmed that its New Note
Guarantee shall apply to such Person's obligations under the Indenture and the
New Notes.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction")
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing; provided, that the following shall not be deemed Affiliate
Transactions: (1) any employ-
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ment agreement entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (2) transactions between or among the
Company and/or its Restricted Subsidiaries, (3) Permitted Investments and
Restricted Payments that are permitted by the provisions of the Indenture
described above under the caption "--Restricted Payments," (4) customary loans,
advances, fees and compensation paid to, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any of its
Restricted Subsidiaries, (5) transactions in accordance with the Securityholders
Agreement, as amended; provided, that no such amendment contains any provisions
that are materially adverse to the Holders of the New Notes, and (6)
transactions between the Company or its Restricted Subsidiaries on the one hand,
and DLJ or its Affiliates, on the other hand, involving the provision of
financial, advisory, placement or underwriting services by DLJ; provided, that
fees payable to DLJ do not exceed the usual and customary fees of DLJ for
similar services.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Restricted
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of such
Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption "--Asset Sales," and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary of the Company.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness of the Company unless either such
Restricted Subsidiary (x) is a Subsidiary Guarantor or (y) simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
the Guarantee of the payment of the New Notes by such Restricted Subsidiary,
which Guarantee shall be senior to or pari passu with such Restricted
Subsidiary's Guarantee of or pledge to secure such other Indebtedness.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of
the New Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person not an Affiliate of the Company, of all of the Company's stock in, or
all or substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of the
Indenture. The form of such Guarantee is attached as an exhibit to the
Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
Additional Note Guarantees
The Indenture provides that (i) if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, transfer or cause to be
transferred, including by way of any Investment, in one or a series of
transactions (whether or not related), any assets, businesses, divisions, real
property or equipment having an aggregate fair market value (as determined in
good faith by the Board of Directors) in excess of $1.0 million to any
Restricted Subsidiary that is neither a Subsidiary Guarantor nor a Foreign
Subsidiary, (ii) if the Company or any of its Restricted Subsidiaries shall
acquire another Restricted Subsidiary other than a Foreign Subsidiary having
total assets with a fair market value (as determined in good faith by the Board
of
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Directors) in excess of $1.0 million or (iii) if any Restricted Subsidiary other
than a Foreign Subsidiary shall incur Acquired Debt in excess of $1.0 million,
then the Company shall, at the time of such transfer, acquisition or incurrence,
(i) cause such transferee, acquired Restricted Subsidiary or Restricted
Subsidiary incurring Acquired Debt (if not then a Subsidiary Guarantor) to
execute a New Note Guarantee of the Obligations of the Company under the New
Notes in the form set forth in the Indenture and (ii) deliver to the Trustee an
Opinion of Counsel, in form reasonably satisfactory to the Trustee, that such
New Note Guarantee is a valid, binding and enforceable obligation of such
transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring
Acquired Debt, subject to customary exceptions for bankruptcy, fraudulent
conveyance and equitable principles. Notwithstanding the foregoing, the Company
or any of its Restricted Subsidiaries may make a Restricted Investment in any
Wholly Owned Restricted Subsidiary of the Company without compliance with this
covenant provided that such Restricted Investment is permitted by the covenant
described under the caption, "-- Restricted Payments."
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any New Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the New Notes; (ii) default in
payment when due of the principal of or premium, if any, on the New Notes; (iii)
failure by the Company to comply with the provisions described under the
captions "-- Repurchase at the Option of Holders -- Change of Control,"
"-- Repurchase at the Option of Holders -- Asset Sales," or "-- Certain
Covenants -- Merger, Consolidation, or Sale of Assets"; (iv) failure by the
Company for 30 days after notice from the Trustee or at least 25% in principal
amount of the New Notes then outstanding to comply with the provisions described
under the captions "-- Restricted Payments" or "-- Incurrence of Indebtedness
and Issuance of Preferred Stock"; (v) failure by the Company for 60 days after
notice from the Trustee or at least 25% in principal amount of the New Notes
then outstanding to comply with any of its other agreements in the Indenture or
the New Notes; (vi) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vii) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed
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for a period of 60 days and (viii) certain events of bankruptcy or insolvency
with respect to the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any of its Subsidiaries
all outstanding New Notes will become due and payable without further action or
notice. Holders of the New Notes may not enforce the Indenture or the New Notes
except as provided in the Indenture. If any Event of Default occurs and is
continuing, subject to certain limitations, Holders of a majority in principal
amount of the then outstanding New Notes may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders of the New Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the New Notes. If an Event of Default occurs prior to
February 1, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the New Notes prior to February 1, 2002, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the New Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or the Subsidiary Guarantors, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the New Notes, the
Indenture, the New Note Guarantees or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of New Notes, by
accepting a New Note, waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the New Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes and all
obligations of the Subsidiary Guarantors under the New Note Guarantees ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of, premium and Liquidated Damages,
if any, and interest on such New Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the New Notes
concerning issuing temporary New Notes, registration of New Notes, mutilated,
destroyed, lost or stolen New Notes and the maintenance of an office or agency
for payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and
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the Subsidiary Guarantors released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the New Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "-- Events of Default"
will no longer constitute an Event of Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium and Liquidated Damages, if any, and interest on
the outstanding New Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the New Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding New Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding New
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of New Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the New Notes or the New Note Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the New
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, New
Notes), and any existing default or compliance with any provision of the
Indenture, the New Notes or the New Note Guarantees may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
New Notes (including consents obtained in connection with a tender offer or
exchange offer for New Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any New Note or alter the provisions with respect to the redemption of the
New Notes (other than provisions relating to the covenants described above under
the caption "-- Repurchase at the Option of Holders"); (iii) reduce the rate of
or change the time for payment of interest on any New Note; (iv) waive a Default
or Event of Default in the payment of principal of or premium or Liquidated
Damages, if any, or interest on the New Notes (except a rescission of
acceleration of the New Notes by the Holders of at least a majority in aggregate
principal amount of the New Notes and a waiver of the payment default that
resulted from such acceleration); (v) make any New Note payable in money other
than that stated in the New Notes; (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or premium, if any, or interest on the New
Notes; (vii) waive a redemption payment with respect to any New Note (other than
a payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company, the Subsidiary Guarantors and the Trustee may amend or
supplement the Indenture, the New Notes or the New Note Guarantees to cure any
ambiguity, defect or inconsistency, to provide for uncertificated New Notes in
addition to or in place of certificated New Notes, to provide for the assumption
of the Company's and the Subsidiary Guarantors' obligations to Holders of New
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of New Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act or to
allow any Subsidiary to guarantee the New Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, that if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Phase Metrics, Inc.,
10260 Sorrento Valley Road, San Diego, California 92121; Attention: Chief
Financial Officer.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The New Notes exchanged by QIBs initially will be in the form of one or
more registered global notes without interest coupons (collectively, the "U.S.
Global Notes"). Upon issuance, the U.S. Global Notes will be deposited with the
Trustee, as custodian for The Depository Trust Company ("DTC"), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to the accounts of DTC's Direct and Indirect Participants (as defined below).
The New Notes exchanged for Notes that were offered and sold in offshore
transactions in reliance on Regulation S, if any, will be in the form of one or
more permanent global notes (the "Regulation S Global Notes") and deposited with
the Trustee, as custodian for DTC, in New York, New York, and registered in the
name of a nominee of DTC (a "Nominee") for credit to the accounts of Indirect
Participants at Euroclear and Cedel Bank. Beneficial interests in the Regulation
S Permanent Global Notes may be transferred to a Person that takes delivery in
the form of an interest in the U.S. Global Notes and beneficial interests in the
U.S. Global Notes may be transferred to a Person that takes delivery in the form
of an interest in the Regulation S Permanent Global Notes; provided, that in
each case, that the certification requirements described below are complied
with. See "Transfers of Interests in One Global Note for Interests in Another
Global Note." All registered global notes are referred to herein collectively as
"Global Notes."
In addition, transfer of beneficial interests in any Global Notes will be
subject to the applicable rules and procedures of DTC and its Direct or Indirect
Participants (including, if applicable, those of Euroclear and Cedel Bank),
which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for New Notes in certificated form in certain limited circumstances. See
"--Transfer of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The New
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar.
Depository Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Direct Participants. The Direct Participants
include securities brokers and dealers (including DLJ), banks, trust companies,
clearing corporations and certain other organizations, including Euroclear and
Cedel Bank. Access to DTC's system is also available to other entities that
clear through or maintain a direct or indirect custodial relationship with a
Direct Participant (collectively, the "Indirect Participants"). DTC may hold
securities beneficially owned by other Persons only through the Direct
Participants or Indirect Participants and such other Persons' ownership interest
and transfer of ownership interest will be recorded only on the records of the
Direct Participant and/or Indirect Participant, and not on the records
maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, DTC
will maintain records of the ownership interests of each Direct Participants in
the Global Notes and the transfer of ownership interests by and between Direct
Participants. DTC will not maintain records of the ownership interests of, or
the transfer of ownership interests by and between, Indirect Participants or
other owners of beneficial interests in the Global Notes. Direct Participants
and Indirect Participants must maintain their own records of the
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ownership interests of, and the transfer of ownership interests by and between,
Indirect Participants and other owners of beneficial interests in the Global
Notes.
Investors in the U.S. Global Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in the
Regulation S Global Notes may hold their interests therein directly through
Euroclear or Cedel Bank or through organizations other than Euroclear and Cedel
Bank that are Direct Participants in the DTC system. Morgan Guaranty Trust
Company of New York, Brussels office is the operator and depository of Euroclear
and Citibank, N.A. is the operator and depository of Cedel Bank (each a
"Nominee" of Euroclear and Cedel Bank, respectively). Therefore, they will each
be recorded on DTC's records as the holders of all ownership interests held by
them on behalf of Euroclear and Cedel Bank, respectively. Euroclear and Cedel
Bank will maintain on their records the ownership interests, and transfers of
ownership interests by and between, their own customer's securities accounts.
DTC will not maintain records of the ownership interests of, or the transfer of
ownership interests by and between, customers of Euroclear or Cedel Bank. All
ownership interests in any Global Notes, including those of customers'
securities accounts held through Euroclear or Cedel Bank, may be subject to the
procedures and requirements of DTC.
The laws of some states require that certain Persons take physical delivery
in definitive, certificated form, of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
Persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a Person
having a beneficial interest in a Global Note to pledge such interest to Persons
or entities that are not Direct Participants in DTC, or to otherwise take
actions in respect of such interests, may be affected by the lack of physical
certificates evidencing such interests. For certain other restrictions on the
transferability of the Notes, See "-- Regulation S Permanent Global Notes" and
"-- Transfers of Interests in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "--TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES", OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NEW NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NEW NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS
OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Company, the Subsidiary Guarantors
and the Trustee will treat the Persons in whose names the New Notes are
registered (including New Notes represented by Global Notes) as the owners
thereof for the purpose of receiving payments and for any and all other purposes
whatsoever. Payments in respect of the principal, premium, Liquidated Damages,
if any, and interest on Global Notes registered in the name of DTC or its
nominee will be payable by the Trustee to DTC or its nominee as the registered
holder under the Indenture. Consequently, neither the Company, the Subsidiary
Guarantors, the Trustee nor any agent of the Company, the Subsidiary Guarantors
or the Trustee has or will have any responsibility or liability for (i) any
aspect of DTC's records or any Direct Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
of DTC's records or any Direct Participant's or Indirect Participant's records
relating to the beneficial ownership interests in any Global Note or (ii) any
other matter relating to the actions and practices of DTC or any of its Direct
Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the New
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the New Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, the Company or the Subsidiary Guarantors. Neither the Company, the
Subsidiary Guarantors nor the Trustee will be liable for any delay by DTC or its
Direct Participants or Indirect Participants in identifying the beneficial
owners of the New Notes, and the Company and the Trustee may conclusively rely
on and will be protected in relying on instructions from DTC or its nominee as
the registered owner of the New Notes for all purposes.
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The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the New Notes through Euroclear or Cedel Bank) who hold
an interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the New Notes through Euroclear and Cedel Bank will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer restrictions applicable to the New
Notes described herein, cross-market transfers between Direct Participants in
DTC, on the one hand, and Indirect Participants who hold interests in the New
Notes through Euroclear or Cedel Bank, on the other hand, will be effected by
Euroclear or Cedel Bank's respective Nominee through DTC in accordance with
DTC's rules on behalf of Euroclear or Cedel Bank; provided, that delivery of
instructions relating to crossmarket transactions must be made directly to
Euroclear or Cedel Bank, as the case may be, by the counterparty in accordance
with the rules and procedures of Euroclear or Cedel Bank and within their
established deadlines (Brussels time for Euroclear and UK time for Cedel Bank).
Indirect Participants who hold interest in the New Notes through Euroclear and
Cedel Bank may not deliver instructions directly to Euroclear's or Cedel Bank's
Nominee. Euroclear or Cedel Bank will, if the transaction meets its settlement
requirements, deliver instructions to its respective Nominee to deliver or
receive interests on Euroclear's or Cedel Bank's behalf in the relevant Global
Note in DTC, and make or receive payment in accordance with normal procedures
for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the New Notes through Euroclear or Cedel
Bank purchasing an interest in a Global Note from a Direct Participant in DTC
will be credited, and any such crediting will be reported to Euroclear or Cedel
Bank during the European business day immediately following the settlement date
of DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and Cedel Bank customers will not have
access to the cash amount credited to their accounts as a result of a sale of an
interest in a Regulation S Global Note to a DTC Participant until the European
business day for Euroclear or Cedel Bank immediately following DTC's settlement
date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the New
Notes as to which such Direct Participant or Direct Participants has or have
given direction. However, if there is an Event of Default under the New Notes,
DTC reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for New Notes in certificated form, and to
distribute such certificated forms of New Notes to its Direct Participants. See
"-- Transfers of Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and Cedel Bank have agreed to the foregoing
procedures to facilitate transfers of interests in the Regulation S Global Notes
and in the U.S. Global Notes among Direct Participants, Euroclear and Cedel
Bank, they are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Subsidiary Guarantors, DLJ or the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel Bank or their
respective Direct and Indirect Participants of their respective obligations
under the rules and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and Cedel Bank
and their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a U.S.
Person (other than an estate governed by foreign law and of which at least one
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executor or administrator is a non-U.S. Person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any trustee is a
U.S. Person (other than a trust of which at least one trustee is a non-U.S.
Person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settler, if the trust is revocable) is a
U.S. Person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
Person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. Person), (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. Person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated and owned, by "accredited investors" within the meaning of Rule
501(a) under the Securities Act who are not natural persons, estates or trusts);
provided, however that the term "U.S. Person" shall not include (A) a branch or
agency of a U.S. Person that is located and operating outside the United States
for valid business purposes as a locally regulated branch or agency engaged in
the banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international organizations set forth in
Section 902(o)(7) of Regulation S under the Securities Act and any other similar
international organizations, and their agencies, affiliates and pension plans.
Transfers of Interests in One Global Note for Interests in Another Global Note
An Indirect Participant who holds an interest in Regulation S Global Notes
will be permitted to transfer its interest to a U.S. Person who takes delivery
in the form of an interest in U.S. Global Notes only upon receipt by the Trustee
of any necessary written certification from the transferor.
A Direct or Indirect Participant who holds an interest in U.S. Global Notes
may transfer its interests to a Person who takes delivery in the form of an
interest in Regulation S Global Notes only upon receipt by the Trustee of a
written certification from the transferor to the effect that such transfer is
being made in accordance with Rule 904 of Regulation S.
Transfers involving an exchange of a beneficial interest in Regulation S
Global Notes for a beneficial interest in U.S. Global Notes or vice versa will
be effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection with
such transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one Global Note and a corresponding increase in the
principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a Person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive New Notes in
registered, certificated form without interest coupons ("Certificated Notes") if
(i) DTC (x) notifies the Company that it is unwilling or unable to continue as
depositary for the Global Notes and the Company thereupon fails to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Certificated Notes or
(iii) there shall have occurred and be continuing a Default or an Event of
Default with respect to the Notes. In any such case, the Company will notify the
Trustee in writing that, upon surrender by the Direct and Indirect Participants
of their interest in such Global Note, Certificated Notes will be issued to each
Person that such Direct and Indirect Participants and the DTC identify as being
the beneficial owner of the New Related Notes.
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Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither the Company, the Subsidiary Guarantors nor the Trustee will be
liable for any delay by the holder of the Global Notes or DTC in identifying the
beneficial owners of New Notes, and the Company, the Subsidiary Guarantors and
the Trustee may conclusively rely on, and will be protected in relying on,
instructions from the holder of the Global Note or DTC for all purposes.
Transfers of Certificated Notes
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer described under "Notice to Investors."
Same Day Settlement and Payment
The Indenture will require that payments in respect of the New Notes
represented by the Global Notes (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available same day funds to the accounts specified by the holder of interests in
such Global Note. With respect to Certificated Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if any,
by wire transfer of immediately available same day funds to the accounts
specified by the holders thereof or, if no such account is specified, by mailing
a check to each such holder's registered address. The Company expects that
secondary trading in the Certificated Notes will also be settled in immediately
available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Subsidiary Guarantors and DLJ entered into the
Registration Rights Agreement on the date of the Note Closing. In the
Registration Rights Agreement, the Company and the Subsidiary Guarantors agreed
to file an Exchange Offer Registration Statement with the Commission within 60
days of the date of the Note Closing, and use their respective best efforts to
have it declared effective at the earliest possible time. The Company and the
Subsidiary Guarantors also agreed to use their best efforts to cause the
Exchange Offer Registration Statement to be effective continuously, to keep the
Exchange Offer open for a period of not less than 20 business days and cause the
Exchange Offer to be consummated no later than the 30th business day after it is
declared effective by the Commission. Pursuant to the Exchange Offer, the
Company is offering to the Holders of Transfer Restricted Securities who are
able to make certain representations, the opportunity to exchange their Transfer
Restricted Securities for New Notes. To participate in the Exchange Offer, each
Holder must represent that it is not an affiliate of the Company, it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any Person to participate in, a distribution of the New Notes
that are issued in the Exchange Offer and it is acquiring the New Notes in the
Exchange Offer in its ordinary course of business.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Notes which are Transfer Restricted Securities
notifies the Company prior to the 20th business day following the consummation
of the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer, (b) it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus, and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by it or (c) it is a
broker-dealer and holds New Notes acquired directly from the Company or any of
the Company's affiliates, the Company and the Subsidiary Guarantors will file
with the Commission a Shelf Registration Statement to register for public
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resale the Transfer Restricted Securities held by any such Holder who provide
the Company with certain information for inclusion in the Shelf Registration
Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each Note until the earliest of the date of which (i) such
Note is exchanged in the Exchange Offer and entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) such Note has been disposed of in
accordance with the Shelf Registration Statement, (iii) such Note is disposed of
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (iv) such Note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) if the Company or the
Subsidiary Guarantors fail to file an Exchange Offer Registration Statement with
the Commission on or prior to the 60th day after the date of the Note Closing,
(ii) if the Exchange Offer Registration Statement is not declared effective by
the Commission on or prior to the 120th day after the date of the Note Closing,
(iii) the Exchange Offer is not consummated on or before the 30th business day
after the Exchange Offer Registration Statement is declared effective (iv) if
obligated to file the Shelf Registration Statement and the Company or the
Subsidiary Guarantors fail to file the Shelf Registration Statement with the
Commission on or prior to the 30th day after such filing obligation arises, (v)
if obligated to file a Shelf Registration Statement and the Shelf Registration
Statement is not declared effective on or prior to the 60th day after the
obligation to file a Shelf Registration Statement arises or (vi) if the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is declared effective but thereafter ceases to be effective or useable
in connection with resales of the Transfer Restricted Securities, such time of
non-effectiveness or non-usability (each, a "Registration Default"), the Company
and the Subsidiary Guarantors agree to pay to each Holder of Transfer Restricted
Securities affected thereby liquidated damages ("Liquidated Damages") in an
amount equal to $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90 day period immediately
following the occurrence of such Registration Default. The amount of the
Liquidated Damages shall increase by an additional $0.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90 day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $0.25 per week per $1,000 in principal
amount of Transfer Restricted Securities. The Company and the Subsidiary
Guarantors shall not be required to pay liquidated damages for more than one
Registration Default at any given time. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
All accrued Liquidated Damages shall be paid by the Company or the
Subsidiary Guarantors to Holders entitled thereto by wire transfer to the
accounts specified by them or by mailing checks to their registered address if
no such accounts have been specified.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
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ownership of voting securities, by agreement or otherwise; provided, that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided, that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "-- Repurchase at Option of
Holders -- Change of Control" and/or the provisions described above under the
caption "-- Certain Covenants -- Merger, Consolidation or Sale of Assets" and
not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by
the Company or any of its Restricted Subsidiaries of Equity Interests of any of
the Company's Restricted Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) a sale and leaseback of the real estate (and personal property associated
with such real estate) owned by the Company in San Diego, California on which
the Company's headquarters is located on the date of the Indenture and (iv) a
Restricted Payment that is permitted by the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments" will not be deemed to be
Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and Eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the New Credit Facility or with
any domestic commercial bank having capital and surplus in excess of $500
million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, and (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each
case maturing within 270 days after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolida-
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tion) the result of which is that any "person" (as defined above), other than
the Principals and their Related Parties, becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares), (iv) the first
day on which a majority of the members of the Board of Directors of the Company
are not Continuing Directors or (v) the Company consolidates with, or merges
with or into, any Person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person, or
any Person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which any of the outstanding Voting Stock of
the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of the Company
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person (immediately after giving effect to such
issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period, plus, to the extent deducted in computing Consolidated Net Income,
(i) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (ii) Fixed Charges of such Person for
such period, (iii) depreciation and amortization (including amortization of
goodwill and other intangibles) and all other non-cash charges (excluding any
such non-cash charge to the extent that it represents (A) an accrual of or
reserve for cash charges in any future period, or (B) amortization of a prepaid
cash expense that was paid in a prior period), (iv) any gain realized in
connection with any Asset Sale and any extraordinary or non-recurring gain, in
each case, on a consolidated basis determined in accordance with GAAP and (v)
the amount of any non-cash compensation expense incurred in connection with
issuances of securities under stock option, stock purchase and other
equity-based incentive plans. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, the Fixed Charges of, and the
depreciation and amortization and other non-cash charges of a Restricted
Subsidiary of, a Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of: (i) the interest expense of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP (including amortization of original issue discount, non-cash interest
payments, the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations; provided, that in no event shall any amortization of deferred
financing costs be included in Consolidated Interest Expense) and (ii)
consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, whether paid or accrued.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iv) the cumulative effect of a change in
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accounting principles shall be excluded and (v) the Net Income of any
Unrestricted Subsidiary shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries for purposes of the covenant
described under the caption "-- Incurrence of Indebtedness and Issuance of
Preferred Stock" and shall be included for purposes of the covenant described
under the caption "Restricted Payments" only to the extent of the amount of
dividends or distributions paid in cash to the Company or one of its Restricted
Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments) and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature; provided, that any
Capital Stock that would not qualify as Disqualified Stock but for change of
control provisions shall not constitute Disqualified Stock if the provisions are
not more favorable to the holders of such Capital Stock than the provisions
described under "-- Change of Control" applicable to the Holders of the Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the Consolidated Interest Expense of such Person for
such period and (ii) any interest expense on Indebtedness of another Person that
is guaranteed by the referent Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such guarantee or Lien is called upon) and (iii) the product of
(A) all cash dividend payments of the Company and any Subsidiary Guarantor on
any series of preferred stock of the Company or such Guarantor times (B) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its
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Restricted Subsidiaries incurs, assumes, guarantees, redeems or repays any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on which
the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, guarantee, redemption or repayment
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to have occurred
on the first day of the four-quarter reference period and Consolidated Cash Flow
for such reference period shall be calculated without giving effect to clause
(iii) of the proviso set forth in the definition of Consolidated Net Income, and
(ii) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
or operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means a Subsidiary that is formed under the laws of
the United States of America or of a state or territory thereof, but shall
exclude any Subsidiary which is treated as a partnership or branch for United
States federal income tax purposes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Global Notes" means the U.S. Global Note, the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current
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payments of interest, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or to the creditors
of the Company, as such, or to the assets of the Company, or (ii) any
liquidation, dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary, and involving insolvency or bankruptcy or (iii) any
assignment for the benefit of creditors or any other marshaling of assets and
liabilities of the Company.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain Amended and Restated Credit
Agreement, dated as of January 30, 1998, by and among the Company, certain
financial institutions and Fleet National Bank, as agent, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and, in each case, as amended, modified, renewed,
refunded, replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or
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(c) constitutes the lender, (ii) as to which no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the New Notes
being offered hereby) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means Indebtedness of the Company that ranks pari
passu in right of payment to the New Notes.
"Permitted Business" means any of the businesses and any other businesses
related to the businesses engaged in by the Company and its respective
Restricted Subsidiaries on the date of the Indenture.
"Permitted Investments" means (i) any Investment in the Company or in a
Subsidiary Guarantor and Investments in Wholly-Owned Restricted Subsidiaries
which are not Subsidiary Guarantors permitted under clauses (vii) or (ix) of the
covenant described under the caption "-- Incurrence of Indebtedness and Issuance
of Preferred Stock", (ii) any Investment in Cash Equivalents, (iii) any
Investment by the Company or any Restricted Subsidiary of the Company in a
Person, if as a result of such Investment (a) such Person becomes a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Guarantor, (iv) any Investment made as a result of the receipt
of non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "-- Repurchase at
the Option of Holders -- Asset Sales", (v) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company and (vi) other Investments made after the date of the Indenture in
any Person having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (vi)
that are at the time outstanding, not in excess of $5.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the New
Credit Facility that was permitted by the terms of the Indenture to be incurred
or other Indebtedness allowed to be incurred under clause (i) of the covenant
described above under the caption "Incurrence of Indebtedness and Issuance of
Preferred Stock", (ii) Liens in favor of the Company, (iii) Liens on property of
a Person existing at the time such Person is merged into or consolidated with
the Company or any Restricted Subsidiary of the Company; provided, that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company, (iv) Liens on property existing at
the time of acquisition thereof by the Company or any Restricted Subsidiary of
the Company; provided, that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business, (vi)
Liens existing on the date of the Indenture, (vii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided, that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor,
(viii) Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary, (ix) Liens to secure Indebtedness (including Capital
Lease Obligations) permitted by clause (iv) of the covenant described under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such Indebtedness, together with any additions and
accessions thereto and replacements, substitutions and proceeds
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(including insurance proceed(s) thereof), (x) carriers', warehousemen's,
mechanics', landlords', materialmen's, repairmen's, or other like Liens arising
in the ordinary course of business in respect of obligations not overdue for a
period in excess of 30 days or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently prosecuted; provided,
that any reserve or other appropriate provisions as shall be required to conform
with GAAP shall have been made therefor, (xi) easements, rights-of-way, zoning
and similar restrictions and other similar encumbrances or title defects
incurred, or leases or subleases granted to others, in the ordinary course of
business, which do not in any case materially detract from the value of the
property subject thereto or do not interfere with or adversely affect in any
material respect the ordinary conduct of the business of the Company and its
Restricted Subsidiaries taken as a whole, (xii) Liens (other than any Lien
imposed by ERISA or any rule or regulation promulgated thereunder) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance, and other types of social security, (xiii)
Liens in favor of a trustee under any indenture securing amounts due to the
trustee in connection with its services under such indenture, (xiv) Liens under
licensing agreements for use of intellectual property entered into in the
ordinary course of business and (xv) Liens on inventory or cash to secure cash
advances made by customers for the purchase price of inventory.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) except for Indebtedness used to extend, refinance, renew,
replace, defease or refund the New Credit Facility, the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith and the amount of any market-based premium paid in
connection therewith), (ii) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded, (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the New
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to, the
New Notes on terms at least as favorable to the Holders of New Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Principals" means DLJ Merchant Banking, Inc. and its Affiliates, the
Sprout Group and its Affiliates, John F. Schaefer and Arthur J. Cormier.
"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of the Company that results in the net proceeds to the
Company of at least $25.0 million.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Notes" means the permanent global notes that are
deposited with and registered in the name of the Depositary or its nominee,
representing a series of Notes sold in reliance on Regulation S.
"Related Party" with respect to any Principal means (i) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (i).
"Restricted Investment" means an Investment other than a Permitted
Investment.
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"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Securityholders Agreement" means the Securityholders Agreement, dated as
of November 23, 1994, among the Company, John F. Schaefer, Arthur J. Cormier,
and DLJ and the Sprout Entities.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means each of (i) Helios Incorporated, Applied
Robotic Technologies, Inc., Air Bearings Incorporated and Santa Barbara Metric,
Inc. and (ii) any other Subsidiary that executes a New Note Guarantee in
accordance with the provisions of the Indenture, and their respective successors
and assigns.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by a
resolution of the Board of Directors of the Company as an Unrestricted
Subsidiary; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing with the Trustee a certified
copy of the resolutions of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants -- Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," the Company shall
be in default of such covenant). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall be
permitted only if (i) such Indebtedness is permitted under the covenant
described under the caption "Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," and (ii) no Default or Event of Default would be
in existence following such designation.
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"U.S. Global Note" means a permanent global note that is deposited with and
registered in the name of the Depositary or its nominee, representing a series
of New Notes sold in reliance on Rule 144A.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means a Subsidiary that is both a
Wholly Owned Subsidiary and a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income and estate tax considerations relating to the acquisition, ownership and
disposition of New Notes by the original holders of the New Notes. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), and judicial decisions and administrative interpretations thereunder,
as of the date hereof, and such authorities may be repealed, revoked, modified
or otherwise interpreted or applied so as to result in federal income tax
consequences different from those discussed below. There can be no assurance
that the Internal Revenue Service (the "IRS") will not challenge one or more of
the tax consequences described herein, and the Company has not obtained, nor
does it intend to obtain, a ruling from the IRS or an opinion of counsel with
respect to the U.S. federal tax consequences of acquiring or holding the Notes
or the New Notes.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to a particular holder in light of the
holder's circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). Also, certain holders (including insurance
companies, tax exempt organizations, financial institutions, subsequent
purchasers of New Notes and broker-dealers) may be subject to special rules not
discussed below. In addition, this discussion does not describe any tax
consequences arising under the laws of any state, locality or taxing
jurisdiction other than the United States federal government. In general, the
discussion assumes that a holder acquired a Note at original issuance and holds
such Note and the New Notes as a capital asset and not as part of a "hedge,"
"straddle," "conversion transaction," "synthetic security" or other integrated
investment. Prospective investors are urged to consult their tax advisors
regarding the United States federal tax consequences of acquiring, holding and
disposing of New Notes, as well as any tax consequences that may arise under the
laws of any foreign, state, local or other taxing jurisdiction.
As used herein, the term "United States Holder" means a beneficial owner of
a New Note that is, for United States federal income tax purposes, a citizen or
resident (within the meaning of Section 7701(b) of the Code) of the United
States, a corporation, partnership or other entity created or organized in the
United States or under the laws of the United States or of any political
subdivision thereof, an estate whose income is included in gross income for
United States federal income tax purposes, regardless of its source or a trust,
if a U.S. court is able to exercise primary supervision over the administration
of the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust.
UNITED STATES HOLDERS
Exchange of Notes for New Notes The exchange of a Note, by a United
States Holder, for a New Note should not constitute a taxable exchange of the
Note. As a result, a United States Holder should not recognize taxable gain or
loss upon receipt of a New Note. A United States Holder's holding period for a
New Note should generally include the holding period for the Note so exchanged
and such holder's adjusted tax basis in a New Note should generally be the same
as such holder's adjusted tax basis in the Note so exchanged.
Stated Interest. Stated interest on a New Note will be taxable to a United
States Holder as ordinary interest income at the time that such interest accrues
or is received, in accordance with the United States Holder's regular method of
accounting for federal income tax purposes. The Company expects that the New
Notes will not be considered to be issued with original issue discount for
federal income tax purposes.
Bond Premium on the New Notes. If a United States Holder of a New Note
purchased a Note for an amount in excess of the amount payable at the maturity
date (or a call date, if appropriate) of the Notes, the United States Holder may
deduct such excess as amortizable bond premium over the aggregate terms of the
Notes and the New Notes (taking into account earlier call dates, as
appropriate), under a yield-to-maturity formula. The deduction is available only
if an election is made by the United States Holder or is in effect. This
election is revocable only with the consent of the IRS. The election applies to
all obligations owned or subsequently acquired by the United States Holder. The
United States Holder's adjusted tax basis in the Notes and the New Notes will be
reduced to the extent of the deduction of amortizable bond premium. Except as
may otherwise be provided in future regulations, under the Code the amortizable
bond premium is treated as an offset to interest income on the Notes and the New
Notes rather than as a separate deduction item.
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Market Discount on the New Notes. The tax consequences of a disposition of
the New Notes may be affected by the market discount provisions of the Code.
These rules generally provide that if a United States Holder acquired the Notes
(other than in an original issue) or the New Notes at a market discount which
equals or exceeds 1/4 of 1% of the stated redemption price of the Notes at
maturity multiplied by the number of remaining complete years to maturity and
thereafter recognizes gain upon a disposition (or makes a gift) of the New
Notes, the lesser of (i) such gain (or appreciation, in the case of a gift) or
(ii) the portion of the market discount which accrued while the Notes or New
Notes were held by such United States Holder will be treated as ordinary income
at the time of the disposition (or gift). For these purposes, market discount
means the excess (if any) of the stated redemption price at maturity over the
basis of such Notes immediately after their acquisition by the United States
Holder. A United States Holder of the New Notes may elect to include any market
discount (whether accrued under the Notes or the New Notes) in income currently
rather than upon disposition of the New Notes. This election once made applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies, and may not be revoked without the consent of the
IRS.
A United States Holder of any New Note who acquired a Note or a New Note at
a market discount generally will be required to defer the deduction of a portion
of the interest on any indebtedness incurred or maintained to purchase or carry
such Note or New Note until the market discount is recognized upon a subsequent
disposition of the New Note. Such a deferral is not required, however, if the
United States Holder elects to include accrued market discount in income
currently.
Sale, Exchange or Retirement of the New Notes. Upon the sale, exchange,
redemption, retirement, maturity or other disposition of a New Note, a United
States Holder will generally recognize taxable gain or loss equal to the
difference between the sum of cash plus the fair market value of all other
property received on such disposition (except to the extent such cash or
property is attributable to accrued interest which will be taxable as ordinary
income) and such holder's adjusted tax basis in the New Note. Gain or loss
recognized on the disposition of a New Note generally will be capital gain or
loss (except to the extent of any accrued market discount). Long-term capital
gains tax rates will apply to dispositions by individuals of New Notes held for
more than 18 months. The maximum long-term capital gains tax rate applicable to
individuals is currently 20% (10% for individuals in the 15% tax bracket).
Mid-term capital gains tax rates will apply to dispositions by individuals of
New Notes held for more than one year but not more than 18 months. The maximum
mid-term capital gains tax rate applicable to individuals is currently 28% (15%
for individuals in the 15% tax bracket).
Backup Withholding and Information Reporting. In general, a United States
Holder of a New Note will be subject to backup withholding at the rate of 31%
with respect to interest, principal and premium, if any, paid on a New Note,
unless the holder (a) is an entity (including corporations, tax-exempt
organizations and certain qualified nominees) that is exempt from withholding
and, when required, demonstrates this fact, or (b) provides the Company with its
Taxpayer Identification Number ("TIN") (which, for an individual, would be the
holder's Social Security number), certifying that the TIN provided to the
Company is correct and that the holder has not been notified by the IRS that it
is subject to backup withholding due to underreporting of interest or dividends,
and otherwise complies with applicable requirements of the backup withholding
rules. In addition, such payments of interest, principal and premium to United
States Holders that are not corporations, tax-exempt organizations or qualified
nominees will generally be subject to information reporting requirements.
The amount of any backup withholding from a payment to a United States
Holder will be allowed as a credit against such holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
NON-UNITED STATES HOLDERS
Stated Interest. Interest paid by the Company to any beneficial owner of a
New Note that is not a United States Holder ("Non-United States Holder") will
generally not be subject to United States federal
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income or withholding tax if such interest is not effectively connected with the
conduct of a trade or business within the United States by such Non-United
States Holder and (a) such Non-United States Holder (i) does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of the Company; (ii) is not a controlled foreign corporation with
respect to which the Company is a "related person" within the meaning of the
Code and (iii) satisfies certain certification requirements or (b) such
Non-United States Holder is entitled to the benefits of an income tax treaty
under which the interest is exempt from United States withholding tax, and such
Non-United States Holder provides a properly executed IRS Form 1001 claiming the
exemption (or, after December 31, 1998, a properly executed IRS Form W-8, which
may require obtaining a Taxpayer Identification Number and making certain
certifications). Interest effectively connected with the conduct of a United
States trade or business by a Non-United States Holder will be subject to the
United States federal income tax on net income that applies to United States
persons generally (and, with respect to corporate holders, under certain
circumstances, may also be subject to the branch profits tax).
Sale, Exchange or Retirement of the New Notes. A Non-United States Holder
will generally not be subject to United States federal income tax on gain
recognized on a sale, redemption, retirement at maturity or other disposition of
a New Note unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder, (ii)
in the case of a Non-United States Holder who is a nonresident alien individual
and holds the Note as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year and certain other requirements
are met or (iii) the Non-United States Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain United States expatriates.
Federal Estate Taxes. If interest on the New Notes is exempt from
withholding of United States federal income tax under clause (a) of the rules
described under "Stated Interest," the New Notes will not be included in the
estate of a deceased Non-United States Holder for United States federal estate
tax purposes.
Backup Withholding and Information Reporting. The Company will, where
required, report to the holders of New Notes and the IRS the amount of any
interest paid on the New Notes in each calendar year and the amounts of tax
withheld, if any, with respect to such payments. Copies of these information
returns may also be made available under the provisions of a specific treaty or
agreement to the tax authorities of the country in which the Non-United States
Holder resides.
Information reporting and backup withholding requirements will apply to the
gross proceeds paid to a Non-United States Holder on the disposition of the New
Notes by or through a United States office of a United States or foreign broker,
unless certain certification requirements are met or the holder otherwise
establishes an exemption. Information reporting requirements, but not backup
withholding, will also apply to a payment of the proceeds of a disposition of
the New Notes by or through a foreign office of a broker that is either a U.S.
person or a U.S. related person, unless the holder is an exempt recipient (as
demonstrated through appropriate certification) or such broker has documentary
evidence in its file that the holder of the New Notes is not a United States
person and has no actual knowledge to the contrary and certain other conditions
are met. Neither information reporting nor backup withholding generally will
apply to a payment of the proceeds of a disposition of the New Notes by or
through a foreign office of a foreign broker that is not a United States related
person. For purposes of this paragraph, a United States related person is (i) a
"controlled foreign corporation" for United States federal income tax purposes,
(ii) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
United States trade or business, or (iii) with respect to payments made after
December 31, 1998, a foreign partnership that, at any time during its taxable
year is 50% or more (by income or capital interest) owned by United States
persons or is engaged in the conduct of a United States trade or business.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the IRS. Non-United States Holders are
urged
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to consult their tax advisors with respect to the application of the backup
withholding rules, as revised under the recently adopted Treasury Regulations
that will generally be effective with respect to payments made beginning January
1, 1999, to their particular situations.
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NOTICE TO INVESTORS
Unless and until a New Note is exchanged for a Note pursuant to the
Exchange Offer, each Note will bear a legend to the following effect unless
otherwise agreed by the Company and the holder thereof.
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE SECOND SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT (AN "IAI")); (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
(B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN
IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER
OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co.
Incorporated (available June 5, 1991), Shearman & Sterling (available July 2,
1993), K-III Communications Corporation (available May 14, 1993), and similar
no-action or interpretive letters issued to third parties, the Company believes
that the New Notes issued pursuant to the Exchange Offer in exchange for Notes
may be offered for resale, resold and otherwise transferred by any Holder
thereof (other than any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act;
provided, that such New Notes are acquired in the ordinary course of such
Holder's business and such Holder is not participating, does not intend to
participate and has no arrangement or understanding with any person to
participate in a distribution of such New Notes. Accordingly, any Holder using
the Exchange Offer or intending to participate in a distribution of the New
Notes will not be able to rely on such no-action letters. Notwithstanding the
foregoing, each Participating Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with the initial sales of such New Notes to third
parties. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with such sales
of New Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that it will
under certain circumstances make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale and Participating Broker-Dealers shall be authorized to deliver this
Prospectus for a period not exceeding one year after the Expiration Date. In
addition, until 90 days after the date of this Prospectus, all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Company and the Subsidiary Guarantors will not receive any proceeds
from any sales of the New Notes by Participating Broker-Dealers. New Notes
received by Participating Broker-Dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-Dealer
that resells the New Notes that were received by it for its own account pursuant
to the Exchange Offer or the purchasers of the New Notes. Any Participating
Broker-Dealer that acquired Notes as a result of market making activities or
other trading activities and who resells New Notes that were received by it
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. By acceptance of the
Exchange Offer, each broker-dealer that receives New Notes pursuant to the
Exchange Offer hereby agrees to notify the Company prior to using this
Prospectus in connection with the sale or transfer of New Notes and acknowledges
and agrees that, upon receipt of notice from the Company of the happening of any
event which makes any statement in this Prospectus untrue in any material
respect or which requires the making of any changes in this Prospectus in order
to make the statements herein not misleading (which notice the Company agrees to
deliver promptly to such broker-dealer), such broker-dealer will suspend use of
this Prospectus until the Company has amended or supplemented this Prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such broker-dealer.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
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There is no existing market for the New Notes and there can be no assurance
as to the liquidity of any market that may develop for the New Notes, the
ability of Holders of the New Notes to sell their New Notes or the price at
which Holders would be able to sell their New Notes. Future trading prices of
the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results, the market for
similar securities and general economic conditions. The Company has been advised
by DLJ that it intends to make a market in the New Notes, subject to the limits
imposed by the Securities Act and the Exchange Act and subject to any limits
imposed during the pendency of any registration statement or shelf registration
statement; however, DLJ is not obligated to do so, and may discontinue such
market-making at any time without notice. The Company does not currently intend
to list the New Notes on any securities exchange or the National Association of
Securities Dealers Automated Quotation System. Therefore, no assurance can be
given as to the liquidity of any trading market for the New Notes. In addition,
such market-making activities may be limited during the Exchange Offer. See
"Risk Factors -- Absence of Trading Market; Restrictions on Transfer."
Entities affiliated with DLJ (i) hold 11,800,000 shares of Common Stock of
the Company, including shares of the Company's Series A Preferred Stock and
Series B Preferred Stock which are convertible into an aggregate of 2,000,000
shares and 3,857,280 shares of the Company's Common Stock, respectively,
Convertible Subordinated Notes which are convertible into an aggregate of
5,142,720 shares of the Company's Common Stock, and Bridge Financing Warrants
which are exercisable for an aggregate of 800,000 shares of the Company's Common
Stock and (ii) pursuant to the Securityholders Agreement, are entitled to elect
two member to the Company's Board of Directors.
Under the Securityholders Agreement, the Company is obligated until
November 23, 1998, to use DLJ as its exclusive financial advisor and investment
banker. In consideration for DLJ's services, the Company has agreed to pay DLJ
an annual retainer of $200,000. In each of 1996 and 1997, the Company paid DLJ
$200,000 in fees for financial advisory and certain investment banking services
provided to the Company.
In connection with the refinancing of its then-outstanding indebtedness in
January and December of 1996, the Company paid fees of $1.2 million in the
aggregate for debt issuance costs to DLJCF. DLJCF is an affiliate of DLJ.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 70,000,000 shares
of Common Stock, $.0001 par value per share, of which 5,607,480 shares were
outstanding as of February 28, 1998, and 605,364 shares of Preferred Stock,
$.0001 par value per share, 412,500 of which have been designated Series A
Preferred Stock and 192,864 of which have been designated Series B Preferred
Stock, all of which shares of Series A and B Preferred Stock are outstanding.
SERIES A PREFERRED STOCK
Each share of Series A Preferred Stock is entitled to receive dividends to
the same extent as the Common Stock. In the event of any liquidation,
dissolution or winding up of the Company, the holders of Series A Preferred
Stock are entitled to receive, subsequent to any distributions required to be
made to the holders of the Series B Preferred Stock, but prior and in preference
to any distribution of assets of the Company to the holders of Common Stock, the
amount of $21.82 per share. Each share of Series A Preferred Stock is
convertible at any time into Common Stock on a 20-for-one basis, subject to
adjustment with respect to certain dilutive issuances by the Company. In
addition, all of the shares of Series A Preferred Stock will be converted
automatically into Common Stock upon the occurrence of (i) the initial public
offering of the Company's Common Stock at a minimum price per share of $4.67 and
net proceeds to the Company of at least $15.0 million or (ii) the conversion
into Common Stock of the Convertible Subordinated Notes and/or shares of Series
B Preferred Stock representing at least 30% of the aggregate number of shares of
Common Stock into which all Convertible Subordinated Notes and shares of Series
B Preferred Stock could be converted as of the closing of the transactions
contemplated by the Securities Purchase Agreement. The holders of Series A
Preferred Stock are entitled to vote with the holders of Common Stock on an
as-converted basis on all matters presented for stockholder vote. In addition,
the Series A Preferred Stock contains customary antidilution rights in the event
of certain dilutive issuances by the Company of shares or rights to acquire
shares of its capital stock and protective voting provisions that, among other
things, limit the Company's ability to, without the affirmative vote of the
holders of at least a majority of the outstanding shares of Series A Preferred
Stock, (i) create, authorize or issue any senior class or series of stock other
than the Series B Preferred Stock or any securities on parity with the Series A
Preferred Stock, or increase the authorized number of shares of any such class
or series of stock, or reclassify any authorized stock of the Company into any
such class or series of stock, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such class or
series of stock; (ii) issue additional shares of Series A Preferred Stock; (iii)
amend, alter or repeal the Certificate of Incorporation of the Company or those
of its subsidiaries in any manner adverse to the preferences, privileges, voting
rights and powers of the holders of Series A Preferred Stock and (iv)
voluntarily liquidate, dissolve or wind up the Company or any of its
subsidiaries unless payments of liquidation preferences are paid in accordance
with the Company's Certificate of Incorporation.
SERIES B PREFERRED STOCK
Each share of Series B Preferred Stock is entitled to receive cumulative
dividends at (i) a rate of 25% of $31.11 per share per annum from the date of
issuance of such shares until November 23, 1997 and (ii) the greater of (A)
12.5% of $31.11 per share per annum and (B) $31.11 multiplied by the prime rate
plus 2%, thereafter. In the event of any liquidation, dissolution or winding up
of the Company, the holders of Series B Preferred Stock shall be entitled to
receive in preference to the holders of Series A Preferred Stock and Common
Stock an amount equal to the greater of (A) $31.11 per share plus all accrued
and unpaid dividends and (B) the amount that would have been received by a
holder of one share of Series B Preferred Stock had such share been converted
into Common Stock. As amended, the Company's Certificate of Incorporation
requires the Company to redeem the Series B Preferred Stock on or after July 15,
2005, to the extent the Company has funds legally available for such payment, at
a redemption price of $31.11 per share in cash, together with accrued and unpaid
dividends. Each share of Series B Preferred Stock is convertible into Common
Stock at any time on a 20-for-one basis, subject to adjustment with respect to
certain dilutive issuances by the Company. In addition, all of the shares of
Series B Preferred Stock shall be converted
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automatically into Common Stock upon the occurrence of the initial public
offering of the Company's Common Stock at a minimum price per share of $4.67 and
net proceeds to the Company of at least $15.0 million. The holders of Series B
Preferred Stock shall be entitled to vote with the holders of Common Stock on an
as-converted basis on all matters presented for stockholder vote. In addition,
the Series B Preferred Stock contains customary antidilution rights in the event
of certain dilutive issuances by the Company of shares or rights to acquire
shares of its capital stock and protective voting provisions that, among other
things, limit the Company's ability to, without the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares of Series B Preferred
Stock (so long as at least 25% of the aggregate number of shares of Common Stock
issuable upon conversion of the Series B Preferred Stock and Convertible
Subordinated Notes originally issued remain outstanding), (i) amend, alter or
repeal the Certificate of Incorporation of the Company or its subsidiaries in
any manner adverse to the preferences, privileges, voting rights and powers of
the holders of the Series B Preferred Stock, (ii) voluntarily liquidate,
dissolve or wind up the Company or any of its subsidiaries, (iii) voluntarily
convey, exchange or transfer all or substantially all of the Company's assets,
(iv) other than indebtedness under the New Notes and the New Credit Facility,
incur, assume, refinance, renew, discharge, repay (other than pursuant to
regularly scheduled payments thereof) or cancel any indebtedness of the Company
or any of its subsidiaries,(v) pay dividends or distributions on capital stock
of the Company and its subsidiaries and (vi) except as required under the terms
of the Indenture related to the New Notes, redeem or repurchase any shares of
capital stock of the Company.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock would be entitled to share ratably in the Company's assets
remaining after the payment of liabilities and the satisfaction of any
liquidation preference granted to the holders of any outstanding shares of
Preferred Stock, including the Series A and B Preferred Stock. Holders of Common
Stock have no preemptive or other subscription rights. The shares of Common
Stock are not convertible into any other security.
REGISTRATION RIGHTS
Pursuant to the Securityholders Agreement, holders (the "Registration
Rights Holders") of approximately 16.3 million shares of Common Stock (including
Common Stock issuable upon the conversion of the Series A and B Preferred
Stock), 5.1 million shares of Common Stock issuable upon the conversion of the
Convertible Subordinated Notes and 800,000 shares of Common Stock issuable upon
the exercise of the Bridge Note Warrants are entitled to certain demand and
piggy-back registration rights with respect to such shares. Pursuant to the
Securityholders Agreement, certain of the Registration Rights Holders may
currently and certain other Registration Rights Holders may, commencing six
months after a public offering by the Company of its Common Stock, request that
the Company file a registration statement under the Securities Act and, upon
such request and subject to certain conditions and restrictions, the Company
generally will be required to use its best efforts to effect each such
registration up to a maximum of three such registrations (requests for
registration on Form S-3 do not count towards the number of permitted requests
for registration). In addition, if the Company proposes to register any of its
Common Stock either for its own account or for the account of other
stockholders, the Company is required, with certain exceptions, to notify the
Registration Rights Holders and, subject to certain limitations, including in
any underwritten registration the ability to limit the number of shares included
in any such registration, to include in such registration all of the shares of
Common Stock requested to be included by the Registration Rights Holders. The
Company is generally obligated to bear the expenses, other than underwriting
discounts and sales commissions, of these registrations.
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WARRANTS
The Company has Bridge Note Warrants outstanding exercisable for an
aggregate of 800,000 shares of Common Stock at an exercise price of $1.55 per
share. Such warrants expire on November 23, 2004. See "Certain
Transactions -- Bridge Financing."
TRANSFER AGENT
The Company acts as the transfer agent and registrar for its Common and
Preferred Stock.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
New Notes offered hereby will be passed upon for the Company by Brobeck, Phleger
& Harrison LLP, Newport Beach, California. Richard A. Fink, a member of Brobeck,
Phleger & Harrison LLP, is Secretary of the Company and owns 40,000 shares of
Common Stock.
EXPERTS
The consolidated financial statements of the Company and the financial
statements of Air Bearings, Incorporated included in this Prospectus and the
related financial statement schedule included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
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GLOSSARY
Access Speed: The time it takes to locate data on a disk, measured in
milliseconds.
Actuator Mechanics: The mechanism within the disk drive that controls
movement of a head stack assembly.
Areal Density: A measure of recording density calculated by multiplying
bits per inch (bpi) by tracks per inch (tpi).
Asperity: A bump or protrusion on the surface of a disk.
Bit: The basic unit of storage of information in a computer system. Bits
are represented by the presence or absence of changes in orientation of the
magnetic domains along a track on the storage media.
Bits Per Inch (BPI): A measure of how densely information is packed on a
storage medium.
Burnish: To remove asperities or particles from the surface of a disk.
Byte: Eight bits. A megabyte (MB) equals one million bytes. A gigabyte (GB)
equals one billion bytes. One byte is sufficient to define all the
alphanumeric characters. Storage capacity of a disk drive is commonly
measured in megabytes which is the total number of storable bits, divided
by eight million.
Disk: A magnetically coated disk substrate which spins inside a disk drive
and is used as the storage medium for digital data.
Disk Drive: The primary data storage device used by computers. Disk drives
are used to record, store and retrieve digital information in a computer
system.
Flying Height: The distance between the read/write head and the disk
surface, created by the cushion of air that results from the velocity of
the disk rotation, which keeps the two objects from touching. Closer flying
heights permit denser data storage but require more precise mechanical
designs.
Gigabyte: Equal to one billion bytes or one thousand megabytes.
Glide Height: The minimum allowable distance between the read/write head
and the surface of a disk. Glide height is measured in millionths of an
inch (or microinches). Flying the read/write head closer to the surface of
the spinning disk enhances performance in a disk drive.
Head Disk Assembly (HDA): The combination of the HSA and disk(s) as part of
the final assembly of a hard disk drive.
Head Gimbal Assembly (HGA): A magnetic recording head attached to a
flexure, or suspension arm, and a wire/tubing assembly.
Head Stack Assembly (HSA): Multiple head gimbal assemblies (HGAs).
Read/Write Head: A small magnetic transducer that flies above the surface
of the disk and performs the functions of reading and writing data onto the
disk.
MR (magnetoresistive) Head: Recording head that uses an inductive thin-film
element to write data onto the media and a separate MR element to read the
data. The use of a separate but more sensitive read element permits data to
be recorded and, subsequently, read at much higher track densities than
inductive thin-film head technology. MR head technology is regarded by many
in the industry as a means to significantly increase areal densities.
Media Certification: The process of testing the magnetic qualities of a
disk's surface.
Megabyte: Equal to one million bytes.
Microinch: One millionth of an inch. There are approximately 3000
microinches in a human hair and 200 microinches in a fingerprint.
Quasi-Static Test: A static test (not involving a spinning disk) utilizing
comparably low frequencies.
A-1
<PAGE> 122
Server: A computer generally configured for the support of concurrent
multi-user applications. The server is generally a storage repository of
software and data.
Servowrite: To write magnetic servo tracks on a disk surface which provide
track location and positioning information.
Spindle: The drive's center shaft, on which the disks are mounted. A
synchronized spindle is a shaft that allows two disks to spin
simultaneously as a mirror image of each other, permitting redundant
storage of data.
Storage Capacity: The amount of information, expressed in bytes, that can
be stored on a hard drive.
Thin Films: For magnetic disks, films thickness measured in Angstroms (250
Angstroms = one microinch).
Throughput: The number of units (disk drives, disks or read/write heads)
processed through a given manufacturing step or on a given machine per
unit.
Track: One of the many concentric magnetic circle patterns written on a
disk surface as a guide for storing and reading data.
Tracks Per Inch (TPI): The number of tracks per inch of media.
Transfer Rate: The rate at which the disk sends and receives data from the
controller.
Yield: A measure of manufacturing efficiency; the percent of acceptable
product obtained from a specific manufacturing process(es).
A-2
<PAGE> 123
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PHASE METRICS, INC.:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1995, 1996 and 1997... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996
and 1997............................................... F-6
Notes to Consolidated Financial Statements................ F-7
AIR BEARINGS, INCORPORATED:
Independent Auditors' Report.............................. F-25
Consolidated Statement of Income and Retained Earnings for
the year ended December 31, 1995....................... F-26
Consolidated Statement of Cash Flows for the year ended
December 31, 1995...................................... F-27
Notes to Consolidated Financial Statements................ F-28
</TABLE>
F-1
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
Phase Metrics, Inc.:
We have audited the accompanying consolidated balance sheets of Phase
Metrics, Inc. and its subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Phase Metrics, Inc. and its
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 30, 1998
F-2
<PAGE> 125
PHASE METRICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,737 $ 2,977
Accounts receivable -- net................................ 25,042 28,730
Inventories............................................... 51,795 55,585
Prepaid expenses and other................................ 5,734 1,975
Income taxes receivable................................... 5,000 5,156
Deferred tax assets....................................... 10,026 8,952
-------- --------
Total current assets................................... 100,334 103,375
Property, plant and equipment, net.......................... 28,078 38,023
Intangible assets, net...................................... 19,477 4,966
Deferred tax assets......................................... 2,842 5,269
Other....................................................... 3,282 3,097
-------- --------
Total assets................................................ $154,013 $154,730
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 18,188 $ 10,419
Accrued expenses and other liabilities.................... 21,117 16,058
Customer deposits......................................... 15,885 9,038
Current portion of debt................................... 2,463 1,785
-------- --------
Total current liabilities.............................. 57,653 37,300
Long-term liabilities:
Long-term debt............................................ 85,557 111,272
Convertible subordinated notes............................ 8,000 8,000
Accrued expenses and interest............................. 5,520 6,794
Series B redeemable preferred stock, $.0001 par value,
192,864 shares authorized, issued and outstanding
(liquidation preference of $10,578)....................... 6,314 9,237
Commitments (Notes 6 and 9)
Stockholders' deficit:
Series A preferred stock, $.0001 par value, 412,500 shares
authorized, issued and outstanding (liquidation
preference of $9,000).................................. 3 3
Common stock, $.0001 par value, 70,000,000 shares
authorized; 5,632,500 and 5,627,431 shares issued and
outstanding at December 31, 1996 and 1997,
respectively........................................... 5,665 6,090
Retained deficit.......................................... (14,699) (23,166)
Accumulated translation adjustments....................... -- (800)
-------- --------
Total stockholders' deficit............................ (9,031) (17,873)
-------- --------
Total liabilities, redeemable preferred stock and
stockholders' deficit .................................... $154,013 $154,730
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 126
PHASE METRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $116,894 $190,773 $184,660
Cost of sales.............................................. 64,766 103,861 101,294
-------- -------- --------
Gross profit............................................. 52,128 86,912 83,366
Operating expenses:
Research and development................................. 11,372 31,110 43,572
Selling, general and administrative...................... 15,695 24,631 22,968
Amortization and write-downs of intangibles.............. 13,094 28,656 14,591
Purchased in-process research and development............ -- 13,935 --
-------- -------- --------
Total operating expenses.............................. 40,161 98,332 81,131
-------- -------- --------
Income (loss) from operations.............................. 11,967 (11,420) 2,235
Interest expense........................................... 5,625 8,448 11,573
Other (income) expense -- net.............................. 149 (26) 474
-------- -------- --------
Income (loss) before income taxes and extraordinary
items.................................................... 6,193 (19,842) (9,812)
Income tax expense (benefit)............................... 1,524 (8,974) (4,268)
-------- -------- --------
Income (loss) before extraordinary items................... 4,669 (10,868) (5,544)
Extraordinary loss, net of income taxes.................... -- (1,122) --
-------- -------- --------
Net income (loss).......................................... 4,669 (11,990) (5,544)
Accretion for redemption value and dividends on Series B
redeemable preferred stock............................... (3,000) (3,000) (2,923)
-------- -------- --------
Net income (loss) attributable to common stockholders...... $ 1,669 $(14,990) $ (8,467)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 127
PHASE METRICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK RETAINED ACCUMULATED
---------------- ------------------ EARNINGS TRANSLATION
SHARES AMOUNT SHARES AMOUNT (DEFICIT) ADJUSTMENTS TOTAL
------- ------ --------- ------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995........ 412,500 $3 2,750,000 $1,065 $ (1,378) $ -- $ (310)
Issuance of common stock to
effect acquisitions........... -- -- 1,150,000 1,150 -- -- 1,150
Exercise of options............. -- -- 1,519,600 733 -- -- 733
Accrued dividends on Series B
redeemable preferred stock.... -- -- -- -- (1,500) -- (1,500)
Accretion for redemption value
on Series B redeemable
preferred stock............... -- -- -- -- (1,500) -- (1,500)
Compensation expense on option
grants........................ -- -- -- 350 -- -- 350
Net income...................... -- -- -- -- 4,669 -- 4,669
------- -- --------- ------ -------- ----- --------
Balance, December 31, 1995...... 412,500 3 5,419,600 3,298 291 -- 3,592
Issuance of common stock to
effect acquisitions........... -- -- 254,000 1,905 -- -- 1,905
Exercise of options, net of
repurchases................... -- -- (41,100) 62 -- -- 62
Accrued dividends on Series B
redeemable preferred stock.... -- -- -- -- (1,500) -- (1,500)
Accretion for redemption value
on Series B redeemable
preferred stock............... -- -- -- -- (1,500) -- (1,500)
Compensation expense on option
grants........................ -- -- -- 400 -- -- 400
Net loss........................ -- -- -- -- (11,990) -- (11,990)
------- -- --------- ------ -------- ----- --------
Balance, December 31, 1996...... 412,500 3 5,632,500 5,665 (14,699) -- (9,031)
Exercise of options, net of
repurchases................... -- -- (5,069) 25 -- -- 25
Accrued dividends on Series B
redeemable preferred stock.... -- -- -- -- (1,423) -- (1,423)
Accretion for redemption value
on Series B redeemable
preferred stock............... -- -- -- -- (1,500) -- (1,500)
Compensation expense on option
grants........................ -- -- -- 400 -- -- 400
Net loss........................ -- -- -- -- (5,544) -- (5,544)
Accumulated translation
adjustments................... -- -- -- -- -- (800) (800)
------- -- --------- ------ -------- ----- --------
Balance, December 31, 1997...... 412,500 $3 5,627,431 $6,090 $(23,166) $(800) $(17,873)
======= == ========= ====== ======== ===== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 128
PHASE METRICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................................ $ 4,669 $(11,990) $ (5,544)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation, amortization and write-downs of
intangible assets................................... 15,897 32,953 21,872
Amortization of deferred financing costs.............. 1,395 644 540
Loss on disposal of property, plant and equipment..... -- -- 714
Compensation expense on option grants................. 350 400 400
Deferred income taxes................................. (10,196) (16,333) (1,353)
Interest on convertible subordinated notes............ 2,000 2,000 1,894
Purchased in-process research and development......... -- 13,935 --
Extraordinary loss net of income taxes................ -- 1,122 --
Changes in assets and liabilities:
Accounts receivable................................. (11,339) 2,442 (3,688)
Inventories......................................... (20,107) (20,019) (4,508)
Prepaid expenses and other assets................... (1,415) (5,796) 3,732
Income taxes receivable............................. -- (5,000) (156)
Accounts payable.................................... 19,535 (5,189) (7,769)
Customer deposits, accrued expenses and other
liabilities...................................... 17,511 (10,571) (12,526)
-------- -------- --------
Net cash provided by (used for) operating
activities..................................... 18,300 (21,402) (6,392)
-------- -------- --------
Investing activities:
Acquisition of property, plant and equipment............. (9,135) (24,564) (17,091)
Acquisitions, net of cash acquired of $6,755 and $1,595,
respectively.......................................... (1,967) (20,752) --
Increase in patent costs................................. -- -- (78)
-------- -------- --------
Net cash used for investing activities........... (11,102) (45,316) (17,169)
-------- -------- --------
Financing activities:
Proceeds from term notes................................. 18,000 145,000 --
Repayment of term and subordinated notes................. (4,850) (80,446) (1,800)
Revolving loans -- net................................... 4,100 (300) 26,900
Repayment of bridge notes................................ (20,000) -- --
Payment of debt issuance costs........................... (765) (3,872) (330)
Proceeds from sale/leaseback of equipment................ -- 4,431 --
Payments on capital lease obligations.................... (317) (436) (912)
Proceeds from issuance of common stock, net of
repurchases........................................... 733 62 25
-------- -------- --------
Net cash provided by (used for) financing
activities..................................... (3,099) 64,439 23,883
-------- -------- --------
Effect of exchange rate changes on cash.................... -- -- (82)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 4,099 (2,279) 240
Cash and cash equivalents, beginning of period............. 917 5,016 2,737
-------- -------- --------
Cash and cash equivalents, end of period................... $ 5,016 $ 2,737 $ 2,977
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................ $ 2,789 $ 5,277 $ 9,393
======== ======== ========
Income taxes paid, (net refunds)......................... $ 5,055 $ 21,857 $ (5,357)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 129
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Phase Metrics, Inc. and its wholly-owned
subsidiaries (the "Company") design, manufacture and sell process and production
test equipment for the data storage industry. The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates in the Preparation of the Consolidated Financial
Statements -- The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. Assets, liabilities, revenues and expenses and
disclosures of contingent assets and liabilities are affected by such estimates
and assumptions. Actual results could differ from those estimates.
Risks and Uncertainties -- The Company is subject to certain risks and
uncertainties and believes that changes in any of the following areas could have
a material effect on the Company's future financial position or results of
operations: size and timing of orders from, and shipments to, major customers;
the timing of introductions of new products and product enhancements by the
Company or its competitors; the Company's ability to develop, introduce and
market new, technologically advanced products; the cyclicality of the data
storage industry; the rescheduling of capital expenditures by the Company's
customers; variations in the Company's customer base and product mix; the
availability and cost of key production materials and components; the Company's
ability to effectively manage its inventory and to control costs; the financial
stability of major customers; the Company's success in expanding its operations
overseas; personnel changes; expenses associated with acquisitions; fluctuations
in amortization and write-downs of intangible assets; foreign currency exchange
rate fluctuations and general economic factors.
Cash and Cash Equivalents -- The Company invests its excess cash in money
market accounts and highly liquid government securities. The Company considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property, Plant and Equipment -- Property, plant and equipment are recorded
at cost. Depreciation and amortization are provided using the straight-line
method over the estimated useful lives of the assets. Buildings and improvements
are depreciated over 39 years and equipment and furniture are generally
depreciated over three to five years. Amortization of leasehold improvements is
provided using the straight-line method over the lesser of the remaining lease
term or the life of the assets. Depreciation and amortization expense related to
property, plant and equipment totaled $2.8 million, $4.3 million, and $7.3
million for the years ended December 31, 1995, 1996 and 1997, respectively.
Intangible Assets -- Intangible assets consist primarily of purchased
technology, goodwill and covenants not to compete recorded in connection with
the Company's acquisitions (see Note 3). Purchased technology and goodwill are
amortized using the straight-line method over their expected useful lives,
generally three years. Covenants not to compete are amortized using the
straight-line method over the terms of the agreements of five to seven years.
Impairment of Long-Lived Assets -- The recoverability of long-lived assets
is evaluated by an analysis of operating results and consideration of other
significant events or changes in the underlying assets and business environment.
If the Company identifies events or circumstances which indicate that an
impairment might exist, the Company determines whether the sum of the estimated
undiscounted future cash flows attributable to the assets in question is less
than their carrying amounts. If impairment exists, the Company recognizes an
impairment loss based on the excess of the carrying amount of the assets over
their fair values determined by the estimated discounted future cash flows. In
1996, the Company recorded write-downs totaling $11.9 million related to
impairment losses primarily for Cambrian Systems, Inc. ("Cambrian") and Applied
Robotic
F-7
<PAGE> 130
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Technologies, Inc. ("ART") purchased technology. In 1997, the Company recorded a
write-down of $2.0 million related to an impairment loss for Air Bearings, Inc.
("ABI") purchased technology (See Note 3).
Stock-Based Compensation -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its stock-based awards to employees.
Revenue Recognition -- Sales are generally recognized upon shipment. A
provision for estimated warranty and installation costs is recorded upon product
shipment.
Research and Development -- Research and development costs are expensed as
incurred. The Company's products include certain software applications that are
integral to the operation of the product. The costs to develop such software
have not been capitalized as the Company believes its current software
development process is essentially completed concurrent with the establishment
of technological feasibility of the software.
Concentrations of Credit Risk -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist of cash equivalents
and accounts receivable. The Company invests its excess cash in money market
accounts and highly liquid government securities.
The Company sells its products without collateral primarily to companies located
throughout the United States and Asia. Historically, a significant portion of
the Company's sales in any particular period have been attributable to sales to
a limited number of customers. Credit is extended based on an evaluation of the
customer's financial condition. The Company estimates its potential losses on
trade receivables on an ongoing basis and provides for anticipated losses in the
period in which the sales are recognized.
Sales to customers outside the United States (primarily Asia) totaled 23%, 57%,
and 49% of net sales for the years ended December 31, 1995, 1996 and 1997,
respectively. As of December 31, 1996 and 1997, balances due from foreign
customers (primarily located in Asia) were $10.2 million and $12.0 million,
respectively.
The Company had sales to individual customers in excess of 10% of net
sales, as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer:
A................................................. 25% 19% 18%
B................................................. -- -- 17%
C................................................. 11% 15% 16%
D................................................. -- 12% --
E................................................. 17% -- --
</TABLE>
As of December 31, 1996 and 1997, accounts receivable from individual
customers with balances due in excess of 10% of total accounts receivable
totaled $16.9 million and $17.6 million, respectively.
Reclassifications -- Certain prior year amounts have been reclassified to
conform with the current year presentation.
Fair Value of Financial Instruments -- As of December 31, 1996 and 1997,
the carrying amounts of cash and cash equivalents and borrowings outstanding
under the Company's credit agreements approximate their respective fair values.
Estimation of the fair value of the convertible subordinated notes (see Note 4)
is not deemed practicable due to the related party relationship.
Foreign Currency Translation -- The financial statements of the Company's
subsidiaries outside the United States are measured using the local currency as
the functional currency. Assets and liabilities of these
F-8
<PAGE> 131
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
subsidiaries are translated at the rates of exchange at the balance sheet date.
The resultant translation adjustments are presented as a separate component of
stockholders' deficit.
Recent Accounting Pronouncements -- In June 1997, SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," were issued. SFAS No. 130 requires that an
enterprise report, by major components and as a single total, the change in its
net assets during the period from nonowner sources. SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas and major
customers. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows. Both
statements are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
2. BALANCE SHEET DETAILS
Accounts Receivable
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Trade receivables........................................ $25,788 $30,393
Allowance for doubtful accounts.......................... (746) (1,663)
------- -------
$25,042 $28,730
======= =======
</TABLE>
Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Raw materials and components............................. $32,012 $30,915
Work-in-process.......................................... 11,466 9,796
Finished goods........................................... 8,317 14,874
------- -------
$51,795 $55,585
======= =======
</TABLE>
Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
Land.................................................... $ 2,400 $ 2,400
Buildings and improvements.............................. 4,118 9,147
Equipment and furniture................................. 22,000 30,944
Leasehold improvements.................................. 3,900 5,514
Construction in progress................................ 661 1,098
------- --------
33,079 49,103
Accumulated depreciation and amortization............... (5,001) (11,080)
------- --------
$28,078 $ 38,023
======= ========
</TABLE>
F-9
<PAGE> 132
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Intangible Assets
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Purchased technology................................... $ 44,822 $ 17,598
Goodwill............................................... 4,410 --
Covenants not to compete............................... 2,175 2,175
Patents................................................ 53 131
-------- --------
51,460 19,904
Accumulated amortization and write-downs............... (31,983) (14,938)
-------- --------
$ 19,477 $ 4,966
======== ========
</TABLE>
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Accrued warranty......................................... $ 7,727 $ 5,461
Accrued compensation..................................... 6,992 6,271
Other.................................................... 6,398 4,326
------- -------
$21,117 $16,058
======= =======
</TABLE>
Accrued Expenses and Interest
Accrued expenses and interest consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Accrued interest on convertible subordinated notes......... $4,208 $6,102
Other accrued expenses..................................... 1,312 692
------ ------
$5,520 $6,794
====== ======
</TABLE>
3. ACQUISITIONS
In November 1994, the Company acquired all of the outstanding common stock
of ProQuip, Inc. ("ProQuip") and certain net assets of Cambrian. Concurrent with
such acquisitions, the Company restructured its combined operations.
In June 1995, the Company acquired all of the outstanding stock of Helios,
Incorporated ("Helios") and in July 1995, the Company acquired all of the
outstanding stock of ART and acquired certain net assets of Tahoe Instruments,
Inc. ("Tahoe").
In January 1996, the Company acquired all of the outstanding stock of ABI
and in December 1996, the Company acquired all of the outstanding stock of Santa
Barbara Metric ("SBM") and a portion of the business of Kirell Development, Inc.
("KDI").
The acquired companies discussed above design, manufacture and sell process
and production test equipment for the data storage industry. The acquisitions
have been accounted for in accordance with the purchase method of accounting and
the accompanying consolidated financial statements reflect the purchase
F-10
<PAGE> 133
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
price allocated to assets acquired and liabilities assumed based upon their fair
values as of the acquisition date. The Company's results of operations include
those of the acquired companies from their respective dates of acquisition.
The fair value of significant assets acquired, liabilities assumed and
purchased in-process research and development is summarized as follows (in
millions):
<TABLE>
<CAPTION>
1994 1995 1996
------------------ --------------- --------------------
PROQUIP CAMBRIAN HELIOS ART ABI KDI & SBM
------- -------- ------ ----- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets..................... $ 10.3 $ 3.5 $ 9.1 $ 5.6 $ 4.5 $ 0.5
Property and other assets.......... 1.2 0.5 -- 0.1 0.7 --
Covenant not to compete............ 1.5 0.2 -- -- -- 1.8
Purchased technology and
goodwill......................... 10.8 14.7 11.6 7.5 4.9 --
Liabilities........................ (10.2) (7.7) (13.6) (7.8) (0.1) (1.4)
Purchased in-process research and
development...................... -- -- -- -- 11.0 2.4
------ ----- ------ ----- ----- -----
Total purchase price............... $ 13.6 $11.2 $ 7.1 $ 5.4 $21.0 $ 3.3
====== ===== ====== ===== ===== =====
</TABLE>
In connection with the Company's acquisitions of ABI, SBM and a portion of
the business of KDI in 1996, the Company acquired certain research and
development projects that had not reached technological feasibility and had no
alternative future uses. Accordingly, $13.4 million of purchased in-process
research and development was expensed in 1996.
The following summarizes the cash and noncash components of the Company's
acquisitions (in millions):
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Total purchase price........................................ $24.8 $13.0 $24.3
Common stock issued......................................... -- (1.1) (1.9)
Notes payable issued........................................ -- (3.1) --
Cash acquired............................................... (2.8) (6.8) (1.6)
----- ----- -----
Cash used for acquisitions.................................. $22.0 $ 2.0 $20.8
===== ===== =====
</TABLE>
The following unaudited information presents the pro forma results of
operations of the Company, after giving effect to certain adjustments including
amortization of intangible assets acquired, as if each acquisition had taken
place on January 1 of the year preceding its acquisition, with the exception of
Tahoe, KDI and SBM for which the operations were deemed immaterial. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisitions been
made on such date, nor are they necessarily indicative of future results to be
expected (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Net sales................................................... $130,044 $190,773
======== ========
Income (loss) before extraordinary item..................... $ (2,005) $ 1,320
======== ========
Net income (loss)........................................... $ (2,005) $ 198
======== ========
</TABLE>
F-11
<PAGE> 134
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT
Debt Summary -- Debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
<S> <C> <C>
Credit agreements........................................... $83,800 $109,900
Convertible subordinated notes.............................. 8,000 8,000
Subordinated notes, interest at 6%, paid in 1997............ 1,000 --
Capital lease obligations with weighted average annual
interest rates
of 9%..................................................... 3,220 3,157
------- --------
Total....................................................... 96,020 121,057
Less current portion........................................ (2,463) (1,785)
------- --------
Long-term debt.............................................. $93,557 $119,272
======= ========
</TABLE>
Credit Agreements -- At December 31, 1997, the Company had a $120.0 million
credit agreement, amended in September of 1997, (the "Credit Agreement") with a
group of financial institutions (the "Lenders") which provides for (i) five-year
term loans (the "Term Loans") in the principal amount of $80.0 million, and (ii)
a three-year revolving credit facility (the "Revolver") up to $40.0 million. The
Credit Agreement was terminated and repaid in full subsequent to December 31,
1997 (See Note 11).
The Term Loans bear interest at the Company's option of (i) prime plus 2%
to 2.5% or (ii) LIBOR plus 3% to 3.5%. The Revolver bears interest at the
Company's option of (i) prime plus 0.5% to 2%, or (ii) LIBOR plus 1.5% to 3%.
The spreads depend on the Company's consolidated leverage ratio as defined in
the Credit Agreement. As of December 31, 1997, the Term Loans bore interest at
prime (8.5%) plus 2.5% and outstanding borrowings under the Revolver totaling
$3.2 million. Substantially all assets of the Company are pledged as collateral
for the Credit Agreement.
The Company pays a commitment fee on the unused portion of its Revolver.
The Credit Agreement contains certain affirmative and negative covenants
customary for this type of agreement. The Credit Agreement is guaranteed by all
of the Company's domestic subsidiaries and all such guarantees are
collateralized by first priority pledges of all outstanding capital stock of
each guarantor.
In connection with the refinancing of certain credit agreements in January
and December 1996, the related unamortized debt issuance costs were written off.
These write-offs, net of related tax benefit of $.7 million, have been reported
as extraordinary items in the accompanying consolidated statements of
operations. In connection with the Credit Agreement, the Company paid fees of
$1.2 million, for debt issuance costs to the syndication agent, a stockholder of
the Company.
Through a foreign subsidiary, the Company has entered into an accounts
receivable based credit agreement. The agreement has no fixed expiration, does
not contain any covenant compliance requirements, and the interest rate is
negotiated on a customer by customer basis. The borrowings outstanding at
December 31, 1996 totaled $0.2 million and bore interest at 1.2%. There were no
borrowings outstanding as of December 31, 1997.
Convertible Subordinated Notes -- In November 1994, the Company issued and
sold $8.0 million principal amount of its convertible subordinated notes (the
"Convertible Subordinated Notes") to certain stockholders.
The Convertible Subordinated Notes currently will mature in December 2001.
Interest accrued at an annual rate of 25.0% from the date of issuance through
November 23, 1997, and thereafter accrues at an annual rate equal to the greater
of 12.5% or prime (8.5% as of December 31, 1997) plus 2.0%. The Convertible
Subordinated Notes bore interest at 12.5% as of December 31, 1997. Interest is
payable at
F-12
<PAGE> 135
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
maturity. The Company and the holders of the Convertible Subordinated Notes
agreed, effective upon the issuance of the Notes (See Note 11), to amend the
Convertible Subordinated Notes to extend the maturity date to July 15, 2005 and
to eliminate all rights of redemption formerly provided for. The convertible
subordinated notes, including accrued interest: (i) are convertible into
5,142,720 shares of common stock at any time at the option of the holder, (ii)
will automatically be converted into common stock upon effectiveness of a
registration statement under the Securities Act of 1933 for the sale of common
stock with a minimum per share price of $4.665 (as adjusted to take into account
any subsequent subdivisions, combinations or reclassifications) and net proceeds
to the Company of not less than $15.0 million, and (iii) are subject to certain
anti-dilution provisions.
Long-term debt repayments (excluding capital leases) as of December 31,
1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------------------------------------------------
<S> <C>
1998.................................................. $ 800
1999.................................................. 55,767
2000.................................................. 26,667
2001.................................................. 34,666
2002.................................................. --
--------
Total......................................... $117,900
========
</TABLE>
5. INCOME TAXES
The components of income tax expense (benefit) are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
Current income taxes:
Federal........................................... $ 9,513 $ 6,330 $(2,915)
State............................................. 2,025 590 --
-------- -------- -------
Total..................................... 11,538 6,920 (2,915)
Deferred income taxes:
Federal........................................... (7,889) (13,610) 386
State............................................. (2,125) (3,211) (1,739)
-------- -------- -------
Total..................................... (10,014) (16,821) (1,353)
Income tax (benefit) expense before extraordinary
items............................................. 1,524 (9,901) (4,268)
Extraordinary items................................. -- 927 --
-------- -------- -------
Income tax expense (benefit)........................ $ 1,524 $ (8,974) $(4,268)
======== ======== =======
</TABLE>
F-13
<PAGE> 136
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliations between the statutory federal income tax rate and the
effective income tax rate for the years ended December 31, 1995, 1996 and 1997
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ------ ------
<S> <C> <C> <C>
Statutory tax rate -- expense (benefit)..................... 35.0% (35.0)% (34.0)%
Federal research and development credits.................... (4.9) (4.0) (8.2)
State income taxes, net of federal benefit.................. (1.0) (6.6) (4.2)
Foreign sales corporation, net of tax....................... (6.2) (2.4) --
Purchased in-process research and development............... -- 1.8 --
Compensation expense on option grants....................... -- 0.6 1.4
Other....................................................... 1.7 0.4 1.5
---- ----- -----
Effective tax rate -- expense (benefit)..................... 24.6% (45.2)% (43.5)%
==== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities used for financial
reporting and the amounts used for income tax purposes. The items comprising the
Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Reserves not currently deductible........................... $ 6,023 $ 5,492
Customer deposits........................................... 1,873 1,469
Uniform capitalization adjustment........................... 1,423 707
State taxes................................................. (919) (1,345)
Purchased technology........................................ 4,972 6,540
Tax credit carryforwards (expiring through 2002)............ -- 803
Other....................................................... (504) 555
------- -------
Total............................................. $12,868 $14,221
======= =======
</TABLE>
6. LEASES
Capital Leases -- The Company incurred capital lease obligations of $1.9
million, $1.8 million, and $0.8 million in connection with lease agreements for
equipment and furniture during the years ended December 31, 1995, 1996 and 1997,
respectively. At December 31, 1996 and 1997, assets under capital leases
included in property, plant and equipment totaled $3.8 million and $4.4 million
with accumulated amortization of $0.6 million and $1.3 million, respectively.
Operating Leases -- The Company leases certain of its facilities and
certain equipment under operating leases that expire at various dates through
2003. Certain facility leases include provisions for inflation escalation
adjustments, as well as one to five year renewal options. Rent expense under
operating leases totaled $0.5 million, $3.4 million and $5.1 million for the
years ended December 31, 1995, 1996 and 1997, respectively. In June 1996, the
Company sold and leased back certain equipment under an operating lease for net
proceeds of $4.4 million. No gain or loss was recognized in connection with this
transaction.
F-14
<PAGE> 137
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under capital and operating leases as of
December 31, 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
------------------------ ------- ---------
<S> <C> <C>
1998................................................ $1,207 $ 4,804
1999................................................ 1,082 2,500
2000................................................ 985 2,196
2001................................................ 343 928
2002................................................ 73 847
Thereafter.......................................... -- 465
------ -------
Total.......................................... 3,690 $11,740
=======
Amount representing interest............................. (533)
------
Present value of minimum lease payments.................. 3,157
Current portion.......................................... (985)
------
Long-term portion........................................ $2,172
======
</TABLE>
7. SERIES B REDEEMABLE PREFERRED STOCK
Each share of Series B redeemable preferred stock ("Series B preferred
stock"): (i) is voting, (ii) is convertible at the option of the holder into 20
shares of common stock, (iii) is entitled to preference in liquidation equal to
$31.11 per share plus all cumulative and unpaid dividends, (iv) has antidilution
rights, (v) has approval rights on new issuances of preferred stock, (vi) will
automatically be converted into common stock upon the effectiveness of a
registration statement under the Securities Act of 1933 for the sale of common
stock with a minimum per share price of $4.665 (as adjusted to take into account
any subsequent subdivisions, combinations or reclassifications) and net proceeds
to the Company of not less than $15.0 million, (vii) is redeemable by the
Company at $31.11 per share after the payment of cumulative and unpaid
dividends, and (viii) is entitled to receive cumulative minimum dividends at the
rate of 25% per year on the $6.0 million redemption value. This rate was reduced
to the greater of 12.5% or prime (8.5% as of December 31, 1997) plus 2.0% after
November 22, 1997. The dividends are cumulative at $1.5 million per year through
November 1997 and thereafter at minimum rates of $0.8 million per year. At any
time after November 23, 1998, a majority of the stockholders can request the
Company to redeem all outstanding shares at the redemption price of $31.11 per
share plus all unpaid dividends. On November 23, 2000 the Company must redeem
all outstanding shares. All redemptions are subject to funds legally available.
The $6.0 million redemption value is being accreted to retained earnings over
the redemption period ending November 23, 1998.
8. STOCKHOLDERS' EQUITY (DEFICIT)
Series A Preferred Stock -- The Series A preferred stock ranks junior to
the Series B preferred stock with respect to dividend and liquidation rights,
including liquidation rights in connection with any merger, dissolution or
winding up of operations. Each share of Series A preferred stock: (i) is voting,
(ii) is entitled to receive dividends at the same rate and time as common
stockholders when declared by the board of directors, (iii) is convertible at
the option of the holders into 20 shares of common stock, (iv) is entitled to
receive $21.82 per share upon liquidation after payment in full to Series B
preferred stockholders, (v) will automatically be converted into common stock
upon the effectiveness of a registration statement under the Securities Act of
1933 for the sale of common stock with a minimum per share price of $4.665 (as
adjusted to take into account any subsequent subdivisions, combinations or
reclassifications) and net proceeds to the Company of not less than $15.0
million, and (vi) is subject to certain anti-dilution provisions.
F-15
<PAGE> 138
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Shares Reserved -- As of December 31, 1997, the Company has reserved
the following number of shares of common stock for future issuance:
<TABLE>
<S> <C>
Conversion of Series A and B preferred stock................ 12,107,280
Conversion of subordinated notes............................ 5,142,720
Exercise and issuance of stock options...................... 4,926,570
Exercise of warrants........................................ 800,000
----------
Total............................................. 22,976,570
==========
</TABLE>
Registration Rights -- Series A and B preferred stockholders, convertible
subordinated debtholders and the holders of the common stock warrants
(collectively "securityholders") have been granted certain registration rights.
Such rights may be invoked by request of the holders of at least 25% of such
securities then outstanding or to be issued upon conversion of the Series A or
Series B preferred stock. The securityholders have been granted a right of first
refusal to purchase any outstanding capital stock offered for sale, as defined.
Warrants -- In connection with the issuance and repayment of certain debt,
the Company has outstanding warrants to acquire 800,000 shares of common stock
at $1.55 per share, subject to adjustment. The warrants expire on November 23,
2004.
Stock Option Plan -- Under the 1995 Stock Option Plan (the "Plan"), 6.3
million shares of common stock are reserved for issuance upon exercise of
options granted by the Company. Under the Plan, incentive and non-qualified
stock options may be granted to employees, officers, directors and consultants
to purchase shares of the Company's common stock. The exercise price for an
incentive stock option and a nonqualified stock option cannot be less than 100%
and 85%, respectively, of the fair market value of the Company's common stock on
the grant date as determined by the board of directors. Options vest at a rate
of 20% on the first anniversary of the vesting commencement date determined by
the Board of Directors and then ratably over the following 48 months. Options
are immediately exercisable and underlying shares are subject to the Company's
repurchase rights, which lapse over a five-year period. Options expire as
determined by the Board of Directors, but not more than 10 years after the grant
date. In addition, the Company has outstanding options to purchase an additional
100,000 shares of common stock granted outside of the Plan.
At December 31, 1997, 2,638,386 shares were available for future option
grants. The total number of shares authorized, as well as shares subject to
outstanding options, will be appropriately adjusted in the event of certain
changes to the Company's capital structure, such as stock dividends, stock
splits or other recapitalizations.
F-16
<PAGE> 139
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE PER
SHARES SHARE
---------- ----------
<S> <C> <C>
Balance at January 1, 1995
Granted............................................. 2,400,000 $0.89
Exercised........................................... (1,519,600) $0.49
Canceled............................................ (56,400) $0.55
----------
Balance at December 31, 1995.......................... 824,000 $1.66
Granted............................................. 1,108,000 $7.50
Exercised........................................... (35,216) $2.88
Canceled............................................ (179,983) $3.35
----------
Balance at December 31, 1996.......................... 1,716,801 $5.22
Granted............................................. 1,093,500 $8.36
Exercised........................................... (52,498) $1.69
Canceled............................................ (469,619) $6.72
----------
Balance at December 31, 1997.......................... 2,288,184 $6.49
==========
Vested at December 31, 1995........................... 21,108 $0.85
==========
Vested at December 31, 1996........................... 202,600 $1.58
==========
Vested at December 31, 1997........................... 495,833 $4.32
==========
Subject to repurchase at December 31, 1995............ 1,221,117 $0.50
==========
Subject to repurchase at December 31, 1996............ 817,679 $0.58
==========
Subject to repurchase at December 31, 1997............ 493,063 $0.55
==========
</TABLE>
The Company recognized compensation expense of $0.4 million during each of
the years ended December 31, 1995, 1996 and 1997 for the amortization of the
excess of the fair market value of the Company's common stock on the grant date
over the exercise price of stock options granted in 1995. The remaining
unamortized compensation expense related to such options is $1.1 million at
December 31, 1997, which will be recognized ratably over the remaining vesting
period.
The pro forma information required by SFAS 123 and presented below has been
determined as if the Company had accounted for its employee stock awards under
the Plan using the fair value method of that statement. The fair value for these
awards was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for December 31, 1995,
1996 and 1997, respectively: weighted average risk-free interest rates of 6.29%,
5.84% and 6.04%; no dividend yield or volatility factor; and a weighted average
expected life of 3.3, 3.5 and 3.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. The Company's employee stock awards have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate.
In management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock awards.
F-17
<PAGE> 140
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
awards is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------------
1995 1996 1997
------ -------- -------
<S> <C> <C> <C>
Pro forma net income (loss)........................... $4,383 $(12,487) $(5,976)
====== ======== =======
</TABLE>
The following table summarizes information as of December 31, 1997
concerning options outstanding:
<TABLE>
<CAPTION>
SHARES
WEIGHTED AVERAGE SUBJECT
EXERCISE OPTIONS REMAINING TO
PRICES OUTSTANDING CONTRACTUAL LIFE VESTED REPURCHASE
-------- ----------- ---------------- ------- ----------
(YEARS)
<S> <C> <C> <C> <C>
$0.37 129,400 7.33 71,198 416,685
$1.00 293,367 7.58 142,595 70,111
$5.00 130,567 7.86 56,760 --
$7.50 1,055,700 8.72 224,630 5,917
$8.75 679,150 9.50 650 350
--------- ------- -------
2,288,184 495,833 493,063
========= ======= =======
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1995, 1996 and 1997 was $1.01, $1.33 and $1.53, respectively.
9. COMMITMENTS
Related Party Transaction -- In November 1994, the Company executed a
consulting services agreement with certain of its stockholders which provides
for the payment of $0.2 million in November of each year through 1998. As of
December 31, 1997 the present value and accrued interest related to obligations
under the agreement was $0.4 million.
Acquisition-Related Agreements -- Concurrent with the Company's
acquisitions of Helios, ART, ABI, SBM, Tahoe and KDI, the Company entered into,
among other things, (i) employment or consulting agreements with the former
principals of each respective entity for minimum terms of three years each, (ii)
non-compete agreements for periods of five to seven years, and (iii) earn-out
agreements based on units produced or sold with stated combined maximum earn-out
payments for the material arrangements totaling $14.1 million, of which $3.3
million was considered certain and, accordingly, allocated to the original
purchase price, and the remainder of which is being charged to compensation
expense as incurred. During the years ended December 31, 1995, 1996 and 1997,
$1.4 million, $3.8 million and $2.0 million, respectively, of earn-outs have
been charged to compensation expense.
10. EMPLOYEE SAVINGS PLAN
Under the Company's 401(k) plan (the "Plan"), eligible employees may defer
up to 15% of their pre tax earnings, subject to the Internal Revenue Service
annual contribution limit. Company matching contributions to the Plan totaled
$0.4 million and $0.6 million for the years ended December 31, 1996 and 1997,
respectively.
11. SUBSEQUENT EVENT
On January 30, 1998, the Company sold $110.0 million of its 10.75% Senior
Notes due 2005 (the "Notes"), in a private offering. The Notes bear interest at
10.75% per annum, payable semiannually in arrears on February 1 and August 1 of
each year, commencing August 1, 1998. The Notes are senior unsecured
F-18
<PAGE> 141
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
obligations of the Company, and are redeemable at the option of the Company, in
whole or in part, at any time on or after January 15, 2002, in cash at
redemption prices as defined. In addition, at any time prior to January 15,
2001, the Company may redeem up to 40% of the Notes at a redemption price as
defined, with the net proceeds of a public equity offering, as defined. The
Company used the net proceeds of the Notes of $105.9 million, together with
existing cash and an initial draw of $1.6 million under the New Credit Facility
to repay in full its existing term loans and revolving credit facility and all
accrued interest thereon, as well as to pay fees of $0.3 million for the New
Credit Facility.
Concurrently with closing the sale of the Notes, the Company entered into a
$25 million revolving credit facility with a group of banks (the "New Credit
Facility"). The New Credit Facility is secured by substantially all of the
Company's assets. Borrowing availability under the New Credit Facility is
subject to a borrowing base test and may be increased at any time at the sole
discretion of the banks to up to $40 million. Borrowings under the New Credit
Facility bear interest at the lead bank's prime rate plus 1%, or at LIBOR plus
3%, at the Company's election. The New Credit Facility provides for a commitment
fee of three-fourths of one percent until March 31, 1999 and one-half of one
percent thereafter on the unused portion of the commitment amount. The New
Credit Facility will mature in January 2001.
The Notes and the New Credit Facility contain customary affirmative and
negative covenants, including limitations on other indebtedness, liens,
investments and guarantees, restricted payments, mergers and acquisitions, sales
of assets, capital expenditures, leases and affiliate transactions. The New
Credit facility also contains financial covenants relating to minimum interest
coverage, minimum net worth, minimum fixed charge coverage, minimum cash flow
and maximum leverage.
12. FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND NON-GUARANTOR
SUBSIDIARIES.
The Company conducts substantially all of its business through the parent
company and its domestic and foreign subsidiaries. In January 1998, the Company
issued the Notes (see Note 11). The Notes are jointly and severally guaranteed
by all of the Company's wholly-owned domestic subsidiaries (the "Guarantor
Subsidiaries").
Presented below is condensed consolidating financial information for Phase
Metrics, Inc. (the "Parent Company"), the Guarantor Subsidiaries and the
wholly-owned foreign subsidiaries (the "Non-Guarantor Subsidiaries") for the
years ended December 31, 1995 and 1996 and 1997. The condensed consolidating
financial information has been presented to show the nature of assets held,
results of operations and cash flows of the Parent Company, Guarantor
Subsidiaries and Non-Guarantor Subsidiaries assuming the expected guarantee
structure of the Senior Notes was in effect at the beginning of the periods
presented. Separate financial statements for the Guarantor Subsidiaries are not
presented based on management's determination that they would not provide
additional information that is material to investors.
The supplemental condensed consolidating financial information reflects the
investments of the Parent Company in the Guarantor and Non-Guarantor
Subsidiaries using the equity method of accounting.
F-19
<PAGE> 142
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FOREIGN
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $107,921 $8,973 $-- $ -- $116,894
Cost of sales.............................. 59,706 5,060 -- -- 64,766
-------- ------ --- ------- --------
Gross profit............................. 48,215 3,913 -- -- 52,128
Research and development expense........... 10,867 505 -- -- 11,372
Selling, general and administrative
expense.................................. 13,935 1,760 -- -- 15,695
Amortization and write-downs of intangible
assets................................... 13,094 -- -- -- 13,094
-------- ------ --- ------- --------
Income from operations................... 10,319 1,648 -- -- 11,967
Interest expense........................... 5,624 1 -- -- 5,625
Other (income) expense -- net.............. 175 (26) -- -- 149
-------- ------ --- ------- --------
Income before equity in subsidiaries and
taxes................................. 4,520 1,673 -- -- 6,193
Equity in net income of subsidiaries....... 1,261 -- -- (1,261) --
Income tax expense......................... 1,112 412 -- -- 1,524
-------- ------ --- ------- --------
Net income................................. $ 4,669 $1,261 $-- $(1,261) $ 4,669
======== ====== === ======= ========
</TABLE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FOREIGN
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income................................. $ 4,669 $ 1,261 $ -- $(1,261) $ 4,669
Depreciation, amortization and
write-downs of intangible assets...... 15,877 20 -- -- 15,897
Equity in net income of subsidiaries..... (1,261) -- -- 1,261 --
Other non-cash adjustments............... 3,745 -- -- -- 3,745
Changes in working capital............... (5,038) (973) -- -- (6,011)
-------- ------- ------ ------- --------
Net cash provided by operating
activities....................... 17,992 308 -- -- 18,300
-------- ------- ------ ------- --------
Investing activities:
Acquisition of property, plant and
equipment............................. (8,902) (233) -- -- (9,135)
Acquisitions, net of cash acquired of
$6,755................................ (1,967) -- -- -- (1,967)
-------- ------- ------ ------- --------
Net cash used for investing
activities....................... (10,869) (233) -- -- (11,102)
-------- ------- ------ ------- --------
Financing activities:
Revolving loans -- net................... 4,100 -- -- -- 4,100
Proceeds from term notes................. 18,000 -- -- -- 18,000
Repayment of debt........................ (4,850) -- -- -- (4,850)
Repayment of bridge notes................ (20,000) -- -- -- (20,000)
Intercompany balances and other.......... (274) (75) -- -- (349)
-------- ------- ------ ------- --------
Net cash used for financing
activities....................... (3,024) (75) -- -- (3,099)
-------- ------- ------ ------- --------
Net increase in cash and cash
equivalents.............................. 4,099 -- -- -- 4,099
Cash and cash equivalents, beginning of
year..................................... 917 -- -- -- 917
-------- ------- ------ ------- --------
Cash and cash equivalents, end of year..... $ 5,016 $ -- $ -- $ -- $ 5,016
======== ======= ====== ======= ========
</TABLE>
F-20
<PAGE> 143
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
FOREIGN
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accounts receivable -- net................. $ 24,224 $ 629 $ 189 $ -- $ 25,042
Inventories................................ 48,946 2,150 1,768 (1,069) 51,795
Other current assets....................... 21,620 1,164 713 -- 23,497
Property, plant and equipment, net......... 26,532 1,223 323 -- 28,078
Intercompany balances...................... (4,455) 7,058 (2,603) -- --
Investment in subsidiaries................. 7,616 -- -- (7,616) --
Other...................................... 25,097 21 483 -- 25,601
-------- ------- ------- -------- --------
Total assets.......................... $149,580 $12,245 $ 873 $ (8,685) $154,013
======== ======= ======= ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Other current liabilities.................. $ 50,781 $ 3,873 $ 536 $ -- $ 55,190
Current portion of debt.................... 2,463 -- -- -- 2,463
Long-term debt............................. 93,557 -- -- -- 93,557
Other...................................... 5,496 -- 24 -- 5,520
Redeemable preferred stock................. 6,314 -- -- -- 6,314
Stockholders' equity (deficit)............. (9,031) 8,372 313 (8,685) (9,031)
-------- ------- ------- -------- --------
Total liabilities, redeemable
preferred stock and stockholders'
deficit............................. $149,580 $12,245 $ 873 $ (8,685) $154,013
======== ======= ======= ======== ========
</TABLE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $162,442 $37,654 $ 4,384 $(13,707) $190,773
Cost of sales.............................. 95,285 18,217 2,521 (12,162) 103,861
-------- ------- ------- -------- --------
Gross profit............................. 67,157 19,437 1,863 (1,545) 86,912
Research and development expense........... 29,397 1,539 174 -- 31,110
Selling, general and administrative
expense.................................. 19,267 4,449 1,391 (476) 24,631
Amortization and write-downs of intangible
assets................................... 28,656 -- -- -- 28,656
Purchased research and development
expense.................................. 13,935 -- -- -- 13,935
-------- ------- ------- -------- --------
Income (loss) from operations............ (24,098) 13,449 298 (1,069) (11,420)
Interest expense........................... 8,408 38 2 -- 8,448
Other (income) expense..................... (22) (5) 1 -- (26)
-------- ------- ------- -------- --------
Income (loss) before equity in
subsidiaries, taxes and extraordinary
items................................. (32,484) 13,416 295 (1,069) (19,842)
Equity in net income of subsidiaries....... 6,219 -- -- (6,219) --
Income tax expense (benefit)............... (15,397) 6,305 118 -- (8,974)
-------- ------- ------- -------- --------
Net income (loss) before extraordinary
items................................. (10,868) 7,111 177 (7,288) (10,868)
Extraordinary items, net of income taxes... (1,122) -- -- -- (1,122)
-------- ------- ------- -------- --------
Net income (loss).......................... $(11,990) $ 7,111 $ 177 $ (7,288) $(11,990)
======== ======= ======= ======== ========
</TABLE>
F-21
<PAGE> 144
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FOREIGN
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss).......................... $(11,990) $ 7,111 $ 177 $(7,288) $(11,990)
Depreciation, amortization and
write-downs of intangible assets...... 32,511 347 95 -- 32,953
Equity in net income of subsidiaries..... (6,219) -- -- 6,219 --
Other non-cash adjustments............... 3,044 -- -- -- 3,044
Purchased research and development....... 13,935 -- -- -- 13,935
Extraordinary items...................... 1,122 -- -- -- 1,122
Changes in working capital............... (60,782) 1,521 (2,274) 1,069 (60,466)
-------- ------- ------- ------- --------
Net cash provided by (used for)
operating activities............. (28,379) 8,979 (2,002) -- (21,402)
-------- ------- ------- ------- --------
Investing activities:
Acquisition of property, plant and
equipment............................. (23,519) (627) (418) -- (24,564)
Acquisitions, net of cash acquired of
$1,597................................ (20,752) -- -- -- (20,752)
-------- ------- ------- ------- --------
Net cash used for investing
activities....................... (44,271) (627) (418) -- (45,316)
-------- ------- ------- ------- --------
Financing activities:
Revolving loans -- net................... (300) (300)
Proceeds from term notes................. 145,000 -- -- -- 145,000
Repayment of debt........................ (80,429) (17) -- -- (80,446)
Intercompany balances and other.......... 4,478 (7,213) 2,920 -- 185
-------- ------- ------- ------- --------
Net cash provided by (used for)
financing activities............. 68,749 (7,230) 2,920 -- 64,439
-------- ------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents.............................. (3,901) 1,122 500 -- (2,279)
Cash and cash equivalents, beginning of
period................................... 5,016 -- -- -- 5,016
-------- ------- ------- ------- --------
Cash and cash equivalents, end of period... $ 1,115 $ 1,122 $ 500 $ -- $ 2,737
======== ======= ======= ======= ========
</TABLE>
F-22
<PAGE> 145
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
FOREIGN
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accounts receivable -- net................. $ 27,693 $ 470 $ 567 $ -- $ 28,730
Inventory.................................. 48,255 5,624 5,844 (4,138) 55,585
Other current assets....................... 17,672 786 602 -- 19,060
Property, plant and equipment, net......... 35,510 2,194 319 -- 38,023
Intercompany balances...................... (4,308) 11,589 (7,281) -- --
Investment in subsidiaries................. 13,247 -- -- (13,247) --
Other...................................... 12,800 48 484 -- 13,332
-------- ------- ------- -------- --------
Total assets..................... $150,869 $20,711 $ 535 $(17,385) $154,730
======== ======= ======= ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Other current liabilities.................. $ 32,241 $ 3,079 $ 195 $ -- $ 35,515
Current portion of debt.................... 1,785 -- -- -- 1,785
Long-term debt............................. 119,272 -- -- -- 119,272
Redeemable preferred stock................. 9,237 -- -- -- 9,237
Other...................................... 6,207 -- 587 -- 6,794
Stockholders' equity (deficit)............. (17,873) 17,632 (247) (17,385) (17,873)
-------- ------- ------- -------- --------
Total liabilities, redeemable
preferred stock and
stockholders' deficit.......... $150,869 $20,711 $ 535 $(17,385) $154,730
======== ======= ======= ======== ========
</TABLE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FOREIGN
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $165,724 $38,995 $12,631 $(32,690) $184,660
Cost of sales.............................. 102,461 16,098 11,069 (28,334) 101,294
-------- ------- ------- -------- --------
Gross profit............................... 63,263 22,897 1,562 (4,356) 83,366
Research and development expense........... 40,412 3,004 156 -- 43,572
Selling, general and administrative
expense.................................. 18,559 3,556 2,140 (1,287) 22,968
Amortization and write-downs of
intangible assets........................ 14,591 -- -- -- 14,591
-------- ------- ------- -------- --------
Income (loss) from operations.............. (10,299) 16,337 (734) (3,069) 2,235
Interest expense........................... 11,566 -- 7 -- 11,573
Other (income) expense -- net.............. 278 (53) 249 -- 474
-------- ------- ------- -------- --------
Income (loss) before equity in subsidiaries
and taxes................................ (22,143) 16,390 (990) (3,069) (9,812)
Equity in net income of subsidiaries....... 5,631 -- -- (5,631) --
Income tax expense (benefit)............... (10,968) 7,130 (430) -- (4,268)
-------- ------- ------- -------- --------
Net income (loss).......................... $ (5,544) $ 9,260 $ (560) $ (8,700) $ (5,544)
======== ======= ======= ======== ========
</TABLE>
F-23
<PAGE> 146
PHASE METRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FOREIGN
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net income (loss).......................... $(5,544) $ 9,321 $(1,181) $(8,700) $ (5,544)
Depreciation, amortization and write-down
of intangible assets.................. 21,119 487 266 -- 21,872
Equity in net income of subsidiaries..... (5,631) -- -- 5,631 --
Other non-cash adjustments............... 3,548 -- -- -- 3,548
Changes in working capital............... (21,090) (4,154) (4,093) 3,069 (26,268)
-------- ------- ------- ------- --------
Net cash provided by (used for) operating
activities............................... (7,598) 5,593 (4,387) -- (6,392)
-------- ------- ------- ------- --------
Investing activities:
Acquisition of property, plant and
equipment............................. (15,442) (1,404) (245) -- (17,091)
Increase in patent costs................. (78) (78)
-------- ------- ------- ------- --------
Net cash used for investing activities..... (15,520) (1,404) (245) -- (17,169)
-------- ------- ------- ------- --------
Financing activities:
Proceeds from debt....................... 26,900 26,900
Repayment of debt........................ (1,776) -- (24) (1,800)
Other.................................... (1,364) (4,531) 4,678 -- (1,217)
-------- ------- ------- ------- --------
Net cash provided by (used for) financing
activities............................... 23,760 (4,531) 4,654 -- 23,883
-------- ------- ------- ------- --------
Effect of exchange rate on cash............ -- -- (82) -- (82)
Net increase (decrease) in cash and cash
equivalents.............................. 642 (342) (60) -- 240
Cash and cash equivalents, beginning of
year..................................... 1,115 1,122 500 2,737
-------- ------- ------- ------- --------
Cash and cash equivalents, end of year..... $ 1,757 $ 780 $ 440 $ -- $ 2,977
======== ======= ======= ======= ========
</TABLE>
F-24
<PAGE> 147
INDEPENDENT AUDITORS' REPORT
Air Bearings, Incorporated:
We have audited the accompanying statements of income and retained earnings
and of cash flows of Air Bearings, Incorporated for the year ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects the results of operations and cash flows of Air Bearings, Incorporated
for the year ended December 31, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
September 6, 1996
F-25
<PAGE> 148
AIR BEARINGS, INCORPORATED
STATEMENT OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Sales....................................................... $7,924
Cost of sales............................................... 1,621
------
Gross profit.............................................. 6,303
------
Operating expenses:
Selling, general and administrative....................... 372
Research and development.................................. 92
------
Total operating expenses.......................... 464
------
Income from operations...................................... 5,839
Other income -- net......................................... (9)
------
Income before income taxes.................................. 5,848
Income tax expense.......................................... 88
------
Net income.................................................. 5,760
Distributions to stockholders............................... (1,818)
Retained earnings, beginning of year........................ 718
------
Retained earnings, end of year.............................. $4,660
======
</TABLE>
See notes to financial statements.
F-26
<PAGE> 149
AIR BEARINGS, INCORPORATED
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Operating activities:
Net income................................................ $5,760
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 72
Changes in assets and liabilities:
Accounts receivable.................................. (1,743)
Inventory............................................ (494)
Prepaid expenses and other........................... (2)
Accounts payable..................................... 35
Accrued expenses and other liabilities............... 129
------
Net cash provided by operating activities......... 3,757
------
Investing activities -- Acquisition of property............. (536)
------
Financing activities:
Distributions to stockholders............................. (1,818)
Repayments of notes payable............................... --
------
Net cash used for financing activities............ (1,818)
------
Net increase in cash and cash equivalents................... 1,403
Cash and cash equivalents, beginning of year................ --
------
Cash and cash equivalents, end of year...................... $1,403
======
</TABLE>
See notes to financial statements.
F-27
<PAGE> 150
AIR BEARINGS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- The Company develops and manufactures air bearing spindles and
other components used in production test equipment for the data storage
industry.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions. Assets, liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities are affected by such estimates
and assumptions. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash equivalents consist of money market
accounts. The Company has not experienced any losses on its cash accounts.
Inventory -- Inventory is stated at the lower of cost (first-in, first-out)
or market.
Property -- Property is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the property (generally
5 years).
Revenue -- Revenue from product sales is recognized upon shipment.
Concentrations of Credit Risk -- The Company markets and sells its products
domestically and internationally without collateral. Export sales, primarily to
companies in Asia, accounted for 17% of 1995 sales. Three customers individually
accounted for 43%, 22% and 17% of 1995 sales and the related accounts receivable
from these customers aggregated approximately $1.5 million at December 31, 1995.
2. LEASE COMMITMENTS
The Company has month-to-month operating leases for its facilities. Rental
expense under these leases was $34,000 for the year ended December 31, 1995.
3. INCOME TAXES
The Company is an S Corporation for federal tax and California franchise
tax reporting purposes. S Corporation status requires the pass-through of income
and losses to the shareholders of the Company. The tax payable and related
provision by the Company consists of a 1 1/2% statutory California franchise
tax. Distributions of earnings are made periodically during the year to the
stockholders in an amount estimated to cover the tax on the earnings of the S
Corporation.
4. EMPLOYEE BENEFIT PLAN
The Company maintains a Simplified Employee Pension Plan ("SEP IRA Plan")
for the benefit of all qualifying employees. The SEP IRA Plan provides for
employer contributions up to 15% of each participant's compensation (as defined)
with an individual yearly maximum employer contribution (as defined).
Contributions of $66,000 were declared by the Company's Board of Directors in
1995.
5. SUBSEQUENT EVENT
On January 18, 1996, all of the Company's outstanding stock was acquired by
Phase Metrics, Inc. for total consideration of approximately $21 million.
* * * * * *
F-28
<PAGE> 151
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR DLJ. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. iv
Summary............................... 1
Risk Factors.......................... 12
The Exchange Offer.................... 24
The Refinancing....................... 31
Use of Proceeds....................... 31
Capitalization........................ 32
Selected Consolidated Financial
Data................................ 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 35
Business.............................. 44
Management............................ 61
Certain Transactions.................. 68
Principal Stockholders................ 70
Description of Indebtedness........... 72
Description of New Notes.............. 74
Certain United States Federal Tax
Considerations...................... 104
Notice to Investors................... 108
Plan of Distribution.................. 109
Description of Capital Stock.......... 111
Legal Matters......................... 113
Experts............................... 113
Glossary.............................. A-1
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
$110,000,000
LOGO
NEW 10 3/4% SENIOR NOTES DUE 2005
--------------------
PROSPECTUS
--------------------
, 1998
======================================================
<PAGE> 152
ALTERNATE PAGES TO BE USED IN MARKET-MAKING
PROSPECTUS FOLLOW
<PAGE> 153
PROSPECTUS [ALTERNATIVE COVER PAGE FOR MARKET-MAKING PROSPECTUS]
NEW 10 3/4% SENIOR NOTES DUE 2005
($110,000,000 PRINCIPAL AMOUNT)
OF
[PHASE METRICS LOGO]
------------------------
Phase Metrics, Inc., a Delaware corporation (the "Company"), exchanged (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in a
prospectus related thereto, up to an aggregate principal amount of $110,000,000
of its new 10 3/4% Senior Notes due 2005 (the "New Notes") and the guarantees
related thereto for an equal principal amount of its outstanding 10 3/4% Senior
Notes due 2005 (the "Notes") and the guarantees related thereto. The New Notes
are senior unsecured obligations of the Company and are substantially identical
(including principal amount, interest rate, maturity and redemption rights) to
the Notes for which they were exchanged pursuant to the Exchange Offer, except
that (i) the offering and sale of the New Notes was registered under the
Securities Act of 1933, as amended (the "Securities Act") and (ii) holders of
New Notes are not entitled to certain rights under the Registration Rights
Agreement of the Company and Applied Robotic Technologies, Inc., Helios,
Incorporated, Air Bearings, Incorporated and Santa Barbara Metric, Inc., all of
which are California corporations and wholly-owned subsidiaries of the Company
(together with any future other subsidiary of the Company that executes a New
Note Guarantee, the "Subsidiary Guarantors") dated as of January 30, 1998 (the
"Registration Rights Agreement"). The New Notes are fully and unconditionally
guaranteed on a senior unsecured basis (the "New Note Guarantees") by, and are
joint and several obligations of the Subsidiary Guarantors. The New Notes are
issued under an Indenture dated as of January 30, 1998 (the "Indenture"), among
the Company, the Subsidiary Guarantors and State Street Bank and Trust Company,
as trustee (the "Trustee"). See "Description of New Notes."
The New Notes will bear interest from January 30, 1998, the date of
issuance of the Notes, at a rate equal to 10 3/4% per annum. Interest on the New
Notes will be payable semiannually on February 1 and August 1 of each year,
commencing August 1, 1998. The New Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after February 1, 2002, at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any, thereon to the date of
redemption.
Prior to February 1, 2001, up to 33% of the initially outstanding aggregate
principal amount of New Notes (and any Notes which remain outstanding after the
Exchange Offer) will be redeemable at the option of the Company from the net
proceeds of a public sale of the Company's Common Stock ("Common Stock") at a
price of 110.75% of the principal amount of the New Notes (and any Notes which
remain outstanding after the Exchange Offer), together with accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption; provided,
that at least 67% of the initially outstanding aggregate principal amount of New
Notes (and any Notes which remain outstanding after the Exchange Offer) remains
outstanding immediately after such redemption. Upon the occurrence of a Change
of Control (as defined herein), each Holder (as defined herein) of New Notes may
require the Company to repurchase all or a portion of such Holder's New Notes at
101% of the aggregate principal amount of the New Notes, together with accrued
and unpaid interest and Liquidated Damages, if any, to the date of repurchase.
There can be no assurance that sufficient funds will be available at the time of
any Change of Control to make any required repurchase of New Notes. See "Risk
Factors -- Payment Upon a Change of Control" and "Description of New
Notes -- Repurchase at the Option of Holders -- Change of Control."
------------------------
SEE "RISK FACTORS" COMMENCING ON PAGE FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER NOTES
IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
B-1
<PAGE> 154
The New Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment to all existing and future senior indebtedness of the
Company and senior in right of payment to all existing and future subordinated
indebtedness of the Company. The New Notes are effectively subordinated,
however, to all secured obligations of the Company, including any borrowings
under the New Credit Facility (as defined herein) to the extent of the assets
securing such obligations. The New Notes are fully and unconditionally
guaranteed under the New Note Guarantees on a joint and several basis by the
Subsidiary Guarantors. The New Note Guarantees are senior unsecured obligations
of the Subsidiary Guarantors and rank pari passu in right of payment to all
existing and future senior indebtedness of the Subsidiary Guarantors. The New
Note Guarantees are effectively subordinated, however, to all secured
obligations of the Subsidiary Guarantors, including the guarantees of the
Subsidiary Guarantors in favor of the lenders under the New Credit Facility, to
the extent of the assets securing such obligations. As of December 31, 1997, the
New Notes and the New Note Guarantees would have been effectively subordinated
to approximately $3.2 million of secured obligations of the Company and the
Subsidiary Guarantors on an as adjusted basis giving effect to the Note Offering
and the application of the net proceeds therefrom.
This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") in connection with its offers and sales of the New Notes
(and related guarantees) from time-to-time in market-making transactions at
negotiated prices related to prevailing market prices at the time of sale. DLJ
may act as principal or agent in such transactions. The Company does not intend
to list the New Notes on any securities exchange or to seek admission thereof to
trading in the National Association of Securities Dealers Automated Quotation
System. DLJ has advised the Company that it intends to make a market in the New
Notes; however, DLJ is not obligated to do so and any market-making may be
discontinued at any time. The Company will receive no portion of the proceeds of
the sale of any New Notes by DLJ and will bear expenses incident to the
registration thereof. See "Plan of Distribution."
The Notes were initially sold by the Company on January 30, 1998 (the "Note
Closing") in transactions not registered under the Securities Act of 1933, as
amended (the "Securities Act") in reliance upon the exemption provided in
Section 4(2) thereof (the "Note Offering").
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
[End of Alternative Cover]
B-2
<PAGE> 155
ABSENCE OF ACTIVE TRADING MARKET
The New Notes constitute a new issue of securities with no established
trading market. Although the New Notes will generally be permitted to be resold
or otherwise transferred by holders who are not affiliates of the Company
without compliance with the registration requirements under the Securities Act,
the Company does not intend to list the New Notes on any securities exchange or
to seek admission thereof to trading in the National Association of Securities
Dealers Automated Quotation System. Although DLJ has advised the Company that it
currently intends to make a market in the New Notes, DLJ is not obligated to do
so and may discontinue such market making at any time without notice. In
addition, such market making activity will be subject to the limits imposed by
law. If a trading market does not develop or is not maintained, holders of the
New Notes may experience difficulty in reselling the New Notes or may be unable
to sell them at all. If a market for the New Notes develops, any such market may
be discontinued at any time. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes.
DLJ may be deemed to be an "affiliate" of the Company and, as such, may be
required to deliver a prospectus in connection with its market-making activities
in the New Notes.
B-3
<PAGE> 156
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes were
approximately $105.9 million (after deducting discounts and commissions and Note
Offering expenses payable by the Company). The Company used all of such net
proceeds, together with the Initial Draw of approximately $1.6 million under the
New Credit Facility, to repay in full its then-existing term loan and revolving
credit indebtedness under the Former Credit Facility, including all accrued
interest thereunder to the date of repayment, and all expenses related to the
Refinancing.
This Prospectus is delivered in connection with the sale of the New Notes
(and the related guarantees) by DLJ in market-making transactions. The Company
will not receive any of the proceeds from such transactions.
B-4
<PAGE> 157
PLAN OF DISTRIBUTION
This Prospectus has been prepared for use by DLJ in connection with offers
and sales from time-to-time of the New Notes (and related guarantees) in
market-making transactions at negotiated prices relating to prevailing market
prices at the time of sale. DLJ may act as principal or agent in such
transactions. DLJ has advised the Company that it currently intends to make a
market in the New Notes, but it is not obligated to do so and may discontinue or
suspend any such market-making activities at any time without notice.
There is no existing market for the New Notes and there can be no assurance
as to the liquidity of any market that may develop for the New Notes, the
ability of Holders of the New Notes to sell their New Notes or the price at
which Holders would be able to sell their New Notes. Future trading prices of
the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results, the market for
similar securities and general economic conditions. The Company does not
currently intend to list the New Notes on any securities exchange or the
National Association of Securities Dealers Automated Quotation System.
Therefore, no assurance can be given as to the liquidity of any trading market
for the New Notes. See "Risk Factors -- Absence of Active Trading Market."
DLJ served as the initial purchaser in the Note Offering and received total
underwriting discounts and commissions of $3.575 million in connection
therewith.
DLJ and the Company entered into the Registration Rights Agreement with
respect to the use by DLJ of this Prospectus. Pursuant to the Registration
Rights Agreement, the Company agreed to bear all registration expenses incurred
under such agreement, and the Company agreed to indemnify DLJ against certain
liabilities, including liabilities under the Securities Act.
Entities affiliated with DLJ (i) hold 11,800,000 shares of Common Stock of
the Company, including shares of the Company's Series A Preferred Stock and
Series B Preferred Stock which are convertible into an aggregate of 2,000,000
shares and 3,857,280 shares of the Company's Common Stock, respectively,
Convertible Subordinated Notes which are convertible into an aggregate of
5,142,720 shares of the Company's Common Stock, and Bridge Financing Warrants
which are exercisable for an aggregate of 800,000 shares of the Company's Common
Stock and (ii) pursuant to the Securityholders Agreement, are entitled to elect
two members to the Company's Board of Directors.
Under the Securityholders Agreement, the Company is obligated until
November 23, 1998, to use DLJ as its exclusive financial advisor and investment
banker. In consideration for DLJ's services, the Company has agreed to pay DLJ
an annual retainer of $200,000. In each of 1995, 1996 and 1997, the Company paid
DLJ $200,000 in fees for financial advisory and certain investment banking
services provided to the Company.
In connection with the refinancing of its then-outstanding indebtedness in
January and December of 1996, the Company paid fees of $1.2 million in the
aggregate for debt issuance costs to DLJCF. DLJCF is an affiliate of DLJ.
B-5
<PAGE> 158
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). The Company's Bylaws (the "Bylaws")
(Exhibit 3.2 hereto) provide that the Company shall indemnify its directors and
officers to the fullest extent permitted by Delaware law. The Bylaws authorize
the Company, to the fullest extent permitted by law, to advance litigation
expenses to its directors and officers in defending any proceeding.
In addition, the Company's Certificate of Incorporation (the "Certificate")
(Exhibit 3.1 hereto) provides that, pursuant to Delaware law, its directors
shall not be liable for monetary damages for breach of the directors' fiduciary
duty of care to the Company and its stockholders. This provision in the
Certificate does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Certificate further provides that the
Company shall indemnify (and advance expenses to) its directors and also is
authorized to indemnify its officers (and any other person to which Delaware law
permits) to the fullest extent permitted by law.
The Company has entered into agreements to indemnify its directors and
certain of its officers and employees in addition to the indemnification
provided for in the Bylaws and under Delaware law. These agreements will, among
other things, indemnify the Company's directors and certain of its officers and
employees for certain expenses (including attorneys fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the Company, on account of services
by that person as a director or officer of the Company or as a director or
officer of any subsidiary of the Company, or as a director or officer of any
other company or enterprise that the person provides services to at the request
of the Company. The agreements also require the Company to advance all
reasonable expenses incurred by or on behalf of the indemnified director or
officer in connection with any proceeding by reason of the director or officer's
corporate status subject to an undertaking by the indemnified director or
officer to repay any expenses advanced that have been ultimately determined not
to be indemnifiable. These indemnification agreements further provide that the
conferred indemnification rights and remedies are to be nonexclusive of any
other rights and remedies granted under law, the Certificate, any other
agreement, or otherwise and that no change to these agreements shall limit or
restrict any right under these agreements with respect to any action taken or
omitted by such director or officer in his corporate status prior to such change
and to the extent any such change in the law permits greater indemnification
than would be currently provided under the Certificate and these agreements, the
parties' intent is that these agreements provide the greater benefits so
afforded by such change. The Company has also obtained directors' and officers'
liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<C> <S>
3.1* Certificate of Incorporation of the Company, as amended.
3.2* Bylaws of the Company.
4.1 Purchase Agreement dated as of January 23, 1998 by and among
the Company, Helios, Incorporated, Applied Robotic
Technologies, Inc., Air Bearings, Incorporated, Santa
Barbara Metric, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation.
</TABLE>
II-1
<PAGE> 159
<TABLE>
<C> <S>
4.2 Indenture dated as of January 30, 1998 by and among the Company, the Subsidiary Guarantors and
State Street Bank and Trust Company of California, N.A. as Trustee.
4.3 Form of 10 3/4% Senior Notes Due 2005 dated as of January 30, 1998 (incorporated by reference to
Exhibit 4.2).
4.4 Registration Rights Agreement dated as of January 30, 1998 by and among the Company, Helios,
Incorporated, Applied Robotics Technologies, Inc., Air Bearings, Incorporated, Santa Barbara
Metric, Inc. and Donaldson, Lufkin & Jenrette Securities Corporation.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Lease Agreement dated June 5, 1995 by and between the Company and Security Capital Industrial
Trust.
10.2 Sublease Agreement dated April 1, 1997 by and between the Company and Hitachi America Ltd.
10.3 Master Security Agreement dated as of May 5, 1995 between the Company and Komag Incorporated, a
Delaware corporation.
10.4 Employment Agreement dated November 23, 1994 by and between the Company and John F. Schaefer.
10.5 Komag Intercreditor Agreement dated May 5, 1995.
10.6 Form of Indemnification Agreement.
10.7 1995 Stock Option/Stock Issuance Plan.
10.8 Form of Notice of Grant of Stock Option with respect to holders of stock options granted under
the 1995 Stock Option/Stock Issuance Plan.
10.9 Form of Stock Option Agreement and Addendum generally used in connection with the 1995 Stock
Option/Stock Issuance Plan.
10.10 Form of Stock Purchase Agreement and Addendum generally used in connection with the 1995 Stock
Option/ Stock Issuance Plan.
10.11 Securityholders Agreement dated November 23, 1994, as amended, between DLJ Merchant Banking
Partners, L.P., DLJ International Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant
Banking Funding, Inc., DLJ Capital Corporation, Sprout Growth II, L.P., Sprout Capital VI, L.P.,
DLJ First ESC L.L.C., Arthur J. Cormier, John F. Schaefer and the Company.
10.12 Master Capital Lease Agreement dated as of January 13, 1996 by and between the Company and NTFC
Capital Corporation.
10.13* Form of Convertible Subordinated Note Due 2005 dated as of November 23, 1994 including all
amendments thereto.
10.14 Amended and Restated Credit Facility dated as of January 30, 1998 by and among the Company, as
Borrower, Fleet National Bank, Imperial Bank and the other lenders named therein.
12.1 Statement Regarding Computation of Ratios.
21.1 List of Subsidiaries.
23.1 Independent Auditors Consent and Report on Schedule.
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1).
24.1 Powers of Attorney (contained on signature page on page II-4, II-5, II-6, II-7 and II-8).
25.1 Form T-1 Statement of Eligibility and Qualification of State Street Bank and Trust Company of
California, N.A. as Trustee.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal for the 10 3/4% Senior Notes due 2005.
</TABLE>
II-2
<PAGE> 160
<TABLE>
<C> <S>
99.2 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
99.3 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts -- Phase Metrics, Inc.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of the counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Prospectus that is a part of this
Registration Statement pursuant to Item 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
II-3
<PAGE> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on the 26th day of March, 1998.
PHASE METRICS, INC.
By: /s/ JOHN F. SCHAEFER
------------------------------------
John F. Schaefer
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John F. Schaefer and R. Joseph Saunders
and each of them his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming that such
attorneys-in-fact and agents or any of them, or his, her or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN F. SCHAEFER Chairman, Chief Executive March 26, 1998
- ----------------------------------------------------- Officer and President
John F. Schaefer (Principal Executive Officer)
/s/ R. JOSEPH SAUNDERS Vice President, Chief Financial March 26, 1998
- ----------------------------------------------------- Officer and Assistant Secretary
R. Joseph Saunders (Principal Accounting and
Financial Officer)
/s/ ARTHUR J. CORMIER Director March 26, 1998
- -----------------------------------------------------
Arthur J. Cormier
/s/ THOMPSON DEAN Director March 26, 1998
- -----------------------------------------------------
Thompson Dean
/s/ ROBERT FINZI Director March 26, 1998
- -----------------------------------------------------
Robert Finzi
/s/ DR. GILBERT F. AMELIO Director March 26, 1998
- -----------------------------------------------------
Dr. Gilbert F. Amelio
/s/ WILLIAM E. TERRY Director March 26, 1998
- -----------------------------------------------------
William E. Terry
</TABLE>
II-4
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on the 26th day of March, 1998.
AIR BEARINGS, INCORPORATED
By: /s/ JOHN F. SCHAEFER
------------------------------------
John F. Schaefer
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. Joseph Saunders his attorney-in-fact,
with the power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto in all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming that such attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN F. SCHAEFER Chairman and Chief Executive March 26, 1998
- ----------------------------------------------------- Officer (Principal Executive
John F. Schaefer Officer)
/s/ R. JOSEPH SAUNDERS Chief Financial Officer, March 26, 1998
- ----------------------------------------------------- Assistant Secretary and
R. Joseph Saunders Director (Principal Accounting
and Financial Officer)
</TABLE>
II-5
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on the 26th day of March, 1998.
APPLIED ROBOTIC TECHNOLOGIES, INC.
By: /s/ JOHN F. SCHAEFER
------------------------------------
John F. Schaefer
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. Joseph Saunders his attorney-in-fact,
with the power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto in all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming that such attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN F. SCHAEFER Chairman and Chief Executive March 26, 1998
- ----------------------------------------------------- Officer (Principal Executive
John F. Schaefer Officer)
/s/ R. JOSEPH SAUNDERS Vice President, Assistant March 26, 1998
- ----------------------------------------------------- Secretary and Director
R. Joseph Saunders (Principal Accounting and
Financial Officer)
</TABLE>
II-6
<PAGE> 164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on the 26th day of March, 1998.
HELIOS, INCORPORATED
By: /s/ JOHN F. SCHAEFER
------------------------------------
John F. Schaefer
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. Joseph Saunders his attorney-in-fact,
with the power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto in all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming that such attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN F. SCHAEFER Chairman and Chief Executive March 26, 1998
- ----------------------------------------------------- Officer (Principal Executive
John F. Schaefer Officer)
/s/ R. JOSEPH SAUNDERS Vice President and Assistant March 26, 1998
- ----------------------------------------------------- Secretary (Principal Accounting
R. Joseph Saunders and Financial Officer)
</TABLE>
II-7
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on the 26th day of March, 1998.
SANTA BARBARA METRIC, INC.
By: /s/ JOHN F. SCHAEFER
------------------------------------
John F. Schaefer
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. Joseph Saunders his attorney-in-fact,
with the power of substitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto in all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming that such attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JOHN F. SCHAEFER Chairman and Chief Executive March 26, 1998
- ----------------------------------------------------- Officer (Principal Executive
John F. Schaefer Officer)
/s/ R. JOSEPH SAUNDERS Chief Financial Officer, March 26, 1998
- ----------------------------------------------------- Assistant Secretary and
R. Joseph Saunders Director (Principal Accounting
and Financial Officer)
/s/ W. DEWEY HOCKEMEYER Director March 26, 1998
- -----------------------------------------------------
W. Dewey Hockemeyer
</TABLE>
II-8
<PAGE> 166
SCHEDULE II
PHASE METRICS, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGES TO BALANCE AT
BEGINNING COSTS AND CHARGES TO END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts......... $154 $ 463 $-- $ 27 $ 590
Year ended December 31, 1996
Allowance for doubtful accounts......... 590 247 -- 91 746
Year ended December 31, 1997
Allowance for doubtful accounts......... 746 1,405 -- 488 1,663
</TABLE>
<PAGE> 167
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
------- ------------
<C> <S>
3.1* Certificate of Incorporation of the Company, as amended.
3.2* Bylaws of the Company.
4.1 Purchase Agreement dated as of January 23, 1998 by and among
the Company, Helios, Incorporated, Applied Robotic
Technologies, Inc., Air Bearings, Incorporated, Santa
Barbara Metric, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation.
4.2 Indenture dated as of January 30, 1998 by and among the
Company, the Subsidiary Guarantors and State Street Bank and
Trust Company of California, N.A. as Trustee.
4.3 Form of 10 3/4% Senior Notes Due 2005 dated as of January
30, 1998 (incorporated by reference to Exhibit 4.2).
4.4 Registration Rights Agreement dated as of January 30, 1998
by and among the Company, Helios, Incorporated, Applied
Robotics Technologies, Inc., Air Bearings, Incorporated,
Santa Barbara Metric, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Lease Agreement dated June 5, 1995 by and between the
Company and Security Capital Industrial Trust.
10.2 Sublease Agreement dated April 1, 1997 by and between the
Company and Hitachi America Ltd.
10.3 Master Security Agreement dated as of May 5, 1995 between
the Company and Komag Incorporated, a Delaware corporation.
10.4 Employment Agreement dated November 23, 1994 by and between
the Company and John F. Schaefer.
10.5 Komag Intercreditor Agreement dated May 5, 1995.
10.6 Form of Indemnification Agreement.
10.7 1995 Stock Option/Stock Issuance Plan.
10.8 Form of Notice of Grant of Stock Option with respect to
holders of stock options granted under the 1995 Stock
Option/Stock Issuance Plan.
10.9 Form of Stock Option Agreement and Addendum generally used
in connection with the 1995 Stock Option/Stock Issuance
Plan.
10.10 Form of Stock Purchase Agreement and Addendum generally used
in connection with the 1995 Stock Option/ Stock Issuance
Plan.
10.11 Securityholders Agreement dated November 23, 1994, as
amended, between DLJ Merchant Banking Partners, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V.,
DLJ Merchant Banking Funding, Inc., DLJ Capital Corporation,
Sprout Growth II, L.P., Sprout Capital VI, L.P., DLJ First
ESC L.L.C., Arthur J. Cormier, John F. Schaefer and the
Company.
10.12 Master Capital Lease Agreement dated as of January 13, 1996
by and between the Company and NTFC Capital Corporation.
10.13* Form of Convertible Subordinated Note Due 2005 dated as of
November 23, 1994 including all amendments thereto.
10.14 Amended and Restated Credit Facility dated as of January 30,
1998 by and among the Company, as Borrower, Fleet National
Bank, Imperial Bank and the other lenders named therein.
12.1 Statement Regarding Computation of Ratios.
21.1 List of Subsidiaries.
</TABLE>
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
------- ------------
<C> <S>
23.1 Independent Auditors Consent and Report on Schedule.
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in
Exhibit 5.1).
24.1 Powers of Attorney (contained on signature page on page
II-4, II-5, II-6, II-7 and II-8).
25.1 Form T-1 Statement of Eligibility and Qualification of State
Street Bank and Trust Company of California, N.A. as
Trustee.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal for the 10 3/4% Senior Notes
due 2005.
99.2 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
99.3 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 4.1
PHASE METRICS, INC.
HELIOS, INCORPORATED
APPLIED ROBOTIC TECHNOLOGIES, INC.
AIR BEARINGS, INCORPORATED
SANTA BARBARA METRIC, INC.
$110,000,000
10 3/4% SENIOR NOTES DUE 2005
PURCHASE AGREEMENT
JANUARY 23, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
<PAGE> 2
$110,000,000
10 3/4% Senior Notes Due 2005
of Phase Metrics, Inc.
PURCHASE AGREEMENT
January 23, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Dear Sirs:
Phase Metrics, Inc., a Delaware corporation (the "COMPANY"),
proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities
Corporation (the "INITIAL PURCHASER") an aggregate of $110,000,000 in principal
amount of its 10 3/4% Senior Notes due 2005 (the "SENIOR NOTES"), subject to the
terms and conditions set forth herein. The Senior Notes are to be issued
pursuant to the provisions of an indenture (the "INDENTURE"), to be dated as of
the Closing Date (as defined below), among the Company, the Guarantors (as
defined below) and State Street Bank and Trust Company of California, N.A., as
trustee (the "TRUSTEE"). The Senior Notes and the New Senior Notes (as defined
below) issuable in exchange therefor are collectively referred to herein as the
"NOTES." The Notes will be guaranteed (the "SUBSIDIARY GUARANTEES") by each of
the entities listed on Schedule A, hereto (each, a "GUARANTOR" and collectively
the "GUARANTORS"). Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Indenture.
1 OFFERING MEMORANDUM. The Senior Notes will be offered and sold to
the Initial Purchaser pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the "ACT"). The
Company and the Guarantors have prepared a preliminary offering memorandum,
dated December 31, 1997 (the "PRELIMINARY OFFERING MEMORANDUM") and a final
offering memorandum, dated January 23, 1998 (the "OFFERING MEMORANDUM"),
relating to the Senior Notes and the Subsidiary Guarantees.
-1-
<PAGE> 3
Upon original issuance thereof, and until such time as the same is
no longer required pursuant to the Indenture, the Senior Notes (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE SECOND SENTENCE HEREOF. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT)(A "QIB"), (B) IT IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
(B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT,
(E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE)
AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE
-2-
<PAGE> 4
THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE
TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
2 AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, an aggregate principal amount of $110,000,000 of
Senior Notes at a purchase price equal to 96.75% of the principal amount thereof
(the "PURCHASE PRICE").
3 TERMS OF OFFERING. The Initial Purchaser has advised the Company
that the Initial Purchaser will make offers (the "EXEMPT RESALES") of the Senior
Notes purchased hereunder on the terms set forth in the Offering Memorandum, as
amended or supplemented, solely to (i) persons whom the Initial Purchaser
reasonably believe to be "qualified institutional buyers" as defined in Rule
144A under the Act ("QIBS"), and (ii) to persons permitted to purchase the
Senior Notes in offshore transactions in reliance upon Regulation S under the
Act (each, a "REGULATION S PURCHASER") (such persons specified in clauses (i)
and (ii) being referred to herein as the "ELIGIBLE PURCHASERS"). The Initial
Purchaser will offer the Senior Notes to Eligible Purchasers initially at a
price equal to 100.0% of the principal amount thereof. Such price may be changed
at any time without notice.
Holders (including subsequent transferees) of the Senior Notes will
have the registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, in substantially
the form of Exhibit A hereto, for so long as such Senior Notes constitute
"TRANSFER RESTRICTED SECURITIES" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, the Company and the
Guarantors will agree to file with the Securities and Exchange Commission (the
"COMMISSION") under the circumstances set forth therein, (i) a registration
statement under the Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") relating
to the Company's registered 10 3/4% Senior Notes due 2005 (the "NEW SENIOR
NOTES"), to be offered in exchange for the Senior Notes (such offer to exchange
being referred to as the "EXCHANGE OFFER") and the Subsidiary Guarantees thereof
and (ii) a shelf registration statement pursuant to Rule 415 under the Act (the
"SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer
Registration Statement, the "REGISTRATION STATEMENTS") relating to the resale by
certain holders of the Senior Notes and to use its best efforts to cause such
Registration Statements to be declared and remain effective and usable for the
periods specified in the Registration Rights Agreement and to consummate the
Exchange Offer. This Agreement, the Indenture, the Notes, the Subsidiary
Guarantees and the Registration Rights Agreement are hereinafter sometimes
referred to collectively as the "OPERATIVE DOCUMENTS."
4 DELIVERY AND PAYMENT.
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<PAGE> 5
(a) Delivery of, and payment of the Purchase Price for, the
Senior Notes shall be made at the offices of Wilson Sonsini Goodrich & Rosati,
P.C., 650 Page Mill Road, Palo Alto, California, or such other location as may
be mutually acceptable. Such delivery and payment shall be made at 9:00 a.m. New
York City time, on January 30, 1998 or at such other time as shall be agreed
upon by the Initial Purchaser and the Company. The time and date of such
delivery and the payment are herein called the "CLOSING DATE."
(b) One or more of the Senior Notes in definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust Company
("DTC"), having an aggregate principal amount corresponding to the aggregate
principal amount of the Senior Notes (collectively, the "GLOBAL NOTE"), shall be
delivered by the Company to the Initial Purchaser (or as the Initial Purchaser
directs) in each case with any transfer taxes thereon duly paid by the Company
against payment by the Initial Purchaser of the Purchase Price thereof by wire
transfer in same day funds to the order of the Company. The Global Note shall be
made available to the Initial Purchaser for inspection not later than 9:30 a.m.,
New York City time, on the business day immediately preceding the Closing Date.
5 AGREEMENTS OF THE COMPANY AND THE GUARANTORS. Each of the Company
and the Guarantors hereby agrees with the Initial Purchaser as follows:
(a) To advise the Initial Purchaser promptly and, if requested
by the Initial Purchaser, confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the qualification
or exemption from qualification of any Senior Notes for offering or sale in any
jurisdiction designated by the Initial Purchaser pursuant to Section 5(e)
hereof, or the initiation of any proceeding by any state securities commission
or any other federal or state regulatory authority for such purpose and (ii) of
the happening of any event during the period referred to in Section 5(c) below
that makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires any additions to
or changes in the Preliminary Offering Memorandum or the Offering Memorandum in
order to make the statements therein not misleading. The Company shall use its
best efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any Senior Notes under any state securities or
Blue Sky laws and, if at any time any state securities commission or other
federal or state regulatory authority shall issue an order suspending the
qualification or exemption of any Senior Notes under any state securities or
Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchaser and those persons
identified by the Initial Purchaser to the Company as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchaser may reasonably request for the
time period specified in Section 5(c). Subject to the Initial Purchaser's
compliance with its representations and warranties and agreements set forth in
Section 7 hereof, the Company consents to the use of the Preliminary Offering
Memorandum and the Offering
-4-
<PAGE> 6
Memorandum, and any amendments and supplements thereto required pursuant hereto,
by the Initial Purchaser in connection with Exempt Resales.
(c) During such period as in the opinion of counsel for the
Initial Purchaser an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchaser and in connection with
market-making activities of the Initial Purchaser for so long as any Senior
Notes are outstanding, (i) not to make any amendment or supplement to the
Offering Memorandum of which the Initial Purchaser shall not previously have
been advised or to which the Initial Purchaser shall reasonably object after
being so advised and (ii) to prepare promptly upon the Initial Purchaser's
reasonable request, any amendment or supplement to the Offering Memorandum which
may be necessary or advisable in connection with such Exempt Resales or such
market-making activities.
(d) If, during the period referred to in Section 5(c) above,
any event shall occur or condition shall exist as a result of which, in the
opinion of counsel to the Initial Purchaser, it becomes necessary to amend or
supplement the Offering Memorandum in order to make the statements therein, in
the light of the circumstances when such Offering Memorandum is delivered to an
Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchaser, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum will comply with applicable law, and to furnish to the Initial
Purchaser and such other persons as the Initial Purchaser may designate such
number of copies thereof as the Initial Purchaser may reasonably request.
(e) Prior to the sale of all Senior Notes pursuant to Exempt
Resales as contemplated hereby, to cooperate with the Initial Purchaser and
counsel to the Initial Purchaser in connection with the registration or
qualification of the Senior Notes for offer and sale to the Initial Purchaser
and pursuant to Exempt Resales under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchaser may reasonably request and to continue
such registration or qualification in effect so long as required for Exempt
Resales and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that neither the Company nor any Guarantor shall be required
in connection therewith to qualify as a foreign corporation in any jurisdiction
in which it is not now so qualified or to take any action that would subject it
to general consent to service of process or taxation other than as to matters
and transactions relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction in which it is not now so
subject.
(f) So long as the Notes are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year to
the record holders of the Notes a financial report of the Company and its
subsidiaries on a consolidated basis (and a similar financial report of all
unconsolidated subsidiaries, if any), all such financial reports to include a
consolidated balance sheet, a consolidated statement of operations, a
consolidated statement of cash flows and a
-5-
<PAGE> 7
consolidated statement of stockholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by the Company's independent public accountants and
(ii) to mail and make generally available as soon as practicable after the end
of each quarterly period (except for the last quarterly period of each fiscal
year) to such holders, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(g) So long as the Notes are outstanding, to furnish to the
Initial Purchaser as soon as available copies of all reports or other written
communications furnished by the Company or any of the Guarantors to its security
holders or furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company or any of the
Guarantors is listed and such other publicly available information concerning
the Company and/or its subsidiaries as the Initial Purchaser may reasonably
request.
(h) So long as any of the Senior Notes remain outstanding and
during any period in which the Company and the Guarantors are not subject to
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), to make available to any holder of Senior Notes in connection
with any sale thereof and any prospective purchaser of such Senior Notes from
such holder, the information ("RULE 144A INFORMATION") required by Rule
144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or cause to be
paid all expenses of the Company and the Guarantors incident to the performance
of the respective obligations of the Company and the Guarantors under this
Agreement, including: (i) the fees, disbursements and expenses of counsel to the
Company and the Guarantors and accountants of the Company and the Guarantors in
connection with the sale and delivery of the Senior Notes to the Initial
Purchaser and pursuant to Exempt Resales, and all other fees and expenses of the
Company and the Guarantors in connection with the preparation, printing, filing
and distribution of the Preliminary Offering Memorandum, the Offering Memorandum
and all amendments and supplements to any of the foregoing (including financial
statements), including the mailing and delivering of copies thereof to the
Initial Purchaser and persons designated by it in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Senior Notes to the Initial Purchaser and pursuant to Exempt Resales, including
any transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement, the other Operative Documents and any other agreements
or documents in connection with the offering, purchase, sale or delivery of the
Senior Notes, (iv) all expenses in connection with the registration or
qualification of the Senior Notes and the Subsidiary Guarantees for offer and
sale under the securities or Blue Sky laws of the several states and all costs
of printing or producing any preliminary and supplemental Blue Sky memoranda in
connection therewith (including the filing fees and reasonable fees and
disbursements of counsel for the Initial
-6-
<PAGE> 8
Purchaser in connection with such registration or qualification and memoranda
relating thereto), (v) the cost of printing certificates representing the Senior
Notes and the Subsidiary Guarantees, (vi) all expenses and listing fees in
connection with the application for quotation of the Senior Notes in the
National Association of Securities Dealers, Inc. ("NASD") Automated Quotation
System - PORTAL ("PORTAL"), (vii) the fees and expenses of the Trustee and the
Trustee's counsel in connection with the Indenture, the Notes and the Subsidiary
Guarantees, (viii) the costs and charges of any transfer agent, registrar and/or
depositary (including DTC), (ix) any fees charged by rating agencies for the
rating of the Notes, (x) all costs and expenses of the Company and the
Guarantors related to the Exchange Offer and any Registration Statement, as set
forth in the Registration Rights Agreement, and (xi) and all other costs and
expenses of the Company and the Guarantors incident to the performance of the
obligations of the Company and the Guarantors hereunder for which provision is
not otherwise made in this Section.
(j) To use its best efforts to effect the inclusion of the
Senior Notes in PORTAL and to maintain the listing of the Senior Notes on PORTAL
for so long as the Senior Notes are outstanding.
(k) To obtain the approval of DTC for "book-entry" transfer of
the Notes, and to comply with all of its agreements set forth in the
representation letters of the Company and the Guarantors to DTC relating to the
approval of the Notes by DTC for "book-entry" transfer.
(l) During the period beginning on the date hereof and
continuing to and including the Closing Date, not to offer, sell, contract to
sell or otherwise transfer or dispose of any debt securities of the Company or
any Guarantor or any warrants, rights or options to purchase or otherwise
acquire debt securities of the Company or any Guarantor substantially similar to
the Notes and the Subsidiary Guarantees (other than (i) the Notes and the
Subsidiary Guarantees, (ii) commercial paper issued in the ordinary course of
business and (iii) the Initial Draw under the New Credit Facility (each as
defined in the Offering Memorandum) as described in the Offering Memorandum),
without the prior written consent of the Initial Purchaser.
(m) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Senior Notes to the Initial Purchaser
or pursuant to Exempt Resales in a manner that would require the registration of
any such sale of the Senior Notes under the Act.
(n) Not to voluntarily claim, and to actively resist any
attempts to claim, the benefit of any usury laws against the holders of any
Notes.
(o) To cause the Exchange Offer to be made in the appropriate
form to permit New Senior Notes and guarantees thereof by the Guarantors
registered pursuant to the Act to be offered in exchange for the Senior Notes
and the Subsidiary Guarantees and to comply with all applicable federal and
state securities laws in connection with the Exchange Offer.
-7-
<PAGE> 9
(p) To comply with all of its agreements set forth in the
Registration Rights Agreement.
(q) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it prior
to the Closing Date and to satisfy all conditions precedent to the delivery of
the Senior Notes and the Subsidiary Guarantees.
6 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
GUARANTORS. As of the date hereof, each of the Company and the Guarantors
represents and warrants to, and agrees with, the Initial Purchaser that:
(a) The Preliminary Offering Memorandum and the Offering
Memorandum do not, and any supplement or amendment to them will not, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchaser furnished to the Company in
writing by the Initial Purchaser expressly for use therein. No stop order
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Preliminary Offering
Memorandum and the Offering Memorandum and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(c) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-assessable,
and, except as disclosed in the Offering Memorandum, are not subject to any
preemptive or similar rights.
(d) The entities listed on Schedule B hereto are the only
subsidiaries, direct or indirect, of the Company. No subsidiary listed on
Schedule B hereto, other than Helios, Incorporated, Applied Robotic
Technologies, Inc., Air Bearings, Incorporated and Santa Barbara Metric, Inc.,
has (i) contributed in the last three fiscal years or in the nine months ended
September 30, 1997 greater than 5% of the Company's revenues, EBITDA (as defined
in the
-8-
<PAGE> 10
Offering Memorandum) or net income or (ii) at any of December 30, 1994, 1995 or
1996 or September 30, 1997 constituted greater than 5% of the total assets of
the Company. All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, and, except as disclosed in the
Offering Memorandum, are free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature (each, a "LIEN").
(e) This Agreement has been duly authorized, executed and
delivered by the Company and each of the Guarantors.
(f) The Indenture has been duly authorized by the Company and
each of the Guarantors and, on the Closing Date, will have been validly executed
and delivered by the Company and each of the Guarantors. When the Indenture has
been duly executed and delivered by the Company and each of the Guarantors, the
Indenture will be a valid and binding agreement of the Company and each
Guarantor, enforceable against the Company and each Guarantor in accordance with
its terms except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the
Indenture will conform in all material respects to the requirements of the Trust
Indenture Act of 1939, as amended (the "TIA" or"TRUST INDENTURE ACT"), and the
rules and regulations of the Commission applicable to an indenture which is
qualified thereunder.
(g) The Senior Notes have been duly authorized and, on the
Closing Date, will have been validly executed and delivered by the Company. When
the Senior Notes have been issued, executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for by the Initial
Purchaser in accordance with the terms of this Agreement, the Senior Notes will
be entitled to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable in accordance with their terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the Senior
Notes will conform as to legal matters to the description thereof contained in
the Offering Memorandum.
(h) On the Closing Date, the New Senior Notes will have been
duly authorized by the Company. When the New Senior Notes are issued, executed
and authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the New Senior Notes will be entitled to the benefits of the
Indenture and will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles of
general applicability.
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<PAGE> 11
(i) The Subsidiary Guarantee to be endorsed on the Senior
Notes by each Guarantor has been duly authorized by such Guarantor and, on the
Closing Date, will have been duly executed and delivered by each such Guarantor.
When the Senior Notes have been issued, executed and authenticated in accordance
with the Indenture and delivered to and paid for by the Initial Purchaser in
accordance with the terms of this Agreement, the Subsidiary Guarantee of each
Guarantor endorsed thereon will be entitled to the benefits of the Indenture and
will be the valid and binding obligation of such Guarantor, enforceable against
such Guarantor in accordance with its terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability. On the Closing Date, the Subsidiary Guarantees to be endorsed on
the Senior Notes will conform as to legal matters to the description thereof
contained in the Offering Memorandum.
(j) The Subsidiary Guarantee to be endorsed on the New Senior
Notes by each Guarantor has been duly authorized by such Guarantor and, when
issued, will have been duly executed and delivered by each such Guarantor. When
the New Senior Notes have been issued, executed and authenticated in accordance
with the terms of the Exchange Offer and the Indenture, the Subsidiary Guarantee
of each Guarantor endorsed thereon will be entitled to the benefits of the
Indenture and will be the valid and binding obligation of such Guarantor,
enforceable against such Guarantor in accordance with its terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles of
general applicability. When the New Senior Notes are issued, authenticated and
delivered, the Subsidiary Guarantees to be endorsed on the New Senior Notes will
conform as to legal matters to the description thereof in the Offering
Memorandum.
(k) The Registration Rights Agreement has been duly authorized
by the Company and each of the Guarantors and, on the Closing Date, will have
been duly executed and delivered by the Company and each of the Guarantors. When
the Registration Rights Agreement has been duly executed and delivered, the
Registration Rights Agreement will be a valid and binding agreement of the
Company and each of the Guarantors, enforceable against the Company and each
Guarantor in accordance with its terms except as (i) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability. On the Closing Date, the Registration Rights Agreement will
conform as to legal matters to the description thereof in the Offering
Memorandum.
(l) Except for the potential default under the Company's
current credit facility as disclosed in the Offering Memorandum, neither the
Company nor any of its subsidiaries is in violation of its respective charter or
by-laws or in default in the performance of any obligation, agreement, covenant
or condition contained in any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole,
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<PAGE> 12
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is bound.
(m) The execution, delivery and performance of this Agreement
and the other Operative Documents by the Company and each of the Guarantors,
compliance by the Company and each of the Guarantors with all provisions hereof
and thereof and the consummation of the transactions contemplated hereby and
thereby will not (i) require any consent, approval, authorization or other order
of, or qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various states),
(ii) conflict with or constitute a material breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or any
of its subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or their respective property is
bound, (iii) to the Company's knowledge, violate or conflict with any applicable
law or any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company, any of its
subsidiaries or their respective property, (iv) result in the imposition or
creation of (or the obligation to create or impose) a Lien under, any agreement
or instrument which is material to Company or any of its subsidiaries or by
which the Company or any of its subsidiaries or their respective property is
bound, or (v) result in the termination, suspension or revocation of any
Authorization (as defined below) of the Company or any of its subsidiaries or
result in any other impairment of the rights of the holder of any such
Authorization.
(n) There are no legal or governmental proceedings pending or,
to the Company's knowledge, threatened to which the Company or any of its
subsidiaries is or, to the Company's knowledge, could be a party or to which any
of their respective property is or, to the Company's knowledge, could be
subject, which might result, singly or in the aggregate, in a Material Adverse
Effect.
(o) Neither the Company nor any of its subsidiaries has
violated any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS") or any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules and regulations promulgated thereunder, except for such
violations which, singly or in the aggregate, would not have a Material Adverse
Effect.
(p) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a Material Adverse Effect.
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<PAGE> 13
(q) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an "AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its subsidiaries;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(r) The accountants, Deloitte & Touche LLP, that have
certified the financial statements and supporting schedules included in the
Preliminary Offering Memorandum and the Offering Memorandum are independent
public accountants with respect to the Company and the Guarantors, as required
by the Act and the Exchange Act. The historical consolidated financial
statements, together with related schedules and notes, set forth in the
Preliminary Offering Memorandum and the Offering Memorandum comply as to form in
all material respects with the requirements applicable to registration
statements on Form S-1 under the Act.
(s) The historical financial statements, together with related
schedules and notes forming part of the Offering Memorandum (and any amendment
or supplement thereto), present fairly the consolidated financial position,
results of operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Offering Memorandum at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial and statistical
information and data regarding the Company set forth in the Offering Memorandum
(and any amendment or supplement thereto) are, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(t) The pro forma financial statements included in the
Preliminary Offering Memorandum and the Offering Memorandum have been prepared
on a basis consistent with the historical financial statements of the Company
and its subsidiaries and give effect to assumptions used in the preparation
thereof on a reasonable basis and in good faith and present fairly
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<PAGE> 14
the historical and proposed transactions contemplated by the Preliminary
Offering Memorandum and the Offering Memorandum. The other pro forma financial
and statistical information and data included in the Offering Memorandum are, in
all material respects, accurately presented and prepared on a basis consistent
with the pro forma financial statements.
(u) The Company is not and, after giving effect to the
offering and sale of the Senior Notes and the application of the net proceeds
thereof as described in the Offering Memorandum, will not be, an "investment
company," as such term is defined in the Investment Company Act of 1940, as
amended.
(v) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all Liens and defects,
except such as are described in the Offering Memorandum or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries, in each case except as
described in the Offering Memorandum.
(w) The Company and its subsidiaries own or possess, or can
acquire or license on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names ("INTELLECTUAL PROPERTY")
currently employed by them in connection with the business now operated by them
except where the failure to own, possess, license or otherwise be able to
acquire such intellectual property would not, singly or in the aggregate, have a
Material Adverse Effect; and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of such intellectual property which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect.
(x) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged; and neither the Company nor any of its subsidiaries (i) has
received notice from any insurer or agent of such insurer that substantial
capital improvements or other material expenditures will have to be made in
order to continue such insurance or (ii) has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers at a cost that would
not have a Material Adverse Effect.
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<PAGE> 15
(y) Except as disclosed in the Offering Memorandum, no
relationship, direct or indirect, exists between or among the Company or any of
its subsidiaries on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or any of its subsidiaries on the other
hand, which would be required by the Act to be described in the Offering
Memorandum if the Offering Memorandum were a prospectus included in a
registration statement on Form S-1 filed with the Commission.
(z) There is no (i) significant unfair labor practice
complaint, grievance or arbitration proceeding pending or, to the Company's
knowledge, threatened against the Company or any of its subsidiaries before the
National Labor Relations Board or any state or local labor relations board, (ii)
strike, labor dispute, slowdown or stoppage pending or threatened against the
Company or any of its subsidiaries or (iii) union representation question
existing with respect to the employees of the Company or any of its
subsidiaries, except in the case of clauses (i), (ii) and (iii) for such actions
which, singly or in the aggregate, would not have a Material Adverse Effect. To
the Company's knowledge, no collective bargaining organizing activities are
taking place with respect to the Company or any of its subsidiaries.
(aa) The Company and each of its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(bb) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction where the Company or
such subsidiary is required to file such returns have been filed, other than
those filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(cc) All indebtedness of the Company and the Guarantors that
will be repaid with the proceeds of the issuance and sale of the Senior Notes
was incurred, and the indebtedness represented by the Senior Notes is being
incurred, for proper purposes and in good faith and each of the Company and the
Guarantors was, at the time of the incurrence of such indebtedness that will be
repaid with the proceeds of the issuance and sale of the Senior Notes, and will
be on the Closing Date (after giving effect to the application of the proceeds
from the issuance of the Senior Notes) solvent, and had at the time of the
incurrence of such indebtedness that will be repaid with the proceeds of the
issuance and sale of the Senior Notes and will have on the Closing Date (after
giving effect to the application of the proceeds from the issuance of the Senior
Notes) sufficient
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<PAGE> 16
capital for carrying on their respective business and were, at the time of the
incurrence of such indebtedness that will be repaid with the proceeds of the
issuance and sale of the Senior Notes, and will be on the Closing Date (after
giving effect to the application of the proceeds from the issuance of the Senior
Notes) able to pay their respective debts as they mature.
(dd) No action has been taken and no law, statute, rule or
regulation or order has been enacted, adopted or issued by any governmental
agency or body which prevents the execution, delivery and performance of any of
the Operative Documents, the issuance of the Senior Notes or the Subsidiary
Guarantees, or suspends the sale of the Senior Notes or the Subsidiary
Guarantees in any jurisdiction referred to in Section 5(e); and no injunction,
restraining order or other order or relief of any nature by a federal or state
court or other tribunal of competent jurisdiction has been issued with respect
to the Company or any of its subsidiaries which would prevent or suspend the
issuance or sale of the Senior Notes or the Subsidiary Guarantees in any
jurisdiction referred to in Section 5(e).
(ee) Except for the registration rights agreement described in
the Offering Memorandum, there are no contracts, agreements or understandings
between the Company or any Guarantor and any person granting such person the
right to require the Company or such Guarantor to file a registration statement
under the Act with respect to any securities of the Company or such Guarantor or
to require the Company, or such Guarantor, to include such securities with the
Notes and Subsidiary Guarantees registered pursuant to any Registration
Statement.
(ff) Neither the Company nor any of its subsidiaries nor any
agent thereof acting on the behalf of them has taken, and none of them will
take, any action that might cause this Agreement or the issuance or sale of the
Senior Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R.
Part 224) of the Board of Governors of the Federal Reserve System.
(gg) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act (i) has imposed (or has informed the Company or any Guarantor that it is
considering imposing) any condition (financial or otherwise) on the Company's or
any Guarantor's retaining any rating assigned to the Company or any Guarantor,
any securities of the Company or any Guarantor or (ii) has indicated to the
Company or any Guarantor that it is considering (a) the downgrading, suspension,
or withdrawal of, or any review for a possible change that does not indicate the
direction of the possible change in, any rating so assigned or (b) any change in
the outlook for any rating of the Company, any Guarantor or any securities of
the Company or any Guarantor.
(hh) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there has not occurred any material adverse change
or any development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations
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<PAGE> 17
of the Company and its subsidiaries, taken as a whole, (ii) there has not been
any material adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of the Company or
any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries has incurred any material liability or obligation, direct or
contingent.
(ii) Each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its date, contains all the information specified in,
and meeting the requirements of, Rule 144A(d)(4) under the Act.
(jj) When the Senior Notes and the Subsidiary Guarantees are
issued and delivered pursuant to this Agreement, neither the Senior Notes nor
the Subsidiary Guarantees will be of the same class (within the meaning of Rule
144A under the Act) as any security of the Company or the Guarantors that is
listed on a national securities exchange registered under Section 6 of the
Exchange Act or that is quoted in a United States automated inter-dealer
quotation system.
(kk) No form of general solicitation or general advertising
(as defined in Regulation D under the Act) was used by the Company, the
Guarantors or any of their respective representatives (other than the Initial
Purchaser or any of its representatives, as to whom the Company and the
Guarantors make no representation) in connection with the offer and sale of the
Senior Notes contemplated hereby, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
No securities of the same class as the Senior Notes have been issued and sold by
the Company within the six-month period immediately prior to the date hereof.
(ll) Prior to the effectiveness of any Registration Statement,
the Indenture is not required to be qualified under the TIA.
(mm) None of the Company, the Guarantors nor any of their
respective affiliates or any person acting on its or their behalf (other than
the Initial Purchaser or any of its representatives, as to whom the Company and
the Guarantors make no representation) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S under the Act
("REGULATION S") with respect to the Senior Notes or the Subsidiary Guarantees.
(nn) The sale of the Senior Notes pursuant to Regulation S is
not part of a plan or scheme on the part of the Company or the Guarantors to
evade the registration provisions of the Act.
(oo) The Company, the Guarantors and their respective
affiliates and all persons acting on their behalf (other than the Initial
Purchaser or any of its representatives, as to whom the Company and the
Guarantors make no representation) have complied with and will comply with the
offering restrictions requirements of Regulation S in connection with the
offering of
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<PAGE> 18
the Senior Notes outside the United States and, in connection therewith, the
Offering Memorandum will contain the disclosure required by Rule 902(h).
(pp) The Senior Notes sold in reliance on Regulation S will be
represented upon issuance by a temporary global security that may not be
exchanged for definitive securities until the expiration of the 40-day
restricted period referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Senior Notes by non-U.S. persons
or U.S. persons who purchased such Senior Notes in transactions that were exempt
from the registration requirements of the Act.
(qq) No registration under the Act of the Senior Notes or the
Subsidiary Guarantees is required for the sale of the Senior Notes and the
Subsidiary Guarantees to the Initial Purchaser as contemplated hereby or for the
Exempt Resales assuming the accuracy of the Initial Purchaser's representations
and warranties and agreements set forth in Section 7 hereof.
(rr Each certificate signed by any officer of the Company or
any Guarantor and delivered to the Initial Purchaser or counsel for the Initial
Purchaser shall be deemed to be a representation and warranty by the Company or
such Guarantor to the Initial Purchaser as to the matters covered thereby.
The Company acknowledges that the Initial Purchaser and, for purposes of
the opinions to be delivered to the Initial Purchaser pursuant to Section 9
hereof, counsel to the Company and the Guarantors and counsel to the Initial
Purchaser will rely upon the accuracy and truth of the foregoing representations
and hereby consents to such reliance.
7. INITIAL PURCHASER'S REPRESENTATIONS AND WARRANTIES. The Initial
Purchaser represents and warrants to, and agrees with, the Company and the
Guarantors:
(a) Such Initial Purchaser is either a QIB or an Accredited
Institution, in either case, with such knowledge and experience in financial and
business matters as is necessary in order to evaluate the merits and risks of an
investment in the Senior Notes.
(b) Such Initial Purchaser (A) is not acquiring the Senior
Notes with a view to any distribution thereof or with any present intention of
offering or selling any of the Senior Notes in a transaction that would violate
the Act or the securities laws of any state of the United States or any other
applicable jurisdiction and (B) will be reoffering and reselling the Senior
Notes only to (x) QIBs in reliance on and in compliance with the exemption from
the registration requirements of the Act provided by Rule 144A, and (y) in
offshore transactions in reliance on and in compliance with Regulation S under
the Act.
(c) Such Initial Purchaser agrees that no form of general
solicitation or general advertising (within the meaning of Regulation D under
the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Senior
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<PAGE> 19
Notes pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with
Exempt Resales, such Initial Purchaser will solicit offers to buy the Senior
Notes only from, and will offer to sell the Senior Notes only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell the
Senior Notes only to, and will solicit offers to buy the Senior Notes only from
(A) Eligible Purchasers that the Initial Purchaser reasonably believes are QIBs,
and (B) Regulation S Purchasers, in each case, that agree that (x) the Senior
Notes purchased by them may be resold, pledged or otherwise transferred within
the time period referred to under Rule 144(k) (taking into account the
provisions of Rule 144(d) under the Act, if applicable) under the Act, as in
effect on the date of the transfer of such Senior Notes, only (I) to the Company
or any of its subsidiaries, (II) to a person whom the seller reasonably believes
is a QIB purchasing for its own account or for the account of a QIB in a
transaction meeting the requirements of Rule 144A under the Act, (III) in an
offshore transaction (as defined in Rule 902 under the Act) meeting the
requirements of Rule 904 of the Act, (IV) in a transaction meeting the
requirements of Rule 144 under the Act, (V) to an Accredited Institution that,
prior to such transfer, furnishes the Trustee a signed letter containing certain
representations and agreements relating to the registration of transfer of such
Senior Note (the form of which is substantially the same as Annex A to the
Offering Memorandum) and, if such transfer is in respect of an aggregate
principal amount of Senior Notes less than $250,000, an opinion of counsel
acceptable to the Company that such transfer is in compliance with the Act, (VI)
in accordance with another exemption from the registration requirements of the
Act (and based upon an opinion of counsel acceptable to the Company) or (VII)
pursuant to an effective registration statement and, in each case, in accordance
with the applicable securities laws of any state of the United States or any
other applicable jurisdiction and (y) they will deliver to each person to whom
such Senior Notes or an interest therein is transferred a notice substantially
to the effect of the foregoing.
(e) None of such Initial Purchaser nor any of its affiliates
or any person acting on its or their behalf has engaged or will engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Senior Notes or the Subsidiary Guarantees.
(f) The Senior Notes offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S have been and will be
offered and sold only in offshore transactions.
(g) The sale of the Senior Notes offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S is not part of a
plan or scheme to evade the registration provisions of the Act.
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<PAGE> 20
(h) Such Initial Purchaser agrees that it has not offered or
sold and will not offer or sell the Senior Notes in the United States or to, or
for the benefit or account of, a U.S. Person (other than a distributor), in each
case, as defined in Rule 902 under the Act (i) as part of its distribution at
any time and (ii) otherwise until 40 days after the later of the commencement of
the offering of the Senior Notes pursuant hereto and the Closing Date, other
than in accordance with Regulation S of the Act or another exemption from the
registration requirements of the Act. Such Initial Purchaser agrees that, during
such 40-day restricted period, it will not cause any advertisement with respect
to the Senior Notes (including any "tombstone" advertisement) to be published in
any newspaper or periodical or posted in any public place and will not issue any
circular relating to the Senior Notes, except such advertisements as permitted
by and include the statements required by Regulation S.
(i) Such Initial Purchaser agrees that, at or prior to
confirmation of a sale of Senior Notes by it to any distributor, dealer or
person receiving a selling concession, fee or other remuneration during the
40-day restricted period referred to in Rule 903(c)(3) under the Act, it will
send to such distributor, dealer or person receiving a selling concession, fee
or other remuneration a confirmation or notice to substantially the following
effect:
"The Senior Notes covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "SECURITIES ACT"), and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of your distribution at any time or
(ii) otherwise until 40 days after the later of the commencement of the
Offering and the Closing Date, except in either case in accordance with
Regulation S under the Securities Act (or Rule 144A or to Accredited
Institutions in transactions that are exempt from the registration
requirements of the Securities Act), and in connection with any subsequent
sale by you of the Senior Notes covered hereby in reliance on Regulation S
during the period referred to above to any distributor, dealer or person
receiving a selling concession, fee or other remuneration, you must
deliver a notice to substantially the foregoing effect. Terms used above
have the meanings assigned to them in Regulation S."
(j) Such Initial Purchaser agrees that the Senior Notes
offered and sold in reliance on Regulation S will be represented upon issuance
by a global security that may not be exchanged for definitive securities until
the expiration of the 40-day restricted period referred to in Rule 903(c)(3) of
the Act and only upon certification of beneficial ownership of such Senior Notes
by non-U.S. persons or U.S. persons who purchased such Senior Notes in
transactions that were exempt from the registration requirements of the Act.
The Initial Purchaser acknowledges that the Company and the
Guarantors and, for purposes of the opinions to be delivered to each Initial
Purchaser pursuant to Section 9 hereof, counsel to the Company and the
Guarantors and counsel to the Initial Purchaser will rely upon the accuracy and
truth of the foregoing representations and the Initial Purchaser hereby consents
to such reliance.
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<PAGE> 21
8. INDEMNIFICATION.
(a) The Company and each Guarantor agree, jointly and
severally, to indemnify and hold harmless the Initial Purchaser, its directors,
its officers and each person, if any, who controls such Initial Purchaser within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (or any amendment or
supplement thereto), the Preliminary Offering Memorandum or any Rule 144A
Information provided by the Company or any Guarantor to any holder or
prospective purchaser (who becomes a holder) of Senior Notes pursuant to Section
5(h) or caused by any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to the Initial Purchaser
furnished in writing to the Company by such Initial Purchaser; provided,
however, that the foregoing indemnity agreement with respect to any Preliminary
Offering Memorandum shall not inure to the benefit of any Initial Purchaser who
failed to deliver a Final Offering Memorandum (as then amended or supplemented,
provided by the Company to the Initial Purchaser in the requisite quantity and
on a timely basis to permit proper delivery on or prior to the Closing Date) to
the person asserting any losses, claims, damages and liabilities and judgements
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Offering Memorandum, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, if such material
misstatement or omission or alleged material misstatement or omission was cured
in the Final Offering Memorandum..
(b) The Initial Purchaser agrees to indemnify and hold
harmless the Company and the Guarantors, and their respective directors and
officers and each person, if any, who controls (within the meaning of Section 15
of the Act or Section 20 of the Exchange Act) the Company or the Guarantors, to
the same extent as the foregoing indemnity from the Company and the Guarantors
to the Initial Purchaser but only with reference to information relating to the
Initial Purchaser furnished in writing to the Company by the Initial Purchaser
expressly for use in the Preliminary Offering Memorandum or the Offering
Memorandum.
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a)
-20-
<PAGE> 22
and 8(b), the Initial Purchaser shall not be required to assume the defense of
such action pursuant to this Section 8(c), but may employ separate counsel and
participate in the defense thereof, but the fees and expenses of such counsel,
except as provided below, shall be at the expense of the Initial Purchaser). Any
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Donaldson, Lufkin
& Jenrette Securities Corporation, in the case of the parties indemnified
pursuant to Section 8(a), and by the Company, in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty (20) business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party or insufficient in respect of
any losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Initial Purchaser on the
other hand from the offering of the Senior Notes or (ii) if the
-21-
<PAGE> 23
allocation provided by clause 8(d)(i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company
and the Guarantors, on the one hand, and the Initial Purchaser, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Guarantors, on the one hand and the Initial Purchaser, on the other hand, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Senior Notes (after underwriting discounts and commissions, but
before deducting expenses) received by the Company, and the total discounts and
commissions received by the Initial Purchaser bear to the total price to
investors of the Senior Notes, in each case as set forth in the table on the
cover page of the Offering Memorandum. The relative fault of the Company and the
Guarantors, on the one hand, and the Initial Purchaser, on the other hand, shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Guarantors, on the one hand, or the Initial Purchaser, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and the Guarantors, and the Initial Purchaser
agree that it would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
incurred by such indemnified party in connection with investigating or defending
any matter, including any action, that could have given rise to such losses,
claims, damages, liabilities or judgments. Notwithstanding the provisions of
this Section 8, the Initial Purchaser shall not be required to contribute any
amount in excess of the amount by which the total discounts and commissions
received by such Initial Purchaser exceeds the amount of any damages which the
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The remedies provided for in this Section 8 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The obligations of
the Initial Purchaser to purchase the Senior Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
-22-
<PAGE> 24
(a) All the representations and warranties of the Company and
the Guarantors contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the Closing
Date.
(b) On or after the date hereof, (i) there shall not have
occurred any downgrading, suspension or withdrawal of, nor shall any notice have
been given of any potential or intended downgrading, suspension or withdrawal
of, or of any review (or of any potential or intended review) for a possible
change that does not indicate the direction of the possible change in, any
rating of the Company or any Guarantor or any securities of the Company or any
Guarantor (including, without limitation, the placing of any of the foregoing
ratings on credit watch with negative or developing implications or under review
with an uncertain direction) by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act, (ii) there shall not have occurred any adverse change, nor shall any notice
have been given of any potential or intended change, in the outlook for any
rating of the Company or any Guarantor or any securities of the Company or any
Guarantor by any such rating organization and (iii) no such rating organization
shall have given notice that it has assigned (or is considering assigning) a
lower rating to the Notes than that on which the Notes were marketed.
(c) Since the respective dates as of which information is
given in the Offering Memorandum other than as set forth in the Offering
Memorandum (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement), (i) there shall not have occurred any change or any
development involving a prospective change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, (ii) there shall not have been any
change or any development involving a prospective change in the capital stock or
in the long-term debt of the Company or any of its subsidiaries and (iii)
neither the Company nor any of its subsidiaries shall have incurred any
liability or obligation, direct or contingent, the effect of which, in any such
case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Senior Notes on the terms and in the manner contemplated in the Offering
Memorandum.
(d) You shall have received on the Closing Date a certificate
dated the Closing Date, signed by the President and the Chief Financial Officer
of the Company and each of the Guarantors, confirming the matters set forth in
Sections 6(y), 9(a) and 9(b) and stating that each of the Company and the
Guarantors has complied with all the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied on or
prior to the Closing Date.
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Initial Purchaser), dated the Closing
Date, of Brobeck, Phleger & Harrison, LLP, counsel for the Company and the
Guarantors, to the effect that:
-23-
<PAGE> 25
(i) each of the Company and its subsidiaries has been
duly incorporated, is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation and has the corporate power and authority to
carry on its business as described in the Offering Memorandum
and to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly
qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect;
(iii) all the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are
fully paid, non-assessable and, to such counsel's knowledge,
were not issued in violation of any preemptive or similar
rights;
(iv) all of the outstanding shares of capital stock of
each of the Company's subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable, and
are owned of record by the Company;
(v) the Senior Notes have been duly authorized and, when
executed and authenticated in accordance with the provisions
of the Indenture and delivered to and paid for by the Initial
Purchaser in accordance with the terms of this Agreement, will
be entitled to the benefits of the Indenture and will be valid
and binding obligations of the Company, enforceable in
accordance with their terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (y) rights of
acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability;
(vi) the Subsidiary Guarantees have been duly authorized
and, when the Senior Notes are executed and authenticated in
accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchaser in accordance with
the terms of this Agreement, the Subsidiary Guarantees
endorsed thereon will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the
Guarantors, enforceable in accordance with their terms except
as (x) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (y) rights of acceleration and the
availability of equitable remedies may be limited by equitable
principles of general applicability;
-24-
<PAGE> 26
(vii) the Indenture has been duly authorized, executed
and delivered by the Company and each Guarantor and is a valid
and binding agreement of the Company and each Guarantor,
enforceable against the Company and each Guarantor in
accordance with its terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (y) rights of
acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability;
(viii) this Agreement has been duly authorized,
executed and delivered by the Company and the Guarantors;
(ix) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and the
Guarantors and is a valid and binding agreement of the Company
and each Guarantor, enforceable against the Company and each
Guarantor in accordance with its terms, except as (x) the
enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights
generally and (y) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles
of general applicability;
(x) the New Senior Notes have been duly authorized;
(xi) the statements under the captions "Description of
Indebtedness" and "Description of Notes" in the Offering
Memorandum, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to
therein, fairly present in all material respects such legal
matters, documents and proceedings;
(xii) the statements under the caption "Certain United
States Federal Income Tax Considerations" in the Offering
Memorandum insofar as they purport to describe the provisions
of the federal income tax laws referred to therein, fairly
summarize such laws in all material respects.
(xiii) the execution, delivery and performance of this
Agreement and the other Operative Documents by the Company and
each of the Guarantors, the compliance by the Company and each
of the Guarantors with all provisions hereof and thereof and
the consummation of the transactions contemplated hereby and
thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any
court or
-25-
<PAGE> 27
governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or
by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement
or instrument that is material to the Company and its
subsidiaries, taken as a whole (as identified by the Company
to such counsel in a certificate to be attached to the
opinion) to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or
their respective property is bound (collectively, the
"Reviewed Agreements"), (iii) violate or conflict with any
applicable law, rule or regulation, or, to our knowledge, any
judgment, order or decree of any court or any governmental
body or agency having jurisdiction over the Company, any of
its subsidiaries or their respective property or (iv) result
in the imposition or creation of (or the obligation to create
or impose) a Lien under any Reviewed Agreement.
(xiv) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to
which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could
be subject, which could reasonably be expected to result,
singly or in the aggregate, in a Material Adverse Effect on
the ability of the Company and the Guarantors to perform their
respective obligations hereunder and under the Senior Notes
and the other documents executed in connection herewith and
therewith or to consummate the transactions contemplated
hereby or thereby.
(xv) the Company is not and, after giving effect to the
offering and sale of the Senior Notes and the application of
the net proceeds thereof as described in the Offering
Memorandum, will not be, an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended;
(xvi) the Indenture complies as to form in all material
respects with the requirements of the TIA, and the rules and
regulations of the Commission applicable to an indenture which
is qualified thereunder. It is not necessary in connection
with the offer, sale and delivery of the Senior Notes to the
Initial Purchaser in the manner contemplated by this Agreement
or in connection with the Exempt Resales to qualify the
Indenture under the TIA.
(xvii) no registration under the Act of the Senior Notes
is required for the sale of the Senior Notes to the Initial
Purchaser as contemplated by this Agreement or for the Exempt
Resales assuming that (i) each Initial Purchaser is a QIB or a
Regulation S Purchaser, (ii) the accuracy of, and
-26-
<PAGE> 28
compliance with, the Initial Purchaser's representations and
agreements contained in Section 7 of this Agreement and (iii)
the accuracy of the representations of the Company and the
Guarantors set forth in Section 5(h), Sections 6(dd), (ee) and
(ff) and Sections 7(h), (i) and (j) of this Agreement.
(xviii) such counsel has no reason to believe that, as
of the date of the Offering Memorandum or as of the Closing
Date, the Offering Memorandum, as amended or supplemented, if
applicable (except for the financial statements and other
financial data included therein, as to which such counsel need
not express any belief) contains any untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
The opinion of Brobeck, Phleger & Harrison, LLP described in
Section 9(e) above shall be rendered to you at the request of the Company and
the Guarantors and shall so state therein. In giving such opinion with respect
to the matters covered by Section 9(e)(xvii), such counsel for the Company may
state that their opinion and belief are based upon their participation in the
preparation of the Offering Memorandum and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification except as specified.
(f) The Initial Purchaser shall have received on the Closing
Date an opinion, dated the Closing Date, of Wilson Sonsini Goodrich & Rosati,
P.C., counsel for the Initial Purchaser, in form and substance reasonably
satisfactory to the Initial Purchaser.
(g) The Initial Purchaser shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchaser from Deloitte & Touche, independent public
accountants, containing the information and statements of the type ordinarily
included in accountants' "comfort letters" to the Initial Purchaser with respect
to the financial statements and certain financial information contained in the
Offering Memorandum.
(h) The Senior Notes shall have been approved by the NASD for
trading and duly listed in PORTAL.
(i) The Initial Purchaser shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into by
the Company, the Guarantors and the Trustee.
(j) The Company and the Guarantors shall have executed the
Registration Rights Agreement and the Initial Purchaser shall have received an
original copy thereof, duly executed by the Company and the Guarantors.
-27-
<PAGE> 29
(k) The Company and Fleet National Bank and Imperial Bank
shall have executed and delivered the Amended and Restated Credit Agreement as
described in the Offering Memorandum, such agreement shall be in full force and
effect, and no event of default shall have occurred or be continuing thereunder.
(l) Neither the Company nor the Guarantors shall have failed
at or prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by the Company or
the Guarantors, as the case may be, at or prior to the Closing Date.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement shall
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by the Initial Purchaser by written notice to the Company if any of
the following has occurred: (i) any outbreak or escalation of hostilities or
other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchaser's judgment, is material and adverse and, in the Initial
Purchaser's judgment, makes it impracticable to market the Senior Notes on the
terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company or any Guarantor on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your opinion has a material adverse effect
on the financial markets in the United States.
11. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company or any Guarantor,
to Phase Metrics, Inc., 10260 Sorrento Valley Road, San Diego, California,
telephone (619) 646-4800, and (ii) if to the Initial Purchaser, Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the Guarantors
and the Initial Purchaser set forth in or made
-28-
<PAGE> 30
pursuant to this Agreement shall remain operative and in full force and effect,
and will survive delivery of and payment for the Senior Notes, regardless of (i)
any investigation, or statement as to the results thereof, made by or on behalf
of the Initial Purchaser, the officers or directors of the Initial Purchaser,
any person controlling the Initial Purchaser, the Company, any Guarantor, the
officers or directors of the Company or any Guarantor, or any person controlling
the Company or any Guarantor, (ii) acceptance of the Senior Notes and payment
for them hereunder and (iii) termination of this Agreement.
If for any reason the Senior Notes are not delivered by or on behalf
of the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Company and each Guarantor, jointly
and severally, agree to reimburse the Initial Purchaser for all out-of-pocket
expenses (including the reasonable fees and disbursements of counsel) incurred
by them. Notwithstanding any termination of this Agreement, the Company shall be
liable for all expenses which it has agreed to pay pursuant to Section 5(i)
hereof. The Company and each Guarantor also agree, jointly and severally, to
reimburse the Initial Purchaser and its officers, directors and each person, if
any, who controls such Initial Purchaser within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act for any and all fees and expenses
(including without limitation the reasonable fees and expenses of counsel)
incurred by them in connection with enforcing their rights under this Agreement
(including without limitation its rights under Section 8). The Initial Purchaser
agrees to reimburse the Company and the Guarantors and their respective
officers, directors and each person, if any, who controls the Company or the
Guarantors within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act for any and all fees and expenses (including without limitation the
reasonable fees and expenses of counsel) incurred by them in connection with
enforcing their rights under this Agreement (including without limitation their
respective rights under Section 8).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Guarantors,
the Initial Purchaser, the Initial Purchaser's directors and officers, any
controlling persons referred to herein, the directors of the Company and the
Guarantors and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include a purchaser of any of the Senior Notes from the Initial Purchaser
merely because of such purchase.
This Agreement shall be governed and construed in accordance with
the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
-29-
<PAGE> 31
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Guarantors and the Initial Purchaser.
Very truly yours,
PHASE METRICS, INC.
By: /s/ R. J. Saunders
----------------------------------------
Name: R. J. Saunders
Title: Vice President
HELIOS, INCORPORATED
By: /s/ R. J. Saunders
----------------------------------------
Name: R. J. Saunders
Title: Vice President
APPLIED ROBOTIC TECHNOLOGIES, INC.
By: /s/ R. J. Saunders
----------------------------------------
Name: R. J. Saunders
Title: Vice President
AIR BEARINGS, INCORPORATED
By: /s/ R. J. Saunders
----------------------------------------
Name: R. J. Saunders
Title: Vice President
SANTA BARBARA METRIC, INC.
By: /s/ R. J. Saunders
----------------------------------------
Name: R. J. Saunders
Title: Vice President
<PAGE> 32
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Steven D. Smith
---------------------------------
Name: Steven D. Smith
Title: Senior Vice President
<PAGE> 33
SCHEDULE A
GUARANTORS
HELIOS, INCORPORATED
APPLIED ROBOTIC TECHNOLOGIES, INC.
AIR BEARINGS, INCORPORATED
SANTA BARBARA METRIC, INC.
S-1
<PAGE> 34
SCHEDULE B
SUBSIDIARIES
HELIOS, INCORPORATED
APPLIED ROBOTIC TECHNOLOGIES, INC.
AIR BEARINGS, INCORPORATED
SANTA BARBARA METRIC, INC.
PHASE METRICS PACIFIC PTE., LTD.
PHASE METRICS JAPAN CO., LTD.
PHASE METRICS KOREA CO., LTD.
PHASE METRICS PACIFIC PTE., LTD.
S-2
<PAGE> 35
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 4.2
EXECUTION COPY
================================================================================
PHASE METRICS, INC.
HELIOS, INCORPORATED
APPLIED ROBOTIC TECHNOLOGIES, INC.
AIR BEARINGS, INCORPORATED
SANTA BARBARA METRIC, INC.
---------------------------------------------------------
$110,000,000
10-3/4% SENIOR NOTES DUE 2005
----------------------------------------------------------
------------------------
INDENTURE
DATED AS OF JANUARY 30, 1998
-----------------------
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
Trustee
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 - DEFINITIONS AND INCORPORATION BY REFERENCE...........................................1
SECTION 1.1 DEFINITIONS................................................................1
SECTION 1.2 OTHER DEFINITIONS.........................................................17
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST
INDENTURE ACT........................................................17
SECTION 1.4 RULES OF CONSTRUCTION.....................................................18
ARTICLE 2 - THE NOTE............................................................................18
SECTION 2.1 FORM AND DATING...........................................................18
SECTION 2.2 EXECUTION AND AUTHENTICATION..............................................20
SECTION 2.3 REGISTRAR AND PAYING AGENT................................................21
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.......................................21
SECTION 2.5 HOLDER LISTS..............................................................21
SECTION 2.6 TRANSFER AND EXCHANGE.....................................................22
SECTION 2.7 REPLACEMENT NOTES.........................................................35
SECTION 2.8 OUTSTANDING NOTES.........................................................35
SECTION 2.9 TREASURY NOTES............................................................36
SECTION 2.10 TEMPORARY NOTES...........................................................36
SECTION 2.11 CANCELLATION..............................................................36
SECTION 2.12 DEFAULTED INTEREST........................................................37
SECTION 2.13 RECORD DATE...............................................................37
SECTION 2.14 COMPUTATION OF INTEREST...................................................37
SECTION 2.15 CUSIP NUMBER..............................................................37
ARTICLE 3 - REDEMPTION AND PREPAYMENT...........................................................37
SECTION 3.1 NOTICES TO TRUSTEE........................................................37
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED OR PURCHASED............................38
SECTION 3.3 NOTICE OF REDEMPTION......................................................38
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION............................................39
SECTION 3.5 DEPOSIT OF REDEMPTION OR PURCHASE PRICE...................................39
SECTION 3.6 NOTES REDEEMED IN PART....................................................40
SECTION 3.7 OPTIONAL REDEMPTION.......................................................40
SECTION 3.8 MANDATORY REDEMPTION......................................................41
SECTION 3.9 REPURCHASE OFFERS.........................................................41
ARTICLE 4 - COVENANTS...........................................................................43
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SECTION 4.1 PAYMENT OF NOTES..........................................................43
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY...........................................43
SECTION 4.3 COMMISSION REPORTS........................................................44
SECTION 4.4 COMPLIANCE CERTIFICATE....................................................44
SECTION 4.5 TAXES.....................................................................45
SECTION 4.6 STAY, EXTENSION AND USURY LAWS............................................45
SECTION 4.7 RESTRICTED PAYMENTS.......................................................46
SECTION 4.8 DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES....................................48
SECTION 4.9 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK......................................................49
SECTION 4.10 ASSET SALES...............................................................52
SECTION 4.11 TRANSACTIONS WITH AFFILIATES..............................................53
SECTION 4.12 LIENS.....................................................................54
SECTION 4.13 OFFER TO PURCHASE UPON CHANGE OF CONTROL..................................54
SECTION 4.14 CORPORATE EXISTENCE.......................................................55
SECTION 4.15 LIMITATION ON ISSUANCES OF CAPITAL STOCK OF
WHOLLY-OWNED RESTRICTED SUBSIDIARIES.................................55
SECTION 4.16 LIMITATIONS ON ISSUANCES OF GUARANTEES OF
INDEBTEDNESS.........................................................55
SECTION 4.17 BUSINESS ACTIVITIES.......................................................56
SECTION 4.18 ADDITIONAL GUARANTEES.....................................................56
SECTION 4.19 PAYMENT FOR CONSENTS......................................................56
ARTICLE 5 - SUCCESSORS..........................................................................57
SECTION 5.1 MERGER, CONSOLIDATION OF SALE OF ASSETS...................................57
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.........................................57
ARTICLE 6 - DEFAULTS AND REMEDIES...............................................................58
SECTION 6.1 EVENTS OF DEFAULT.........................................................58
SECTION 6.2 ACCELERATION..............................................................59
SECTION 6.3 OTHER REMEDIES............................................................60
SECTION 6.4 WAIVER OF PAST DEFAULTS...................................................60
SECTION 6.5 CONTROL BY MAJORITY.......................................................61
SECTION 6.6 LIMITATION ON SUITS.......................................................61
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.............................61
SECTION 6.8 COLLECTION SUIT BY TRUSTEE................................................62
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM..........................................62
SECTION 6.10 PRIORITIES................................................................63
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SECTION 6.11 UNDERTAKING FOR COSTS.....................................................63
ARTICLE 7 - TRUSTEE.............................................................................63
SECTION 7.1 DUTIES OF TRUSTEE.........................................................63
SECTION 7.2 RIGHTS OF TRUSTEE.........................................................64
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE..............................................65
SECTION 7.4 TRUSTEE'S DISCLAIMER......................................................65
SECTION 7.5 NOTICE OF DEFAULTS........................................................66
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES................................66
SECTION 7.7 COMPENSATION AND INDEMNITY................................................66
SECTION 7.8 REPLACEMENT OF TRUSTEE....................................................67
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC..........................................68
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.............................................68
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST
THE COMPANY..........................................................69
ARTICLE 8 - LEGAL DEFEASANCE AND COVENANT DEFEASANCE............................................69
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR
COVENANT DEFEASANCE..................................................69
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE............................................69
SECTION 8.3 COVENANT DEFEASANCE.......................................................70
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE................................70
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.......................71
SECTION 8.6 REPAYMENT TO THE COMPANY..................................................72
SECTION 8.7 REINSTATEMENT.............................................................72
ARTICLE 9 - AMENDMENT, SUPPLEMENT AND WAIVER....................................................73
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF THE NOTES...................................73
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES..........................................73
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.......................................75
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.........................................75
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES..........................................75
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC...........................................75
ARTICLE 10 - GUARANTEE OF NOTES.................................................................76
SECTION 10.1 NOTE GUARANTEE............................................................76
SECTION 10.2 EXECUTION AND DELIVERY OF NOTE GUARANTEE..................................77
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SECTION 10.3 SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC.,
ON CERTAIN TERMS.....................................................77
SECTION 10.4 RELEASES FOLLOWING SALE OF ASSETS, MERGER, SALE
OF CAPITAL STOCK ETC.................................................78
SECTION 10.5 ADDITIONAL SUBSIDIARY GUARANTORS..........................................79
SECTION 10.6 LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY..............................79
SECTION 10.7 "TRUSTEE" TO INCLUDE PAYING AGENT.........................................79
ARTICLE 11 - MISCELLANEOUS......................................................................80
SECTION 11.1 TRUST INDENTURE ACT CONTROLS..............................................80
SECTION 11.2 NOTICES...................................................................80
SECTION 11.3 COMMUNICATION BY HOLDERS OF NOTES WITH
OTHER HOLDERS OFNOTES................................................81
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT............................................................81
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.............................82
SECTION 11.6 RULES BY TRUSTEE AND AGENTS...............................................82
SECTION 11.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS...........................................82
SECTION 11.8 GOVERNING LAW.............................................................82
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.............................83
SECTION 11.10 SUCCESSORS................................................................83
SECTION 11.11 SEVERABILITY..............................................................83
SECTION 11.12 COUNTERPART ORIGINALS.....................................................83
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC..........................................83
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TABLE OF CONTENTS
(CONTINUED)
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TABLE OF CONTENTS
(CONTINUED)
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EXHIBITS:
Exhibit A FORMS OF NOTES
Exhibit B FORM OF CERTIFICATE OF TRANSFEROR
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR
Exhibit E FORM OF NOTE GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
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Indenture, dated as of January 30, 1998, among PHASE METRICS, INC. (the
"Company"), HELIOS, INCORPORATED, APPLIED ROBOTIC TECHNOLOGIES, INC., AIR
BEARINGS, INCORPORATED and SANTA BARBARA METRIC, INC. (each, a "Subsidiary
Guarantor" and together with any other Subsidiary of the Company that executes a
Note Guarantee substantially in the form of EXHIBIT E attached hereto, the
"Subsidiary Guarantors") and State Street Bank and Trust Company of California,
N.A., as trustee (the "Trustee").
The Company, the Subsidiary Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
holders of the Company's 10-3/4% Senior Notes due 2005 (the "Senior Notes") and
the new 10 -3/4 % Senior Notes due 2005 (the "New Senior Notes") issuable upon
the exchange of the Senior Notes:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.1 DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of beneficial interests in a Global Note, the rules and procedures of the
Depositary that apply to such transfer and exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
of any assets or rights
<PAGE> 9
(including, without limitation, by way of a sale and leaseback) other than sales
of inventory in the ordinary course of business consistent with past practices
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Section 4.14 and/or
Article 5 and not by the provisions of Section 4.10), and (ii) the issue or sale
by the Company or any of its Restricted Subsidiaries of Equity Interests of any
of the Company's Restricted Subsidiaries, in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $1.0 million or (b) for net proceeds
in excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of
assets by the Company to a Wholly Owned Restricted Subsidiary or by a Wholly
Owned Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary,
(iii) a sale and leaseback of the real estate (and personal property associated
with such real estate) owned by the Company in San Diego, California on which
the Company's headquarters is located on the date of the Indenture, and (iv) a
Restricted Payment that is permitted by Section 4.7 will not be deemed to be
Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or any
authorized committee of such board of directors.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
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"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the New
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, and (v) commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating
Services and in each case maturing within 270 days after the date of
acquisition.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares), (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors or (v) the
Company consolidates with, or merges with or into, any Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).
"Commission" means the Securities and Exchange Commission.
"Company" means Phase Metrics, Inc., a Delaware corporation.
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<PAGE> 11
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus, to the
extent deducted in computing Consolidated Net Income, (i) provision for taxes
based on income or profits of such Person and its Restricted Subsidiaries for
such period, (ii) Fixed Charges of such Person for such period, (iii)
depreciation and amortization (including amortization of goodwill and other
intangibles) and all other non-cash charges (excluding any such non-cash charge
to the extent that it represents (A) an accrual of or reserve for cash charges
in any future period, or (B) amortization of a prepaid cash expense that was
paid in a prior period), (iv) any gain realized in connection with any Asset
Sale and any extraordinary or non-recurring gain, in each case, on a
consolidated basis determined in accordance with GAAP; and (v) the amount of any
non-cash compensation expense incurred in connection with issuances of
securities under stock option, stock purchase and other equity-based incentive
plans. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, the Fixed Charges of, and the depreciation and
amortization and other non-cash charges of a Restricted Subsidiary of, a Person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent (and in same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum of: (i) the interest expense of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP (including amortization of original issue discount,
non-cash interest payments, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations; provided, however, that in no event shall any
amortization of deferred financing costs be included in Consolidated Interest
Expense) and (ii) consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, whether paid or
accrued.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iv) the cumulative effect of a change in accounting principles shall
be excluded, and (v) the Net Income of any Unrestricted Subsidiary
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<PAGE> 12
shall be excluded, whether or not distributed to the referent Person or one of
its Restricted Subsidiaries for purposes of Section 4.9 hereof and shall be
included for purposes of Section 4.7 hereof only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or one of its
Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date hereof in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date hereof, or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.2 hereof or such other address as to which the
Trustee may give notice to the Company.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Notes" means either the Restricted Definitive Notes or the
Unrestricted Definitive Notes.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 hereof as
the Depositary with respect to the Notes, until a successor shall have been
appointed and become such pursuant to Section 2.6 of this Indenture, and,
thereafter, "Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any
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<PAGE> 13
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would not
qualify as Disqualified Stock but for change of control provisions shall not
constitute Disqualified Stock if the provisions are not more favorable to the
holders of such Capital Stock than the provisions described under Section 4.13
hereof.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York, the
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer by the Company to Holders to exchange
Senior Notes for New Senior Notes.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date hereof, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the Consolidated Interest Expense of such
Person for such period and (ii) any interest expense on Indebtedness of another
Person that is guaranteed by the referent Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called upon)
and (iii) the product of (A) all cash dividend payments of the Company and any
Subsidiary Guarantor on any series of preferred stock of the Company or such
Guarantor times (B) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, guarantees, redeems or
repays any
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Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee, redemption or
repayment of Indebtedness, or such issuance or redemption of preferred stock, as
if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter period or subsequent to
such reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, or operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means a Subsidiary that is formed under the laws of
the United States of America or of a state or territory thereof, but shall
exclude any Subsidiary which is treated as a partnership or branch for United
States federal income tax purposes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date hereof.
"Global Notes" means the U.S. Global Notes, the Regulation S Temporary
Global Notes, the Regulation S Permanent Global Notes and the Unrestricted
Global Notes.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
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"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds an interest through a
Participant.
"Initial Purchaser" means Donaldson, Lufkin & Jenrette Securities
Corporation.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or to the creditors
of the Company, as such, or to the assets of the Company, or (ii) any
liquidation, dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary and involving insolvency or bankruptcy, or (iii) any
assignment for the benefit of creditors or any other marshaling of assets and
liabilities of the Company.
"Institutional Accredited Investor" means an institutional "accredited
investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together
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<PAGE> 16
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of
the Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, such Person is no longer a Restricted Subsidiary
of the Company, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
under Section 4.7 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the city in which the Corporate Trust
Office of the Trustee is located or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday at a place of payment, payment shall be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
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<PAGE> 17
"New Credit Facility" means that certain Credit Facility, dated as of
January 30, 1998, by and among the Company, certain financial institutions and
Fleet National Bank, as agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, renewed, refunded, replaced or
refinanced from time to time.
"New Senior Notes" means the Company's 10 -3/4 % Senior Notes due 2005,
which will be issued in exchange for the Company's Senior Notes.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor
or otherwise), or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Note Custodian" means the Trustee, when serving as custodian for the
Depositary with respect to the Notes in global form, or any successor entity
thereto.
"Notes" means the Senior Notes or the New Senior Notes, as applicable.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offer and sale of the Senior Notes as contemplated
by the Offering Memorandum.
"Offering Memorandum" means the Offering Memorandum, dated January 23,
1998, relating to the Company's offering and placement of the Senior Notes.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.5 hereof.
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<PAGE> 18
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Pari Passu Indebtedness" means Indebtedness of the Company that ranks
pari passu in right of payment to the Notes.
"Participant" means, with respect to DTC, Euroclear or Cedel, a Person
who has an account with DTC, Euroclear or Cedel, respectively (and, with respect
to DTC, shall include Euroclear and Cedel).
"Permitted Business" means any of the businesses and any other
businesses related to the businesses engaged in by the Company and its
respective Restricted Subsidiaries on the date hereof.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary Guarantor and Investments in Wholly-Owned Restricted Subsidiaries
which are not Subsidiary Guarantors permitted under clauses (vii) or (ix) of
Section 4.9; (ii) any Investment in Cash Equivalents; (iii) any Investment by
the Company or any Restricted Subsidiary of the Company in a Person, if as a
result of such Investment (a) such Person becomes a Guarantor or (b) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Guarantor; (iv) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with Section 4.10; (v) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of the Company; and
(vi) other Investments made after the date hereof in any Person having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (vi) that are at the
time outstanding, not in excess of $5.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the New
Credit Facility that was permitted by the terms of this Indenture to be incurred
or other Indebtedness allowed to be incurred under clause (i) of Section 4.9
hereof; (ii) Liens in favor of the Company; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Restricted Subsidiary of the Company; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Restricted Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens existing on the date
hereof; (vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall be
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<PAGE> 19
required in conformity with GAAP shall have been made therefor; (viii) Liens
incurred in the ordinary course of business of the Company or any Restricted
Subsidiary of the Company with respect to obligations that do not exceed $5.0
million at any one time outstanding and that (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Restricted
Subsidiary and (ix) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of Section 4.9 covering only the assets
acquired with such Indebtedness, together with any additions and accessions
thereto and replacements, substitutions and proceeds (including insurance
proceed(s) thereof); (x) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's, or other like Liens arising in the ordinary course
of business in respect of obligations not overdue for a period in excess of 30
days or which are being contested in good faith by appropriate proceedings
promptly instituted and diligently prosecuted; provided, that any reserve or
other appropriate provisions as shall be required to conform with GAAP shall
have been made therefor; (xi) easements, rights-of-way, zoning and similar
restrictions and other similar encumbrances or title defects incurred, or leases
or subleases granted to others, in the ordinary course of business, which do not
in any case materially detract from the value of the property subject thereto or
do not interfere with or adversely affect in any material respect the ordinary
conduct of the business of the Company and its Restricted Subsidiaries taken as
a whole; (xii) Liens (other than any Lien imposed by ERISA or any rule or
regulation promulgated thereunder) incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance, and other types of social security; (xiii) Liens in favor of a
trustee under any indenture securing amounts due to the trustee in connection
with its services under such indenture; (xiv) Liens under licensing agreements
for use of intellectual property entered into in the ordinary course of
business; and (xv) Liens on inventory or cash to secure cash advances made by
customers for the purchase price of inventory.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) except for Indebtedness used to extend, refinance, renew,
replace, defease or refund the New Credit Facility, the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith and the amount of any market-based premium paid in
connection herewith); (ii) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
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<PAGE> 20
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Principals" means DLJ Merchant Banking, Inc. and its Affiliates, the
Sprout Group and its Affiliates, John F. Schaefer and Arthur J. Cormier.
"Private Placement Legend" means the legend initially set forth on the
Senior Notes in the form set forth in Section 2.6 (f) hereof.
"Public Equity Offering" means a public offering of Equity Interests
(other than Disqualified Stock) of the Company; that results in the net proceeds
to the Company of at least $25.0 million.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A
under the Securities Act.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the date hereof, by and among the Company, the Subsidiary Guarantors
and the Initial Purchaser.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Notes" means the Regulation S Temporary Global
Notes or the Regulation S Permanent Global Notes, as applicable.
"Regulation S Permanent Global Notes" means the permanent global notes
that do not contain the paragraphs referred to in footnote 1 to the form of the
Note attached hereto as EXHIBIT A-2, and that are deposited with and registered
in the name of the Depositary or its nominee, representing a series of Notes
sold in reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary global notes
that contain the paragraphs referred to in footnote 1 to the form of the Note
attached hereto as EXHIBIT A-2, and that are deposited with and registered in
the name of the Depositary or its nominee, representing a series of Notes sold
in reliance on Regulation S.
"Related Party" with respect to any Principal means (i) any controlling
stockholder or partner, 80% (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal or (ii) any
trust, corporation, partnership, limited liability company or other entity, the
beneficiaries, stockholders, partners, members, owners or Persons beneficially
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<PAGE> 21
holding an 80% or more controlling interest of which consist of such Principal
and/or such other Persons referred to in the immediately preceding clause (i).
"Responsible Officer" when used with respect to the Trustee, means any
officer in the Corporate Trust Office of the Trustee or any other officer of the
Trustee to whom a particular corporate trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Note in the form of the Note
attached hereto as EXHIBIT A-1 that includes the information called for in
footnote 2 thereof.
"Restricted Global Notes" means the U.S. Global Notes and the Regulation
S Global Notes, all of which shall bear the Private Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholders Agreement" means the Securityholders Agreement, dated
as of November 23, 1994, among the Company, John F. Schaefer, Arthur J. Cormier,
DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V., DLJ
Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., DLJ Capital
Corporation, Sprout Growth II, L.P. and Sprout Capital VI, L.P.
"Senior Notes" means the Company's 10 -3/4 % Senior Notes due 2005.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
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<PAGE> 22
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means each of (i) Helios, Incorporated, Applied
Robotic Technologies, Inc., Air Bearings, Incorporated and Santa Barbara Metric,
Inc. and (ii) any other Subsidiary that executes a Note Guarantee substantially
in the form of EXHIBIT E attached hereto, and their respective successors and
assigns.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Section
77aaa-77bbbb), as amended, as in effect on the date hereof.
"Transfer Restricted Securities" means Senior Notes or beneficial
interests therein that bear or are required to bear the Private Placement
Legend.
"Trustee" means State Street Bank and Trust Company of California, N.A.
until a successor replaces it in accordance with the applicable provisions of
this Indenture, and thereafter means the successor.
"Unrestricted Global Notes" means one or more Global Notes that do not
and are not required to bear the Private Placement Legend.
"Unrestricted Definitive Note" means a Note in the form of the Note
attached hereto as EXHIBIT A-1 that does not include the information called for
in footnotes 1, 2 and 3 thereof.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
a resolution of the Board of Directors of the Company as an Unrestricted
Subsidiary; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one
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<PAGE> 23
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.7 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.9 hereof, the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 4.9 hereof, and (ii) no Default or Event
of Default would be in existence following such designation.
"U.S. Global Notes" means the permanent global notes that contain the
paragraphs referred to in footnotes 1 and 2 and the additional schedule referred
to in footnote 3 to the form of the Note attached hereto as EXHIBIT A-1, and
that is deposited with and registered in the name of the Depositary or its
nominee, representing a series of Notes sold in reliance on Rule 144A.
"U.S. Person" means (i) any individual resident in the United States,
(ii) any partnership or corporation organized or incorporated under the laws of
the United States, (iii) any estate of which an executor or administrator is a
U.S. Person (other than an estate governed by foreign law and of which at least
one executor or administrator is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets), (iv) any trust of which any
trustee is a U.S. Person (other than a trust of which at least one trustee is a
non-U.S. Person who has sole or shared investment discretion with respect to its
assets and no beneficiary of the trust (and no settler, if the trust is
revocable) is a U.S. Person), (v) any agency or branch of a foreign entity
located in the United States, (vi) any non-discretionary or similar account
(other than an estate or trust) held by a dealer or other fiduciary for the
benefit or account of a U.S. Person, (vii) any discretionary or similar account
(other than an estate or trust) held by a dealer or other fiduciary organized,
incorporated or (if an individual) resident in the United States (other than
such an account held for the benefit or account of a non-U.S. Person), (viii)
any partnership or corporation organized or incorporated under the laws of a
foreign jurisdiction and formed by a U.S. person principally for the purpose of
investing in securities not registered under the Securities Act (unless it is
organized or incorporated and owned, by "accredited investors" within the
meaning of Rule 501(a) under the Securities Act who are not natural persons,
estates or trusts); provided, however that the term "U.S. Person" shall not
include (A) a branch or agency of a U.S. Person that is located and operating
outside the United States for valid business purposes as a locally regulated
branch or agency engaged in the banking or insurance business, (B) any employee
benefit plan established and administered in accordance with the law, customary
practices and documentation of a foreign country and (C) the international
organizations set forth in
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<PAGE> 24
Section 902(o)(7) of Regulation S under the Securities Act and any other similar
international organizations, and their agencies, affiliates and pension plans.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" means a Subsidiary that is both a
Wholly-Owned Subsidiary and a Restricted Subsidiary.
"Wholly-Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly-Owned Subsidiaries of such Person.
SECTION 1.2 OTHER DEFINITIONS.
Defined in Term Section
<TABLE>
<S> <C>
"Affiliate Transaction"...............................................4.11
"Asset Sale Offer"....................................................4.10
"Change of Control Offer".............................................4.13
"Change of Control Payment"...........................................4.13
"Change of Control Payment Date"......................................4.13
"Covenant Defeasance".................................................8.03
"Custodian"...........................................................6.01
"DTC".................................................................2.03
"Event of Default"....................................................6.01
"Excess Proceeds".....................................................4.10
"Excess Proceeds Offer Triggering Event"..............................4.10
"incur"...............................................................4.09
"Legal Defeasance"....................................................8.02
"Offer Amount"........................................................3.09
"Offer Period"........................................................3.09
"Paying Agent"........................................................2.03
"Payment Default".....................................................6.01
"Permitted Debt"......................................................4.09
"Purchase Date".......................................................3.09
</TABLE>
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<PAGE> 25
<TABLE>
<S> <C>
"Registrar"...........................................................2.03
"Repurchase Offer"....................................................3.09
"Restricted Payments".................................................4.07
</TABLE>
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, each Subsidiary Guarantor and
any successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by the Commission rule
under the TIA have the meanings so assigned to them therein.
SECTION 1.4 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein;
(2) an accounting term not otherwise defined herein has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement or successor
sections or rules adopted by the Commission from time to time.
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<PAGE> 26
ARTICLE 2
THE NOTES
SECTION 2.1 FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of EXHIBIT A-1 or EXHIBIT A-2 attached hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its authentication.
The Notes initially shall be issued in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, the
Subsidiary Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
(a) Global Notes. Notes offered and sold to QIBs in reliance on Rule
144A shall be issued initially in the form of U.S. Global Notes, which shall be
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, as custodian of the Depositary, and registered in the name of the
Depositary or a nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee and the Depositary or its
nominee as hereinafter provided.
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note, which shall be
deposited on behalf of the purchasers of the Notes represented thereby with the
Trustee, as custodian for the Depositary, and registered in the name of the
Depositary or the nominee of the Depositary for the accounts of designated
agents holding on behalf of Euroclear or Cedel, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The "40-day restricted
period" (as defined in Regulation S) shall be terminated upon the receipt by the
Trustee of (i) a written certificate from the Depositary, together with copies
of certificates from Euroclear and Cedel certifying that they have received
certification of non-United States beneficial ownership of 100% of the aggregate
principal amount of the Regulation S Temporary Global Notes (except to the
extent of any beneficial owners thereof who acquired an interest therein
pursuant to another exemption from registration under the Securities Act and who
will take delivery of a beneficial ownership interest in a U.S. Global Note, all
as contemplated by Section 2.6(a)(ii) hereof), and (ii) an Officers' Certificate
from the Company certifying as to the same matters covered in clause (i) above.
Following the termination of the 40-day restricted period, beneficial interests
in the Regulation S Temporary Global Note shall be exchanged for beneficial
interests in Regulation S Permanent Global Notes pursuant to the
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Applicable Procedures. Simultaneously with the authentication of Regulation S
Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary
Global Note. The aggregate principal amount of the Regulation S Temporary Global
Notes and the Regulation S Permanent Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee, as the case may be, in connection with transfers of
interest as hereinafter provided.
Each Global Note shall represent such of the outstanding Notes as shall
be specified therein and each shall provide that it shall represent the
aggregate amount of outstanding Notes from time to time endorsed thereon and
that the aggregate amount of outstanding Notes represented thereby may from time
to time be reduced or increased, as appropriate, to reflect exchanges,
redemptions and transfers of interests. Any endorsement of a Global Note to
reflect the amount of any increase or decrease in the amount of outstanding
Notes represented thereby shall be made by the Trustee or the Note Custodian, at
the direction of the Trustee, in accordance with instructions given by the
Holder thereof as required by Section 2.6 hereof.
The provisions of the "Operating Procedures of the Euroclear System" and
"Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedel" and "Customer Handbook" of Cedel shall be applicable to
interests in the Regulation S Temporary Global Notes and the Regulation S
Permanent Global Notes that are held by Participants through Euroclear or Cedel.
The Trustee shall have no obligation to notify Holders of any such procedures or
to monitor or enforce compliance with the same.
Except as set forth in Section 2.6 hereof, the Global Notes may be
transferred, in whole and not in part, only to another nominee of the Depositary
or to a successor of the Depositary or its nominee.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to
Global Notes deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.1(b), authenticate and deliver the Global Notes that (i) shall be
registered in the name of the Depositary or the nominee of the Depositary and
(ii) shall be delivered by the Trustee to the Depositary or pursuant to the
Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Participants shall have no rights either under this Indenture with
respect to any Global Note held on their behalf by the Depositary or by the Note
Custodian as custodian for the Depositary or under such Global Note, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its
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Participants, the operation of customary practices of such Depositary governing
the exercise of the rights of an owner of a beneficial interest in any Global
Note.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
An Officer shall sign the Notes for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Note has been
authenticated under this Indenture. The form of Trustee's certificate of
authentication to be borne by the Notes shall be substantially as set forth in
EXHIBIT A-1 or EXHIBIT A-2 attached hereto.
The Trustee shall, upon a written order of the Company signed by an
Officer directing the Trustee to authenticate the Notes, authenticate Notes for
original issue up to the aggregate principal amount stated in paragraph 4 of the
Notes. The Trustee shall, upon written order of the Company signed by an
Officer, authenticate New Senior Notes for original issuance in exchange for a
like principal amount of Senior Notes exchanged in the Exchange Offer or
otherwise exchanged for New Senior Notes pursuant to the terms of the
Registration Rights Agreement. The aggregate principal amount of Notes
outstanding at any time may not exceed such amount except as provided in Section
2.7 hereof.
The Trustee may (at the Company's expense) appoint an authenticating
agent acceptable to the Company to authenticate Notes. An authenticating agent
may authenticate Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with the
Company or an Affiliate of the Company.
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and (ii) an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
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The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes. The
Company initially appoints the Trustee to act as the Registrar and Paying Agent
with respect to the Definitive Notes.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
shall notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
the occurrence of events specified in Section 6.1(vii) through (ix) hereof, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.5 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company and/or the Subsidiary Guarantors shall furnish
to the Trustee at least seven (7) Business Days before each interest payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of the Holders of Notes and the Company and the Subsidiary
Guarantors shall otherwise comply with TIA Section 312(a).
SECTION 2.6 TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global Notes
will be exchanged by the Company for Definitive Notes if (i) the Company
delivers to the Trustee notice from the Depositary that it is unwilling or
unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 120 days after the date of
such notice from the Depositary, (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be exchanged
for Definitive Notes and delivers a
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written notice to such effect to the Trustee, or (iii) there shall have occurred
and be continuing a Default or Event of Default with respect to the Notes;
provided that in no event shall the Regulation S Temporary Global Note be
exchanged by the Company for Definitive Notes prior to (x) the expiration of the
40-day restricted period and (y) the receipt by the Registrar of any
certificates identified by the Company or its counsel to be required pursuant to
Rule 903 under the Securities Act. Upon the occurrence of either of the
preceding events in (i), (ii) or (iii) above, Definitive Notes shall be issued
in such names as the Depositary shall instruct the Trustee. Global Notes also
may be exchanged or replaced, in whole or in part, as provided in Sections 2.7
and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in
lieu of, a Global Note or any portion thereof, pursuant to Section 2.7 or 2.10
hereof, shall be authenticated and delivered in the form of, and shall be, a
Global Note. A Global Note may not be exchanged for another Note other than as
provided in this Section 2.6(a); however, beneficial interests in a Global Note
may be transferred and exchanged as provided in Section 2.6(b), (c) or (f)
hereof.
(b) Transfer and Exchange of Beneficial Interests in Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer described
in the Private Placement Legend to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest
in the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided,
however, that prior to the expiration of the 40-day restricted period
transfers of beneficial interests in the Temporary Regulation S Global
Note may not be made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser). Beneficial interests in
any Unrestricted Global Note may be transferred only to Persons who take
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note. No written orders or instructions shall be required to be
delivered to the Registrar to effect the transfers described in this
Section 2.6(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of
beneficial interests (other than a transfer of a beneficial interest in
a Global Note to a Person who takes delivery thereof in the form of a
beneficial interest in the same Global Note), the transferor of such
beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant to the Depositary in accordance with
the Applicable Procedures directing the Depositary to credit or cause to
be credited a beneficial interest in another Global Note in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant
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account to be credited with such increase or (B) (1) a written order
from a Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary to
the Registrar containing information regarding the Person in whose name
such Definitive Note shall be registered to effect the transfer or
exchange referred to in (1) above; provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the 40-day restricted period and (y) the receipt by the
Registrar of any certificates identified by the Company or its counsel
to be required pursuant to Rule 903 under the Securities Act. Upon an
Exchange Offer by the Company in accordance with Section 2.6(f) hereof,
the requirements of this Section 2.6(b)(ii) shall be deemed to have been
satisfied by compliance with the Applicable Procedures or upon receipt
by the Registrar of the instructions contained in the Letter of
Transmittal delivered by the Holder of such beneficial interests in the
Restricted Global Notes. Upon satisfaction of all of the requirements
for transfer or exchange of beneficial interests in Global Notes
contained in this Indenture, the Notes and otherwise applicable under
the Securities Act, the Trustee shall adjust the principal amount of the
relevant Global Note(s) pursuant to Section 2.6(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of clause (ii) above and the Registrar
receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the U.S. Global Note, then the transferor
must deliver a certificate in the form of EXHIBIT B hereto,
including the certifications in item (1) thereof; and
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or
the Regulation S Permanent Global Note, then the transferor must
deliver a certificate in the form of EXHIBIT B hereto, including
the certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in an Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
clause (ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the
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beneficial interest to be transferred, in the case of an
exchange, or the transferee, in the case of a transfer, is not
(1) a Broker-Dealer, (2) a Person participating in the
distribution of the Notes issued in the Exchange Offer or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of EXHIBIT C
hereto, including the certifications in item (1)(a) thereof;
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of EXHIBIT B hereto,
including the certifications in item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain compliance
with the Securities Act.
If any such transfer is effected pursuant to subparagraph
(B) or (D) above at a time when an Unrestricted Global Note has not yet
been issued, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.2 hereof, the Trustee
shall authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of beneficial interests
transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot
be exchanged for, or transferred to, Persons who take delivery thereof
in the form of a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests in Global Notes
for Definitive Notes.
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(i) If any holder of a beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest proposes to
exchange such beneficial interest for a Restricted Definitive
Note, a certificate from such holder in the form of EXHIBIT C
hereto, including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in EXHIBIT B hereto,
including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in EXHIBIT B hereto, including the
certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in EXHIBIT
B hereto, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other
than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in EXHIBIT B hereto,
including the certifications, certificates and Opinion of Counsel
required by item (3)(d) thereof, if applicable;
(F) if such beneficial interest is being transferred to
the Company or any of its Subsidiaries, a certificate to the
effect set forth in EXHIBIT B hereto, including the
certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in EXHIBIT
B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Note to be reduced accordingly pursuant to Section
2.6(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Restricted Definitive Note in the appropriate principal amount. Any
Restricted Definitive Note issued in exchange for a beneficial interest
in a Restricted Global
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Note pursuant to this Section 2.6(c) shall be registered in such name or
names and in such authorized denomination or denominations as the holder
of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant. The Trustee shall
deliver such Restricted Definitive Notes to the Persons in whose names
such Notes are so registered. Any Restricted Definitive Note issued in
exchange for a beneficial interest in a Restricted Global Note pursuant
to this Section 2.6(c)(i) shall bear the Private Placement Legend and
shall be subject to all restrictions on transfer contained therein.
(ii) Notwithstanding Sections 2.6(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
(A) exchanged for a Definitive Note prior to (x) the expiration of the
40-day restricted period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903(c)(3)(B) under the Securities
Act or (B) transferred to a Person who takes delivery thereof in the
form of a Definitive Note prior to the conditions set forth in clause
(A) above or unless the transfer is pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 903 or
Rule 904.
(iii) Notwithstanding 2.6(c)(i) hereof, a holder of a beneficial
interest in a Restricted Global Note may exchange such beneficial
interest for an Unrestricted Definitive Note or may transfer such
beneficial interest to a Person who takes delivery thereof in the form
of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer, is
not (1) a Broker-Dealer, (2) a Person participating in the
distribution of the Notes issued in the Exchange Offer or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for an Unrestricted Definitive Note, a certificate from
such holder in the form of EXHIBIT C hereto, including the
certifications in item (1)(b) thereof;
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<PAGE> 35
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of an Unrestricted Definitive Note, a certificate from such
holder in the form of EXHIBIT B hereto, including the
certifications in item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Company, to the effect that such exchange or
transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain compliance
with the Securities Act.
(iv) If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for an
Unrestricted Definitive Note or to transfer such beneficial interest to
a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note, then, upon satisfaction of the conditions set forth in
Section 2.6(b)(ii) hereof, the Trustee shall cause the aggregate
principal amount of the applicable Unrestricted Global Note to be
reduced accordingly pursuant to Section 2.6(h) hereof, and the Company
shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions an Unrestricted Definitive Note in
the appropriate principal amount. Any Unrestricted Definitive Note
issued in exchange for a beneficial interest pursuant to this Section
2.6(c)(iv) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions
from the Depositary and the Participant. The Trustee shall deliver such
Unrestricted Definitive Notes to the Persons in whose names such Notes
are so registered. Any Unrestricted Definitive Note issued in exchange
for a beneficial interest pursuant to this section 2.6(c)(iv) shall not
bear the Private Placement Legend. A beneficial interest in an
Unrestricted Global Note cannot be exchanged for a Restricted Definitive
Note or transferred to a Person who takes delivery thereof in the form
of a Restricted Definitive Note.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests in Global Note.
(i) If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note
or to transfer such Restricted Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in a Restricted
Global Note, then, upon receipt by the Registrar of the following
documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the
form of EXHIBIT C hereto, including the certifications in item
(2)(b) thereof;
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<PAGE> 36
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A under the
Securities Act, a certificate to the effect set forth in EXHIBIT
B hereto, including the certifications in item (1) thereof; or
(C) if such Restricted Definitive Note is being
transferred to a non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in EXHIBIT B hereto,
including the certifications in item (2) thereof;
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Note, in the case of
clause (B) above, the 144A Global Note, and in the case of clause (C)
above, the Regulation S Global Note.
(ii) A Holder of a Restricted Definitive Note may exchange such
Note for a beneficial interest in an Unrestricted Global Note or
transfer such Restricted Definitive Note to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a
Broker-Dealer, (2) a Person participating in the distribution of
the Notes issued in the Exchange Offer or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive
Notes proposes to exchange such Notes for a beneficial interest
in the Unrestricted Global Note, a certificate from such Holder
in the form of EXHIBIT C hereto, including the certifications in
item (1)(c) thereof;
(2) if the Holder of such Restricted Definitive
Notes proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of a
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beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of EXHIBIT B hereto,
including the certifications in item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or
transfer is in compliance with the Securities Act, that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain compliance
with the Securities Act, and such Restricted Definitive Notes are
being exchanged or transferred in compliance with any applicable
blue sky securities laws of any State of the United States.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.6(d)(ii), the Trustee shall cancel the Restricted Definitive
Notes and increase or cause to be increased the aggregate principal
amount of the Unrestricted Global Note.
(iii) A Holder of an Unrestricted Definitive Note may exchange
such Note for a beneficial interest in an Unrestricted Global Note or
transfer such Unrestricted Definitive Notes to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note at any time. Upon receipt of a request for such an exchange
or transfer, the Trustee shall cancel the applicable Unrestricted
Definitive Note and increase or cause to be increased the aggregate
principal amount of the Unrestricted Global Note.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an authentication order in
accordance with Section 2.2 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of beneficial interests transferred pursuant to subparagraphs
(ii)(B), (ii)(D) or (iii) above.
(e) Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.6(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, pursuant to the provisions of this Section 2.6(e).
(i) Restricted Definitive Notes may be transferred to and
registered in the name of Persons who take delivery thereof if the
Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A
under the Securities Act, then the transferor must deliver a
certificate in the form of EXHIBIT B hereto, including the
certifications in item (1) thereof;
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(B) if the transfer will be made pursuant to Rule 903 or
Rule 904, then the transferor must deliver a certificate in the
form of EXHIBIT B hereto, including the certifications in item
(2) thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form
of EXHIBIT B hereto, including the certifications, certificates
and Opinion of Counsel required by item (3) thereof, if
applicable.
(ii) Any Restricted Definitive Note may be exchanged by the
Holder thereof for an Unrestricted Definitive Note or transferred to a
Person or Persons who take delivery thereof in the form of an
Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (1) a
Broker-Dealer, (2) a Person participating in the distribution of
the Notes issued in the Exchange Offer or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive
Notes proposes to exchange such Notes for an Unrestricted
Definitive Note, a certificate from such Holder in the form of
EXHIBIT C hereto, including the certifications in item (1)(d)
thereof;
(2) if the Holder of such Restricted Definitive
Notes proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note,
a certificate from such Holder in the form of EXHIBIT B hereto,
including the certifications in item (4) thereof; and
(3) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or
transfer is in compliance with the Securities Act, that the
restrictions on transfer contained herein and in the Private
Placement Legend are not required in order to maintain compliance
with the Securities Act, and such
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Restricted Definitive Note is being exchanged or transferred in
compliance with any applicable blue sky securities laws of any
State of the United States.
(iii) A Holder of Unrestricted Definitive Notes may transfer such
Notes to a Person who takes delivery thereof in the form of an
Unrestricted Definitive Note. Upon receipt of a request for such a
transfer, the Registrar shall register the Unrestricted Definitive Notes
pursuant to the instructions from the Holder thereof. Unrestricted
Definitive Notes cannot be exchanged for or transferred to Persons who
take delivery thereof in the form of a Restricted Definitive Note.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an authentication order in accordance with Section 2.2, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by persons that
are not (x) Broker-Dealers, (y) Persons participating in the distribution of the
Notes issued in the Exchange Offer or (z) Persons who are Affiliates (as defined
in Rule 144) of the Company and accepted for exchange in the Exchange Offer and
(ii) Unrestricted Definitive Notes in an aggregate principal amount equal to the
principal amount of the Restricted Definitive Notes accepted for exchange in the
Exchange Offer. Concurrent with the issuance of such Notes, the Trustee shall
cause the aggregate principal amount of the applicable Restricted Global Notes
to be reduced accordingly, and the Company shall execute and the Trustee shall
authenticate and deliver to the Persons designated by the Holders of Definitive
Notes so accepted Unrestricted Definitive Notes in the appropriate principal
amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Note and each Definitive Note (and all Notes issued in
exchange therefor or substitution thereof) shall bear the legend
in substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE SECOND
SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
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144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)
(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT
(AN "IAI"), (2) AGREES THAT IT WILL NOT, RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS
NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND,
IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT
OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH
CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS
GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
(B) Notwithstanding the foregoing, any Unrestricted Global
Note or Unrestricted Definitive Note issued pursuant to
subparagraphs (b)(iv), (c)(iii), (c)(iv), (d)(ii), (d)(iii),
(e)(ii), (e)(iii) or (f) to this Section 2.6 (and all Notes
issued in exchange therefor or substitution thereof) shall not
bear the Private Placement Legend.
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(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES
IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A
NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF
THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET,
NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE,
AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR
CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED
HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE
CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER
HOLDS THIS NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO
PREVENT INTEREST FROM ACCRUING ON THIS NOTE."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with
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Section 2.11 hereof. At any time prior to such cancellation, if any beneficial
interest in a Global Note is exchanged for or transferred to a Person who will
take delivery thereof in the form of a beneficial interest in another Global
Note or for Definitive Notes, the principal amount of Notes represented by such
Global Note shall be reduced accordingly and an endorsement shall be made on
such Global Note, by the Trustee or by the Depositary at the direction of the
Trustee, to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note, such other Global Note
shall be increased accordingly and an endorsement shall be made on such Global
Note, by the Trustee or by the Depositary at the direction of the Trustee, to
reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes
and Definitive Notes upon receipt of a Company Order or at the
Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.9, 4.10, 4.13 and 9.5 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Company shall not be required (A) to issue, to register
the transfer of or to exchange Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business
on the day of selection, (B) to register the transfer of or to exchange
any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (C) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Company may deem and treat
the Person in whose name any
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Note is registered as the absolute owner of such Note for the purpose of
receiving payment of principal of and interest on such Notes and for all
other purposes, and none of the Trustee, any Agent or the Company shall
be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.2 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.6
to effect a transfer or exchange may be submitted by facsimile.
SECTION 2.7 REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company and
the Trustee receives evidence to their satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by an Officer of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company and the Trustee may
charge for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.8 OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this Section 2.8
as not outstanding. Except as set forth in Section 2.9 hereof, a Note does not
cease to be outstanding because the Company or any Subsidiary Guarantor or an
Affiliate of the Company or any Subsidiary Guarantor holds the Note.
If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.1
hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date,
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then on and after that date such Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
SECTION 2.9 TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Subsidiary Guarantor, or by any Affiliate of the Company or any
Subsidiary Guarantor shall be considered as though not outstanding, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Notes shown on the
Trustee's register as being so owned shall be so disregarded. Notwithstanding
the foregoing, Notes that are to be acquired by the Company or any Subsidiary
Guarantor or an Affiliate of the Company or any Subsidiary Guarantor pursuant to
an exchange offer, tender offer or other agreement shall not be deemed to be
owned by such entity until legal title to such Notes passes to such entity.
SECTION 2.10 TEMPORARY NOTES.
Until Definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by an Officer of the Company. Temporary Notes shall be
substantially in the form of Definitive Notes but may have variations that the
Company considers appropriate for temporary Notes. Without unreasonable delay,
the Company shall prepare and the Trustee shall upon receipt of a written order
of the Company signed by an Officer authenticate Definitive Notes in exchange
for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder or which the Company may
have acquired in any manner whatsoever, and all Notes so delivered shall be
promptly canceled by the Trustee. All Notes surrendered for registration of
transfer, exchange or payment, if surrendered to any Person other than the
Trustee, shall be delivered to the Trustee. The Trustee and no one else shall
cancel all Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation. Subject to Section 2.7 hereof, the Company may not
issue new Notes to replace Notes that it has redeemed or paid or that have been
delivered to the Trustee for cancellation. All canceled Notes held by the
Trustee shall be destroyed and certification of their destruction delivered to
the Company, unless by a written order, signed by an Officer of the Company, the
Company shall direct that canceled Notes be returned to it.
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SECTION 2.12 DEFAULTED INTEREST.
If the Company or any Subsidiary Guarantor defaults in a payment of
interest on the Notes, it shall pay the defaulted interest in any lawful manner
plus, to the extent lawful, interest payable on the defaulted interest, to the
Persons who are Holders on a subsequent special record date, which date shall be
at the earliest practicable date but in all events at least five (5) Business
Days prior to the payment date, in each case at the rate provided in the Notes
and in Section 4.1 hereof. The Company shall fix or cause to be fixed each such
special record date and payment date, and shall promptly thereafter, notify the
Trustee of any such date. At least fifteen (15) days before the special record
date, the Company (or the Trustee, in the name and at the expense of the
Company) shall mail or cause to be mailed to Holders a notice that states the
special record date, the related payment date and the amount of such interest to
be paid.
SECTION 2.13 RECORD DATE.
The record date for purposes of determining the identity of Holders of
the Notes entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in TIA Section 316 (c).
SECTION 2.14 COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
SECTION 2.15 CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number, and if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.1 NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at
least 45 days but not more than 60 days before a redemption date (unless a
shorter period is acceptable to the Trustee) an Officers' Certificate setting
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forth (i) the Section of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Notes pursuant
to Section 4.10 or 4.13 hereof, it shall furnish to the Trustee, at least 45
days before the scheduled purchase date, an Officers' Certificate setting forth
(i) the section of this Indenture pursuant to which the offer to purchase shall
occur, (ii) the terms of the offer, (iii) the principal amount of Notes to be
purchased, (iv) the purchase price, (v) the purchase date and (vi) and further
setting forth a statement to the effect that (a) the Company or one of its
Subsidiaries has affected an Asset Sale and there are Excess Proceeds
aggregating more than $15.0 million or (b) a Change of Control has occurred, as
applicable.
SECTION 3.2 SELECTION OF NOTES TO BE REDEEMED OR PURCHASED.
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
SECTION 3.3 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(1 the redemption date;
(2 the redemption price for the Notes and accrued interest, and
Liquidated Damages, if any;
(3 if any Note is being redeemed in part, the portion of the
principal amount of such Notes to be redeemed and that, after the redemption
date, upon surrender of such Note, a new Note
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or Notes in principal amount equal to the unredeemed portion shall be issued
upon surrender of the original Note;
(4 the name and address of the Paying Agent;
(5 that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6 that, unless the Company defaults in making such redemption
payment, interest and Liquidated Damages, if any, on Notes called for redemption
ceases to accrue on and after the redemption date;
(7 the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(8 that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall have delivered to the Trustee, at least 45 days
prior to the redemption date (or such shorter period as shall be acceptable to
the Trustee), an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in the notice as provided
in the preceding paragraph. The notice mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the Holder
receives such notice. In any case, failure to give such notice by mail or any
defect in the notice to the Holder of any Note shall not affect the validity of
the proceeding for the redemption of any other Note.
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.3
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price plus accrued and unpaid interest and
Liquidated Damages, if any, to such date. A notice of redemption may not be
conditional.
SECTION 3.5 DEPOSIT OF REDEMPTION OR PURCHASE PRICE.
On or before 10:00 a.m. (New York City time) on each redemption date or
the date on which Notes must be accepted for purchase pursuant to Section 4.10
or 4.13, the Company shall deposit with the Trustee or with the Paying Agent
money sufficient to pay the redemption price of and accrued and unpaid interest
and Liquidated Damages, if any, on all Notes to be redeemed or purchased on that
date. The Trustee or the Paying Agent shall promptly return to the Company upon
its written request any money deposited with the Trustee or the Paying Agent by
the Company in
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excess of the amounts necessary to pay the redemption price of (including any
applicable premium), accrued interest and Liquidated Damages, if any, on all
Notes to be redeemed or purchased.
If Notes called for redemption or tendered in an Asset Sale Offer or
Change of Control Offer are paid or if the Company has deposited with the
Trustee or Paying Agent money sufficient to pay the redemption or purchase price
of, unpaid and accrued interest and Liquidated Damages, if any, on all Notes to
be redeemed or purchased, on and after the redemption or purchase date interest
and Liquidated Damages, if any, shall cease to accrue on the Notes or the
portions of Notes called for redemption or tendered and not withdrawn in an
Asset Sale Offer or Change of Control Offer (regardless of whether certificates
for such securities are actually surrendered). If a Note is redeemed or
purchased on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest and Liquidated
Damages, if any, shall be paid to the Person in whose name such Note was
registered at the close of business on such record date. If any Note called for
redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest shall be
paid on the unpaid principal and Liquidated Damages, if any, from the redemption
or purchase date until such principal and Liquidated Dames, if any, is paid, and
to the extent lawful on any interest not paid on such unpaid principal, in each
case, at the rate provided in the Notes and in Section 4.1 hereof.
SECTION 3.6 NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.7 OPTIONAL REDEMPTION.
(a Except as set forth in the next paragraph, the Notes will not be
redeemable at the Company's option prior to February 1, 2002. Thereafter, the
Notes will be subject to redemption at any time at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on February 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002 105.375%
2003 102.688%
2004 and thereafter 100.000%
</TABLE>
(b Notwithstanding the foregoing, at any time prior to February 1,
2001, the Company may redeem up to 33% of the original aggregate principal
amount of Notes at a redemption price of 110.75% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated
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Damages thereon, if any, to the redemption date, with the net cash proceeds of a
Public Equity Offering; provided that at least 67% of the original aggregate
principal amount of Notes remains outstanding immediately after the occurrence
of such redemption; and provided, further, that such redemption shall occur
within 90 days of the date of the closing of such Public Equity Offering.
SECTION 3.8 MANDATORY REDEMPTION.
Except as set forth under Sections 3.9, 4.10 and 4.13 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SECTION 3.9 REPURCHASE OFFERS.
In the event that the Company shall be required to commence an offer to
all Holders to repurchase Notes (a "Repurchase Offer") pursuant to Section 4.10
hereof (an "Excess Proceeds Offer)" or pursuant to Section 4.13 hereof (a
"Change of Control Offer"), the Company shall follow the procedures specified
below.
A Repurchase Offer shall commence no earlier than 30 days and no later
than 60 days after a Change of Control (unless the Company is not required to
make such offer pursuant to Section 4.13(c) hereof) or an Excess Proceeds Offer
Triggering Event (as defined below), as the case may be, and remain open for a
period of twenty (20) Business Days following its commencement and no longer,
except to the extent that a longer period is required by applicable law (the
"Offer Period"). No later than five (5) Business Days after the termination of
the Offer Period (the "Purchase Date"), the Company shall purchase the principal
amount of Notes required to be purchased pursuant to Section 4.10 hereof, in the
case of an Excess Proceeds Offer, or 4.13 hereof, in the case of a Change of
Control Offer (the "Offer Amount") or, if less than the Offer Amount has been
tendered, all Notes tendered in response to the Repurchase Offer. Payment for
any Notes so purchased shall be made in the same manner as interest payments are
made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest or Liquidated Damages, if any, shall be payable to Holders who tender
Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders, with a copy
to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to such Repurchase
Offer. The Repurchase Offer shall be made to all Holders. The notice, which
shall govern the terms of the Repurchase Offer, shall describe the transaction
or transactions that constitute the Change of Control or Excess Proceeds Offer
Triggering Event, as the case may be and shall state:
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(a that the Repurchase Offer is being made pursuant to this Section
3.9 and Section 4.10 or 4.13 hereof, as the case may be, and the length of time
the Repurchase Offer shall remain open;
(b the Offer Amount, the purchase price and the Purchase Date;
(c that any Note not tendered or accepted for payment shall continue
to accrue interest;
(d that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Repurchase Offer shall cease to accrue
interest and Liquidated Damages, if any, after the Purchase Date;
(e that Holders electing to have a Note purchased pursuant to a
Repurchase Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note, duly completed,
or transfer by book-entry transfer, to the Company, the Depositary, or the
Paying Agent at the address specified in the notice not later than the close of
business on the last day of the Offer Period;
(f that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(g that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(h that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before 10:00 a.m. (New York City time) on each Purchase Date, the
Company shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount, together with accrued and
unpaid interest and Liquidated Damages, if any, thereon, to be held for payment
in accordance with the terms of this Section 3.9. On the Purchase Date, the
Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis
to the extent necessary, the Offer Amount of Notes or portions thereof tendered
pursuant to the Repurchase Offer, or if less than the Offer Amount has been
tendered, all Notes tendered, (ii) deliver or cause the Paying Agent or
depository, as the case may be, to deliver to the Trustee Notes so accepted and
(iii) deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.9. The Company, the Depositary or the Paying Agent, as
the case may be, shall promptly (but in any case not later than three (3)
Business Days after the
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Purchase Date) mail or deliver to each tendering Holder an amount equal to the
purchase price of the Notes tendered by such Holder and accepted by the Company
for purchase, plus any accrued and unpaid interest and Liquidated Damages, if
any, thereon, and the Company shall promptly issue a new Note, and the Trustee,
shall authenticate and mail or deliver such new Note, to such Holder, equal in
principal amount to any unpurchased portion of such Holder's Notes surrendered.
Any Note not so accepted shall be promptly mailed or delivered by the Company to
the Holder thereof. The Company shall publicly announce in a newspaper of
general circulation or in a press release provided to a nationally recognized
financial wire service the results of the Repurchase Offer on the Purchase Date.
Other than as specifically provided in this Section 3.9, any purchase
pursuant to this Section 3.9 shall be made pursuant to the provisions of
Sections 3.1, 3.2, 3.5 and 3.6 hereof.
ARTICLE 4
COVENANTS
SECTION 4.1 PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. The Company shall pay all Liquidated Damages, if any, in the same manner
on the dates and in the amounts set forth in the Registration Rights Agreement.
Principal, premium and Liquidated Damages, if any, and interest, shall be
considered paid for all purposes hereunder on the date the Paying Agent if other
than the Company or a Subsidiary thereof holds, as of 10:00 a.m. (New York City
time) money deposited by the Company in immediately available funds and
designated for and sufficient to pay all such principal, premium and Liquidated
Damages, if any, and interest, then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain within the City of New York an office or
agency (which may be an office of the Trustee or an Affiliate of the Trustee or
Registrar) where Notes may be surrendered for registration of transfer or for
exchange and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at
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any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency within the City and
State of New York for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.3
hereof.
SECTION 4.3 COMMISSION REPORTS.
From and after the earlier of the effective date of the Exchange Offer
Registration Statement or the effective date of the Shelf Registration
Statement, whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company shall furnish to
the Holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company shall file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) within the time periods
that would have been applicable had the Company been subject to such rules and
regulations and make such information available to securities analysts and
prospective investors upon request. In addition, the Company has agreed that,
for so long as any Notes remain outstanding, it shall furnish to the Holders, to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act. The Company shall at all times comply with TIA Section 314(a).
The financial information to be distributed to Holders of Notes shall be
filed with the Trustee and mailed to the Holders at their addresses appearing in
the register of Notes maintained by the Registrar, within 90 days after the end
of the Company's fiscal years and within 45 days after the end of each of the
first three quarters of each such fiscal year.
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The Company shall provide the Trustee with a sufficient number of copies
of all reports and other documents and information and, if requested by the
Company, the Trustee will deliver such reports to the Holders under this Section
4.3.
SECTION 4.4 COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture (including, with respect to any Restricted
Payments made during such year, the basis upon which the calculations required
by Section 4.7 hereof were computed, which calculations may be based on the
Company's latest available financial statements), and further stating, as to
each such Officer signing such certificate, that, to the best of his or her
knowledge, each entity has kept, observed, performed and fulfilled each and
every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action the Company is taking or proposes to take with respect thereto) and
that, to the best of his or her knowledge, no event has occurred and remains in
existence by reason of which payments on account of the principal of, premium or
Liquidated Damages, if any, or interest on the Notes is prohibited or if such
event has occurred, a description of the event and what action the Company is
taking or proposes to take with respect thereto.
So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, in connection with the
year-end financial statements delivered pursuant to Section 4.3 hereof, the
Company shall use its best efforts to deliver a written statement of the
Company's independent public accountants (who shall be a firm of established
national reputation) that in making the examination necessary for certification
of such financial statements, nothing has come to their attention that would
lead them to believe that the Company has violated any provisions of Article
Four or Section 5.1 hereof or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation. In the event that such
written statement of the Company's independent public accountants cannot be
obtained, the Company shall deliver an Officers' Certificate certifying that it
has used its best efforts to obtain such statements and was unable to do so.
The Company shall, so long as any of the Notes are outstanding, deliver
to the Trustee, forthwith upon any Officer becoming aware of any Default or
Event of Default, an Officers' Certificate specifying such Default or Event of
Default and what action the Company is taking or proposes to take with respect
thereto.
SECTION 4.5 TAXES.
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The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency all material taxes, assessments and governmental levies,
except such as are contested in good faith and by appropriate proceedings and
with respect to which appropriate reserves have been taken in accordance with
GAAP.
SECTION 4.6 STAY, EXTENSION AND USURY LAWS.
The Company and each Subsidiary Guarantor covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each Subsidiary Guarantor (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.7 RESTRICTED PAYMENTS.
From and after the date hereof the Company shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company); (ii) purchase, redeem
or otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is Pari Passu
Indebtedness or any Indebtedness which is subordinated to the Notes, except
scheduled payments of interest or principal at Stated Maturity of such
Indebtedness; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.9 hereof; and
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(c such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Subsidiaries after the
date hereof (excluding Restricted Payments permitted by clause (ii) of the next
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date hereof to the
end of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the date hereof of Equity Interests of the
Company (other than Disqualified Stock) or of Disqualified Stock or debt
securities of the Company that have been converted into such Equity Interests
(other than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or convertible debt securities that have been converted into Disqualified
Stock), plus (iii) to the extent that any Restricted Investment that was made
after the date hereof is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the initial
amount of such Restricted Investment plus (iv) if any Unrestricted Subsidiary
(A) the assets of which are used or useful in, or which is engaged in, one or
more Permitted Businesses is redesignated as a Restricted Subsidiary, the fair
market value of such redesignated Subsidiary (as determined in good faith by the
Board of Directors) as of the date of its redesignation or (B) pays any cash
dividends or cash distributions to the Company or any of its Restricted
Subsidiaries, 50% of any such cash dividends or cash distributions made after
the date hereof.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions hereof; (ii)
the redemption, repurchase, retirement, defeasance or other acquisition of any
Indebtedness subordinated to the Notes or Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the substantially concurrent
sale or issuance (other than to a Restricted Subsidiary of the Company) of,
other Equity Interests of the Company (other than any Disqualified Stock); (iii)
the defeasance, redemption, repurchase or other acquisition of Pari Passu
Indebtedness or Indebtedness subordinated to the Notes with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Restricted Subsidiary of the Company to the holders
of its Equity Interests on a pro rata basis; (v) optional and mandatory
prepayments on any revolving credit Indebtedness incurred under the New Credit
Facility; or (vi) any other Restricted Payment which, together with all other
Restricted Payments made pursuant to this clause (vi) after the date hereof,
does not exceed $5.0 million in the aggregate (in each case, after giving effect
to all subsequent reductions in the amount of any Restricted Investment made
pursuant to this clause (vi) either as a result of (A) the repayment of
disposition thereof for cash or (B) the redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary (valued proportionate to the Company's
equity interest in such Subsidiary at the time of such redesignation), but, in
the case of clauses (A) and (B), not to exceed the amount of such Restricted
Investment previously made pursuant to this clause (vi); provided that in the
case of each of clauses
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(i) through (vi) no Default or Event of Default shall have occurred and be
continuing after making such Restricted Payment.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or Event
of Default; provided that in no event shall the business currently operated by
any Subsidiary Guarantor be transferred to or held by an Unrestricted
Subsidiary. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this Section 4.7. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation (as determined in good faith by the Board of Directors). Such
designation shall only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $1.0 million. Not later than
the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section 4.7 were computed, together with a copy of any fairness opinion or
appraisal required herein.
SECTION 4.8 DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date hereof, (b) the New Credit Facility as in effect as of the
date hereof, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more restrictive in
the aggregate with respect to such dividend
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and other payment restrictions than those contained in the New Credit Facility
as in effect on the date hereof, (c) this Indenture and the Notes, (d) any
applicable law, rule, regulation or order, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms hereof to be
incurred, (f) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) Permitted Refinancing Indebtedness, provided that the
material restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, and (i) contracts for
the sale of assets, including without limitation customary restrictions with
respect to a Subsidiary pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary.
SECTION 4.9 INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 to 1 if the date on which the Indebtedness is incurred is prior to
February 1, 2000, and at least 2.5 to 1 if the date on which the Indebtedness is
incurred is on or after February 1, 2000, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i the incurrence by the Company and the Subsidiary
Guarantors of Indebtedness pursuant to the New Credit Facility; provided that
the aggregate principal amount of all such Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum potential liability
of the Company thereunder) outstanding under the New Credit Facility after
giving effect to such incurrence does not exceed the sum of $40.0 million.
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(ii the incurrence by the Company and its Restricted
Subsidiaries of the Existing Indebtedness;
(iii) the incurrence by the Company and the Subsidiary
Guarantors of Indebtedness represented by the Notes and the Note
Guarantees, respectively;
(iv) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations, in each
case (other than in the case of a mortgage financing secured by the real
estate (and personal property associated with such real estate) owned by
the Company in San Diego, California on which the Company's headquarters
is located on the date of the Indenture) incurred for the purpose of
financing all or any part of the purchase price or cost of construction
or improvement of property, plant or equipment used in the business of
the Company or such Restricted Subsidiary (whether through the direct
purchase of assets or the Capital Stock of any Person owning such
Assets), in an aggregate principal amount not to exceed $10.0 million at
any time outstanding;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of
assets or a new Restricted Subsidiary; provided that such Indebtedness
was incurred by the prior owner of such assets or such Restricted
Subsidiary prior to such acquisition by the Company or one of its
Subsidiaries and was not incurred in connection with, or in
contemplation of, such acquisition by the Company or one of its
Subsidiaries; provided further that the principal amount (or accreted
value, as applicable) of such Indebtedness, together with any other
outstanding Indebtedness incurred pursuant to this clause (v), does not
exceed $5.0 million;
(vi) the incurrence by the Company or any of its
Restricted Subsidiaries of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to refund, refinance
or replace Indebtedness that was permitted by this Indenture to be
incurred;
(vii) the incurrence by the Company or any of its
Restricted Subsidiaries of intercompany Indebtedness between the Company
and any of its Wholly-Owned Restricted Subsidiaries or between one
Wholly-Owned Restricted Subsidiary and another Wholly-Owned Restricted
Subsidiary; provided, however, that (a) if the Company is the obligor on
such Indebtedness and the payee is not a Subsidiary Guarantor, such
Indebtedness is expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the Notes; (b) if a Wholly-Owned
Restricted Subsidiary that is not a Subsidiary Guarantor is the obligor
on such Indebtedness, such Indebtedness, to the extent owing to the
Company or any Subsidiary Guarantor, does not exceed $5.0 million in
aggregate principal amount at any time outstanding; and (c) (x) any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a
Wholly Owned Restricted Subsidiary and (y) any sale or other transfer of
any such Indebtedness to a
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Person that is not either the Company or a Wholly Owned Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (vii);
(viii) the incurrence by the Company or any of its
Restricted Subsidiaries of Hedging Obligations that are incurred for the
purpose of fixing or hedging (a) currency risk or interest rate risk
with respect to any floating rate Indebtedness that is permitted by the
terms of this Indenture to be outstanding or (b) exchange rate risk with
respect to agreements or Indebtedness of such person payable denominated
in a currency other than U.S. dollars; provided that such agreements do
not increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder;
(ix) the Guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary
of the Company that was permitted to be incurred by another provision of
this covenant;
(x) the incurrence by the Company's Unrestricted
Subsidiaries of Non-Recourse Debt, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Company;
(xi) Indebtedness incurred by the Company or any of its
Restricted Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of business,
including without limitation to letters of credit in respect to workers'
compensation claims or self-insurance, or other Indebtedness with
respect to reimbursement type obligations regarding workers'
compensation claims; provided, however, that upon the drawing of such
letters of credit or the incurrence of such Indebtedness, such
obligations are reimbursed within 30 days following such drawing or
incurrence;
(xii) Indebtedness arising from agreements of the Company
or a Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, asset or Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring
all or any portion of such business, assets or Subsidiary for the
purpose of financing such acquisition; provided that (a) such
Indebtedness is not reflected on the balance sheet of the Company or any
Restricted Subsidiary (contingent obligations referred to in a footnote
to financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (a) and (b) the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds
including non-cash proceeds (the fair market value of such non-cash
proceeds being measured at the time received and without giving effect
to any subsequent changes in value) actually received by the Company and
its Restricted Subsidiaries in connection with such disposition;
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(xiii) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business;
(xiv) the incurrence by Foreign Subsidiaries which are not a
Guarantors of Indebtedness in connection with the financing of accounts
or notes receivable outside of the United States in an aggregate
principal amount at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
other Indebtedness incurred pursuant to this clause (xiv) not to exceed
$10.0 million; provided that neither the Company nor any Guarantor shall
have guaranteed or provided credit support of any kind (including any
undertaking, agreement or instrument which would constitute
Indebtedness) with respect to such Indebtedness; and
(xv) the incurrence by the Company or any of its
Restricted Subsidiaries of additional Indebtedness, incurred after the
date hereof, in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (xv), not to exceed $15.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xv) above or is
entitled to be incurred pursuant to the first paragraph of this Section 4.9, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this Section 4.9 and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this Section 4.9.
SECTION 4.10 ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of (a) cash
or Cash Equivalents or (b) property or assets that are used or useful in a
Permitted Business, or Capital Stock of any Person primarily engaged in a
Permitted Business if, as a result of the acquisition by the Company or any
Restricted Subsidiary thereof, such Person becomes a Restricted Subsidiary;
provided that the amount of (x) any liabilities of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities of the Company
that are by their terms subordinated to the Notes or any guarantee thereof) that
are assumed by the transferee of any such assets pursuant to the customary
novation agreement that releases the Company or such
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Restricted Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary into
cash or Cash Equivalents (to the extent of the cash or Cash Equivalents
received) within 180 days following the closing of such Asset Sale, will be
deemed to be cash for purposes of this provision; provided further that the 75%
limitation referred to above shall not apply to any sale, transfer or other
disposition of assets in which the cash portion of the consideration received
therefor, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax net proceeds would have been had such
transaction complied with the aforementioned 75% limitation.
Within 270 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (a) to permanently
repay Indebtedness outstanding under the New Credit Facility (and to
correspondingly reduce commitments with respect to the revolving borrowings
thereunder) or other Pari Passu Indebtedness, provided that if the Company shall
so repay other Pari Passu Indebtedness, it will equally and ratably reduce
Indebtedness under the Notes if the Notes are then redeemable or, if the Notes
may not be then redeemed, the Company shall make an offer to all Holders to
purchase at 100% of the principal amount thereof the amount of Notes that would
otherwise be redeemed or (b) to an investment in property, capital expenditures
or assets that are used or useful in a Permitted Business, or Capital Stock of
any Person primarily engaged in a Permitted Business if, as a result of the
acquisition by the Company or any Restricted Subsidiary thereof, such Person
becomes a Restricted Subsidiary. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the preceding sentence of this paragraph will
be deemed to constitute "Excess Proceeds." Pending the final application of any
such Net Proceeds, the Company may temporarily reduce the revolving Indebtedness
under the New Credit Facility or otherwise invest such Net Proceeds in any
manner that is not prohibited by this Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $15.0 million, the Company will be required to
make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase, in accordance with the procedures set forth
herein. To the extent that the aggregate amount of Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
SECTION 4.11 TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
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agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction") unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or the relevant Restricted Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that the following shall
not be deemed Affiliate Transactions: (1) any employment agreement entered into
by the Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such Restricted
Subsidiary, (2) transactions between or among the Company and/or its Restricted
Subsidiaries, (3) Permitted Investments and Restricted Payments that are
permitted by the provisions herein described above under Section 4.7, (4)
customary loans, advances, fees and compensation paid to, and indemnity provided
on behalf of, officers, directors, employees or consultants of the Company or
any of its Restricted Subsidiaries, (5) transactions in accordance with the
Securityholders Agreement, as amended; provided that no such amendment contains
any provisions that are materially adverse to the Holders of the Notes, and (6)
transactions between the Company or its Restricted Subsidiaries on the one hand,
and DLJ or its Affiliates, on the other hand, involving the provision of
financial, advisory, placement or underwriting services by DLJ; provided that
fees payable to DLJ do not exceed the usual and customary fees of DLJ for
similar services.
SECTION 4.12 LIENS.
The Company shall not and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien (other than Permitted Liens) upon any of their
property or assets, now owned or hereafter acquired.
SECTION 4.13 OFFER TO PURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control
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Payment Date"), pursuant to the procedures required by Section 3.9 hereof and
described in such notice. The Company shall comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof.
The Change of Control provisions described above will be applicable
whether or not any other provisions of this Indenture are applicable. Except as
described above with respect to a Change of Control, this Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company shall not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
herein applicable to a Change of Control Offer made by the Company and purchases
all Notes validly tendered and not withdrawn under such Change of Control Offer.
SECTION 4.14 CORPORATE EXISTENCE.
Subject to Section 4.13 and Article 5 hereof, as the case may be, the
Company and each Subsidiary Guarantor shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate, partnership or other existence of each of its Subsidiaries in
accordance with the respective organizational documents (as the same may be
amended from time to time) of the Company or any such Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and its
Subsidiaries; provided that the Company shall not be required to preserve any
such right, license or franchise, or the corporate, partnership or other
existence of any of its Subsidiaries, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the Holders
of the Notes.
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SECTION 4.15 LIMITATION ON ISSUANCES OF CAPITAL STOCK OF WHOLLY-OWNED RESTRICTED
SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly-Owned
Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly-Owned Subsidiary of the
Company to any Person (other than the Company or a Wholly-Owned Restricted
Subsidiary of the Company), unless (a) such transfer, conveyance, sale, lease or
other disposition is of all the Capital Stock of such Wholly-Owned Restricted
Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with Section 4.10 hereof
and (ii) will not permit any Wholly-Owned Restricted Subsidiary of the Company
to issue any of its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly-Owned Restricted Subsidiary of the Company.
SECTION 4.16 LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of the Company unless either such Restricted Subsidiary (x) is a
Subsidiary Guarantor or (y) simultaneously executes and delivers a supplemental
indenture to this Indenture providing for the Guarantee of the payment of the
Notes by such Restricted Subsidiary, which Guarantee shall be senior to or pari
passu with such Restricted Subsidiary's Guarantee of or pledge to secure such
other Indebtedness. Notwithstanding the foregoing, any such Guarantee by a
Restricted Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's stock in, or all or substantially all the assets of, such
Restricted Subsidiary, which sale, exchange or transfer is made in compliance
with the applicable provisions hereof. The form and substance of such Guarantee
shall be substantially similar to EXHIBIT E hereto.
SECTION 4.17 BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any Restricted Subsidiary
to, engage in any business other than Permitted Businesses, except to such
extent as would not be material to the Company and its Restricted Subsidiaries
taken as a whole.
SECTION 4.18 ADDITIONAL GUARANTEES.
If (i) the Company or any of its Restricted Subsidiaries shall, after
the date hereof, transfer or cause to be transferred, including by way of any
Investment, in one or a series of transactions (whether or not related), any
assets, businesses, divisions, real property or equipment having an aggregate
fair market value (as determined in good faith by the Board of Directors) in
excess of $1.0 million to any Restricted Subsidiary that is not a Subsidiary
Guarantor or a Foreign Subsidiary, (ii) the Company or any of its Restricted
Subsidiaries shall acquire another Restricted Subsidiary,
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other than a Foreign Subsidiary, having total assets with a fair market value
(as determined in good faith by the Board of Directors) in excess of $1.0
million, or (iii) if any Restricted Subsidiary other than a Foreign Subsidiary
shall incur Acquired Debt in excess of $1.0 million, then the Company shall, at
the time of such transfer, acquisition or incurrence, (A) cause such transferee,
acquired Restricted Subsidiary or Restricted Subsidiary incurring Acquired Debt
(if not then a Subsidiary Guarantor) to execute a Note Guarantee of the
Obligations of the Company under the Notes in the form and substance
substantially similar to EXHIBIT E hereto and (B) deliver to the Trustee an
Opinion of Counsel, in form reasonably satisfactory to the Trustee, that such
Note Guarantee is a valid, binding and enforceable obligation of such
transferee, acquired Restricted Subsidiary or Restricted Subsidiary incurring
Acquired Debt, subject to customary exceptions for bankruptcy, fraudulent
conveyance and equitable principles. Notwithstanding the foregoing, the Company
or any of its Restricted Subsidiaries may make a Restricted Investment in any
Wholly-Owned Restricted Subsidiary of the Company without compliance with this
Section 4.18, provided that such Restricted Investment is permitted by Section
4.7 hereof.
SECTION 4.19 PAYMENT FOR CONSENTS.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions hereof or
the Notes unless such consideration is offered to be paid or is paid to all
Holders of the Notes that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
ARTICLE 5
SUCCESSORS
SECTION 5.1 MERGER, CONSOLIDATION OF SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of the Company
under the Notes and this Indenture pursuant to a supplemental indenture in a
form substantially similar to EXHIBIT E hereto; (iii) immediately after such
transaction no Default or Event of Default exists; (iv) except in the case of a
merger of the
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Company with or into a Wholly-Owned Restricted Subsidiary of the Company, the
Company or the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the Section
4.9 hereof; and (v) each Subsidiary Guarantor, unless it is the other party to
the transactions described above, shall have by supplemental indenture confirmed
that its Note Guarantee shall apply to such Person's obligations hereunder and
under the Notes.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.1 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and shall exercise every
right and power of the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein; provided, that, (i)
solely for the purposes of computing Consolidated Net Income for purposes of
clause (b) of the first paragraph of Section 4.7 hereof, the Consolidated Net
Income of any person other than the Company and its Subsidiaries shall be
included only for periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets; and (ii) in the case of any
sale, assignment, transfer, lease, conveyance, or other disposition of less than
all of the assets of the predecessor Company, the predecessor Company shall not
be released or discharged from the obligation to pay the principal of or
interest and Liquidated Damages, if any, on the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of
interest on, or Liquidated Damages with respect to, the Notes;
(ii) default in payment when due of principal of or
premium, if any, on the Notes;
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(iii) failure by the Company to comply with the
provisions described under Sections 4.10 or 4.13 or Article 5 hereof;
(iv) failure by the Company for 30 days after notice
from the Trustee or at least 25% in principal amount of the Notes then
outstanding to comply with the provisions described under Sections 4.7 or 4.9
hereof;
(v) failure by the Company for 60 days after notice
from the Trustee or at least 25% in principal amount of the Notes then
outstanding to comply with any of its other agreements in this Indenture or the
Notes;
(vi) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created
after the date hereof, which default (a) is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness prior to the expiration
of the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more;
(vii) failure by the Company or any of its Subsidiaries
to pay final judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(viii) the Company or any of its Subsidiaries, pursuant to
or within the meaning of Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
(c) consents to the appointment of a Custodian
of it or for all or substantially all of its property,
(d) makes a general assignment for the benefit
of its creditors, or
(e) generally is not paying its debts as they
become due; or
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(ix) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that:
(a) is for relief against the Company or any of
its Subsidiaries in an involuntary case;
(b) appoints a Custodian of the Company or any
of its Subsidiaries or for all or substantially all of the property of the
Company or any of its Subsidiaries; or
(c) orders the liquidation of the Company or any
of its Subsidiaries;
and the order or decree remains unstayed and in effect for 60
consecutive days.
The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
SECTION 6.2 ACCELERATION.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default as described in (viii) and (ix) of
Section 6.1 hereof, all outstanding Notes will become due and payable without
further action or notice. Holders of the Notes may not enforce this Indenture or
the Notes except as provided in this Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of Section 3.7(a) hereof, an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the Notes. If an Event of Default occurs prior to
February 1, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to February 1, 2002, then the
amount payable in respect of such Notes for purposes of this paragraph for each
of the twelve-month periods beginning on February 1 of the years indicated below
shall be set forth below, expressed as percentages of the principal amount that
would otherwise be due but for the provisions of this sentence, plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of payment:
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<TABLE>
Year Percentage
<S> <C>
1998........................................ 116.125%
1999........................................ 113.438%
2000........................................ 110.750%
2001........................................ 108.063%
</TABLE>
SECTION 6.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any,
interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or omission
by the Trustee or any Holder of a Note in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default.
All remedies are cumulative to the extent permitted by law.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with this Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
SECTION 6.4 WAIVER OF PAST DEFAULTS.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under this Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
SECTION 6.5 CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust power
conferred on it. However, (i) the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Notes or that may involve
the Trustee in personal liability, and (ii) the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent with such
direction. In case an Event of Default shall occur (which shall not be cured),
the Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent person in the conduct of such person's own affairs.
Notwithstanding any provision to the contrary in this Indenture, the Trustee is
under no obligation to exercise any of its rights or powers under this
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Indenture at the request of any Holder of Notes, unless such Holder shall offer
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
SECTION 6.6 LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture,
the Note Guarantees or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default or the Trustee receives such notice from the
Company;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of
another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, interest, and
Liquidated Damages, if any, on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(i) or (ii) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
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SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
securities or property payable or deliverable upon the conversion or exchange of
the Notes or on any such claims and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.7 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.7 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes for
principal, premium, if any, interest, and Liquidated Damages, if any, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium, if any, interest, and Liquidated
Damages, if any, respectively;
Third: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to Section 6.7 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing of which a
Responsible Officer of the Trustee has knowledge, the Trustee shall exercise
such of the rights and powers vested in it by this Indenture and use the same
degree of care and skill in its exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined
solely by the express provisions of this Indenture or the TIA and the Trustee
need perform only those duties that are specifically set forth in this Indenture
or the TIA and no others, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
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(i) this paragraph does not limit the effect of
paragraph (b) of this Section 7.1;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.1.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.2 RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely on the truth of the statements
and correctness of the opinions contained in, and shall be protected from acting
or refraining from acting upon, any document believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. Prior to taking, suffering or
admitting any action, the Trustee may consult with counsel of the Trustee's own
choosing and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
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(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company or any Subsidiary
Guarantor shall be sufficient if signed by an Officer of the Company or
Subsidiary Guarantor, as applicable.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity satisfactory to the Trustee against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner
of Notes and may otherwise deal with the Company, the Subsidiary Guarantors or
any Affiliate of the Company or any Subsidiary Guarantor with the same rights it
would have if it were not Trustee. However, in the event that the Trustee
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue as Trustee or resign.
Any Agent may do the same with like rights and duties. The Trustee is also
subject to Sections 7.10 and 7.11 hereof.
SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture, the Note Guarantees or the Notes,
it shall not be accountable for the Company's use of the proceeds from the Notes
or any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.5 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to Holders
of Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment on any
Note pursuant to Section 6.1(i) or (ii) hereof, the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Notes.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
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Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, and for so long as Notes remain outstanding, the Trustee
shall mail to the Holders of the Notes a brief report dated as of such reporting
date that complies with TIA Section 313(a) (but if no event described in TIA
Section 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA
Section 313(b). The Trustee shall also transmit by mail all reports as required
by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Company and filed with the Commission and each stock
exchange on which the Company has informed the Trustee in writing the Notes are
listed in accordance with TIA Section 313(d). The Company shall promptly notify
the Trustee when the Notes are listed on any stock exchange and of any delisting
thereof.
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company and the Subsidiary Guarantors shall pay to the Trustee from
time to time reasonable compensation for its acceptance of this Indenture and
services hereunder. To the extent permitted by law, the Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Company and the Subsidiary Guarantors shall indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture, including the costs and expenses of enforcing this Indenture
against the Company and the Subsidiary Guarantors (including this Section 7.7)
and defending itself against any claim (whether asserted by the Company, the
Subsidiary Guarantors or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company and the Subsidiary Guarantors promptly of any claim for which it may
seek indemnity. Failure by the Trustee to so notify the Company and the
Subsidiary Guarantors shall not relieve the Company and the Subsidiary
Guarantors of its obligations hereunder. The Company and the Subsidiary
Guarantors shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Company and the
Subsidiary Guarantors shall pay the reasonable fees and expenses of such
counsel. The Company and the Subsidiary Guarantors need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of the Company and the Subsidiary Guarantors under this
Section 7.7 shall survive the satisfaction and discharge of this Indenture.
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To secure the Company's and the Subsidiary Guarantors' payment
obligations in this Section 7.7, the Trustee shall have a Lien prior to the
Notes on all money or property held or collected by the Trustee, except that
held in trust to pay principal, interest and Liquidated Damages, if any, on
particular Notes. Such Lien shall survive the satisfaction and discharge of this
Indenture and the resignation or removal of the Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(viii) or (ix) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2) to
the extent applicable.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.8.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and the duties of the
Trustee under this Indenture. The successor Trustee shall mail a notice of its
succession to the Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
that all sums owing to the Trustee hereunder have been paid and subject to the
Lien provided for in Section 7.7 hereof. Notwithstanding replacement of the
Trustee pursuant to this Section 7.8, the Company's obligations under Section
7.7 hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business (including
the trust created by this Indenture) to, another corporation, the successor
corporation without any further act shall be the successor Trustee or any Agent,
as applicable.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities. The Trustee (or, if the Trustee is a subsidiary of a bank holding
company, its parent) shall at all times have a combined capital surplus of at
least $50.0 million as set forth in its most recent annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company and the Subsidiary Guarantors may, at the option of their
respective Boards of Directors evidenced by a resolution set forth in an
Officers' Certificate, at any time, elect to have either Section 8.2 or 8.3
hereof be applied to all outstanding Notes and Note Guarantees upon compliance
with the conditions set forth below in this Article 8.
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company and each Subsidiary Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.4 hereof,
be deemed to have been discharged from their respective obligations with respect
to all outstanding Notes and Note Guarantees on the date the conditions set
forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose,
Legal Defeasance means that the Company and each Subsidiary Guarantor shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes and Note Guarantees, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.5 hereof and the other Sections
of this Indenture referred to in (a) and (b) below, and to have satisfied all
their respective other obligations under such Notes and Note Guarantees and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to receive
payments in respect of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on such Notes when such payments are due from the
trust referred to in Section 8.4(a); (b) the Company's obligations with respect
to such Notes under Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.10 and 4.2 hereof;
(c) the rights, powers, trusts, duties and immunities of the Trustee including
without limitation thereunder Section 7.7, 8.5 and 8.7 hereof and the Company's
obligations in connection therewith and (d) the provisions of this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.2 notwithstanding the prior exercise of its option under
Section 8.3 hereof.
SECTION 8.3 COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company and each Subsidiary Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.4 hereof,
be released from its obligations under the covenants contained in Sections 3.9,
4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 5.1
and 10.1 hereof with respect to the outstanding Notes and Note Guarantees on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Notes and Note Guarantees shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection
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with such covenants, but shall continue to be deemed "outstanding" for all other
purposes hereunder (it being understood that such Notes and Note Guarantees
shall not be deemed outstanding for accounting purposes). For this purpose,
Covenant Defeasance means that, with respect to the outstanding Notes and Note
Guarantees, the Company or any of its Subsidiaries may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.1 hereof, but, except as specified above, the remainder of this
Indenture and such Notes and Note Guarantees shall be unaffected thereby. In
addition, upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, subject to the satisfaction of the conditions
set forth in Section 8.4 hereof, Sections 6.1(iii) through 6.1(v) hereof shall
not constitute Events of Default.
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Notes and Note Guarantees:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as shall be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium and Liquidated Damages, if any,
and interest on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date;
(b) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date hereof, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding Notes
shall not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and shall be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.3 hereof, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes shall not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and shall be subject to
federal
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income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds shall not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
MISCELLANEOUS PROVISIONS.
Subject to Section 8.6 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.5, the
"Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, interest and
Liquidated Damages, if any, but such money need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to
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Section 8.4 hereof or the principal and interest received in respect thereof
other than any such tax, fee or other charge which by law is for the account of
the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the written request
of the Company and be relieved of all liability with respect to any money or
non-callable Government Securities held by it as provided in Section 8.4 hereof
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.4(a) hereof), are in
excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.6 REPAYMENT TO THE COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
interest or Liquidated Damages, if any, on any Note and remaining unclaimed for
one year after such principal, and premium, if any, or interest or Liquidated
Damages, if any, has become due and payable shall be paid to the Company on its
written request or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Note shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in the
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining shall be repaid to the Company.
SECTION 8.7 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.2 or
8.3 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the obligations of the Company and the Subsidiary Guarantors
under this Indenture, the Notes and the Note Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.2 or 8.3
hereof until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 8.2 or 8.3 hereof, as the case may be;
provided, however, that, if the Company makes any payment of principal of,
premium, if any, interest or Liquidated Damages, if any, on any Note following
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money held
by the Trustee or Paying Agent.
ARTICLE 9
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AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF THE NOTES.
Notwithstanding Section 9.2 of this Indenture, without the consent of
any Holder of Notes the Company and the Trustee may amend or supplement this
Indenture, the Notes or the Note Guarantees:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Company's or a Subsidiary
Guarantor's obligations to the Holders of the Notes in the case of a merger, or
consolidation pursuant to Article 5 or Article 10 hereof, as applicable;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Notes;
(e) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA; or
(f) to allow any Subsidiary to Guarantee the Notes.
Upon the written request of the Company accompanied by a resolution of
its Board of Directors of the Company authorizing the execution of any such
amended or supplemental indenture, and upon receipt by the Trustee of the
documents described in Section 9.6 hereof, the Trustee shall join with the
Company and the Subsidiary Guarantors in the execution of any amended or
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.2, this Indenture, the Notes
or the Note Guarantees may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer, for Notes), and, any existing default or
compliance with any provision of this Indenture, the Notes or the Note
Guarantees may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding
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Notes (including consents obtained in connection with or a tender offer or
exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution of its Board
of Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 9.6 hereof, the Trustee shall
join with the Company and the Subsidiary Guarantors in the execution of such
amended or supplemental indenture unless such amended or supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may, but shall not be obligated to, enter
into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section 9.2 becomes
effective, the Company shall mail to the Holders of each Note affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver.
Subject to Sections 6.2, 6.4 and 6.7, hereof, the Holders of a majority
in aggregate principal amount of the Notes then outstanding may amend or waive
compliance in a particular instance by the Company or the Subsidiary Guarantors
with any provision of this Indenture, the Notes or the Note Guarantees. However,
without the consent of each Holder affected, an amendment, or waiver may not
(with respect to any Note held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes (other than
provisions relating to Sections 3.9, 4.10 and 4.13 hereof);
(c) reduce the rate of or change the time for payment of interest on any
Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in Section 6.4 or 6.7 hereof;
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(g) waive a redemption or repurchase payment with respect to any Note
(other than a payment required by Section 4.10 or 4.13 hereof); or
(h) make any change in the amendment and waiver provisions of this
Article 9.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the Note Guarantees or
the Notes shall be set forth in an amended or supplemental indenture that
complies with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder of a Note may revoke the
consent as to its Note if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective. When an
amendment, supplement or waiver becomes effective in accordance with its terms,
it thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for
determining which Holders of the Notes must consent to such amendment,
supplement or waiver. If the Company fixes a record date, the record date shall
be fixed at (i) the later of 30 days prior to the first solicitation of such
consent or the date of the most recent list of Holders of Notes furnished for
the Trustee prior to such solicitation pursuant to Section 2.5 hereof or (ii)
such other date as the Company shall designate.
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
and the Subsidiary Guarantors may not sign an amendment or supplemental
indenture until their respective Boards of Directors approve it. In
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signing or refusing to sign any amended or supplemental indenture the Trustee
shall be entitled to receive and (subject to Section 7.1 hereof) shall be fully
protected in relying upon, in addition to the documents required by Section 10.4
hereof, an Officers' Certificate and an Opinion of Counsel stating that the
execution of such amended or supplemental indenture is authorized or permitted
by this Indenture, that it is not inconsistent herewith, and that it will be
valid and binding upon the Company and the Subsidiary Guarantors in accordance
with its terms.
ARTICLE 10
GUARANTEE OF NOTES
SECTION 10.1 NOTE GUARANTEE.
Subject to Section 10.6 hereof, each of the Subsidiary Guarantors
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes and the Obligations of the Company hereunder and
thereunder, that: (a) the principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes will be promptly paid in full when due, subject to
any applicable grace period, whether at maturity, by acceleration, redemption or
otherwise, and interest on the overdue principal, premium, if any, (to the
extent permitted by law) interest on any interest, if any, and Liquidated
Damages, if any, on the Notes, and all other payment Obligations of the Company
to the Holders or the Trustee hereunder or thereunder will be promptly paid in
full and performed, all in accordance with the terms hereof and thereof; and (b)
in case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, subject to
any applicable grace period, whether at stated maturity, by acceleration,
redemption or otherwise. Failing payment when so due of any amount so guaranteed
for whatever reason the Subsidiary Guarantors will be jointly and severally
obligated to pay the same immediately. An Event of Default under this Indenture
or the Notes shall constitute an event of default under the Note Guarantees, and
shall entitle the Holders to accelerate the Obligations of the Subsidiary
Guarantors hereunder in the same manner and to the same extent as the
Obligations of the Company. The Subsidiary Guarantors hereby agree that their
Obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder with respect to
any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a Subsidiary
Guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that this Note
Guarantee will not be discharged except by complete performance of the
Obligations contained in the Notes and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return to the
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Company, the Subsidiary Guarantors, or any Note Custodian, Trustee, liquidator
or other similar official acting in relation to either the Company or the
Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder,
this Note Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each Subsidiary Guarantor agrees that it shall not be
entitled to, and hereby waives, any right of subrogation in relation to the
Holders in respect of any Obligations guaranteed hereby. Each Subsidiary
Guarantor further agrees that, as between the Subsidiary Guarantors, on the one
hand, and the Holders and the Trustee, on the other hand, (x) the maturity of
the Obligations guaranteed hereby may be accelerated as provided in Article 6
for the purposes of this Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such Obligations as provided in Article 6 hereof, such Obligations (whether or
not due and payable) shall forthwith become due and payable by the Subsidiary
Guarantors for the purpose of this Note Guarantee. The Subsidiary Guarantors
shall have the right to seek contribution from any non-paying Subsidiary
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Note Guarantees.
SECTION 10.2 EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Note Guarantee set forth in Section 10.1, each
Subsidiary Guarantor hereby agrees that a notation of such Note Guarantee
substantially in the form of EXHIBIT E shall be endorsed by an Officer of such
Subsidiary Guarantor on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of such Subsidiary Guarantor, by
manual or facsimile signature, by an Officer of such Subsidiary Guarantor.
Each Subsidiary Guarantor hereby agrees that its Note Guarantee set
forth in Section 10.1 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
If an Officer whose signature is on this Indenture or on the Note
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Note Guarantee is endorsed, the Note Guarantee shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Note Guarantee set forth
in this Indenture on behalf of the Subsidiary Guarantors.
SECTION 10.3 SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS
(a) Except as set forth in Articles 4 and 5 hereof, nothing contained
in this Indenture shall prohibit a merger between a Subsidiary Guarantor and
another Subsidiary Guarantor or a merger between a Subsidiary Guarantor and the
Company.
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(b) Subject to Section 10.4 hereof, no Subsidiary Guarantor may
consolidate with or merge with or into (whether or not such Subsidiary Guarantor
is the surviving Person), another corporation, Person or entity whether or not
affiliated with such Subsidiary Guarantor unless, subject to the provisions of
the following paragraph, (i) the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) assumes all
the obligations of such Subsidiary Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee, under
the Notes and this Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Subsidiary
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Subsidiary Guarantor immediately preceding the transaction; and (iv) the Company
would be permitted by virtue of its pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such transaction, to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.9. The requirements of clauses (i),
(iii) and (iv) of this paragraph will not apply in the case of a consolidation
with or merger with or into the Company or another Subsidiary Guarantor.
(c) In the case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and substantially in the form of EXHIBIT E
hereto, of the Note Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Subsidiary Guarantor, such successor Person shall succeed to
and be substituted for the Subsidiary Guarantor with the same effect as if it
had been named herein as a Subsidiary Guarantor; provided that, solely for
purposes of computing Consolidated Net Income for purposes of clause (b) of the
first paragraph of Section 4.7 hereof, the Consolidated Net Income of any Person
other than the Company and its Restricted Subsidiaries shall only be included
for periods subsequent to the effective time of such merger, consolidation,
combination or transfer of assets. Such successor Person thereupon may cause to
be signed any or all of the Note Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All of the Note Guarantees so issued shall in all
respects have the same legal rank and benefit under this Indenture as the Note
Guarantees theretofore and thereafter issued in accordance with the terms of
this Indenture as though all of such Note Guarantees had been issued at the date
of the execution hereof.
SECTION 10.4 RELEASES FOLLOWING SALE OF ASSETS, MERGER, SALE OF CAPITAL
STOCK ETC.
In the event (a) of a sale or other disposition of all of the assets of
any Subsidiary Guarantor, by way of merger, consolidation or otherwise, or a
sale or other disposition of all of the capital stock of any Subsidiary
Guarantor, or (b) that the Company designates a Subsidiary Guarantor to be an
Unrestricted Subsidiary, or such Subsidiary Guarantor ceases to be a Subsidiary
of the Company, then such Subsidiary Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Subsidiary Guarantor or any such
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designation) or the entity acquiring the property (in the event of a sale or
other disposition of all of the assets of such Subsidiary Guarantor) shall be
released and relieved of any obligations under its Note Guarantee; provided that
the Net Proceeds of such sale or other disposition are applied in accordance
with the provisions of Section 4.10 and, if applicable, Section 4.13 hereof. In
the case of a sale, assignment, lease, transfer, conveyance or other disposition
of all or substantially all of the assets of a Subsidiary Guarantor, upon the
assumption provided for in clause (i) of the Section 10.3(b) hereof, such
Subsidiary Guarantor shall be discharged from all further liability and
obligation under this Indenture. Upon delivery by the Company to the Trustee of
an Officers' Certificate to the effect of the foregoing, the Trustee shall
execute any documents reasonably required in order to evidence the release of
any Subsidiary Guarantor from its Obligation under its Note Guarantee. Any
Subsidiary Guarantor not released from its Obligations under its Note Guarantee
shall remain liable for the full amount of principal of, premium, if any,
interest and Liquidated Damages, if any, on the Notes and for the other
Obligations of such Subsidiary Guarantor under this Indenture as provided in
this Article 10.
SECTION 10.5 ADDITIONAL SUBSIDIARY GUARANTORS.
Any Person that was not a Subsidiary Guarantor on the date of this
Indenture may become a Subsidiary Guarantor by executing and delivering to the
Trustee (a) a supplemental indenture in substantially the form of EXHIBIT E, and
(b) an Opinion of Counsel to the effect that such supplemental indenture has
been duly authorized and executed by such Person and constitutes the legal,
valid, binding and enforceable obligation of such Person (subject to such
customary exceptions concerning creditors rights', fraudulent transfers, public
policy and equitable principles as may be acceptable to the Trustee in its
discretion).
SECTION 10.6 LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY.
For purposes hereof, each Subsidiary Guarantor's liability shall be
limited to the lesser of (i) the aggregate amount of the Obligations of the
Company under the Notes and this Indenture and (ii) the amount, if any, which
would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such term
is defined in the United States Bankruptcy Code and in the Debtor and Creditor
Law of the State of New York) or (B) left such Subsidiary Guarantor with
unreasonably small capital at the time its Note Guarantee of the Notes was
entered into; provided that, it will be a presumption in any lawsuit or other
proceeding in which a Subsidiary Guarantor is a party that the amount guaranteed
pursuant to the Note Guarantee is the amount set forth in clause (i) above
unless any creditor, or representative of creditors of such Subsidiary
Guarantor, or debtor in possession or trustee in bankruptcy of the Subsidiary
Guarantor, otherwise proves in such a lawsuit that the aggregate liability of
the Subsidiary Guarantor is the amount set forth in clause (ii) above. In making
any determination as to solvency or sufficiency of capital of a Subsidiary
Guarantor in accordance with the previous sentence, the right of such Subsidiary
Guarantor to contribution from other Subsidiary Guarantors, and any other rights
such Subsidiary Guarantor may have, contractual or otherwise, shall be taken
into account.
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SECTION 10.7 "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 10 shall in each case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 10 in place of the Trustee.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 11.2 NOTICES.
Any notice or communication by the Company, the Subsidiary Guarantors or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company or the Subsidiary Guarantors:
Phase Metrics, Inc.
10260 Sorrento Valley Road
San Diego, California 92121
Telecopier No.: (619) 646-4990
Attention: Chief Financial Officer
With a copy to:
Brobeck, Phleger & Harrison, LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Telecopier No.: (714) 752-7522
Attention: Greg T. Williams, Esq.
If to the Trustee:
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State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, CA 90017
Telecopier No.: (213) 362-7357
Attention: Corporate Trust Department
(Phase Metrics, Inc. 10-3/4% Senior Notes due 2005)
The Company, the Subsidiary Guarantors or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier promising next Business Day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail or by overnight air courier promising next Business Day delivery to its
address shown on the register kept by the Registrar. Any notice or communication
shall also be so mailed to any Person described in TIA Section 313(c), to the
extent required by the TIA. Failure to mail a notice or communication to a
Holder or any defect in it shall not affect its sufficiency with respect to
other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
SECTION 11.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF
NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 11.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or the Subsidiary
Guarantors to the Trustee to take any action under this Indenture (other than
the initial issuance of the Senior Notes), the Company or Subsidiary Guarantor
shall furnish to the Trustee upon request:
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(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.5 hereof) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.5 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 11.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company or the Subsidiary Guarantors, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Notes, this
Indenture, the Note Guarantees or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes.
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SECTION 11.8 GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES.
SECTION 11.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.10 SUCCESSORS.
All agreements of the Company and the Subsidiary Guarantors in this
Indenture, the Notes and the Note Guarantees shall bind their respective
successors and assigns. All agreements of the Trustee in this Indenture shall
bind its successors and assigns.
SECTION 11.11 SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12 COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of January 30, 1998 PHASE METRICS, INC.
By: /s/ R. Joseph Saunders
--------------------------------------
Name: R. Joseph Saunders
------------------------------------
Title: Chief Financial Officer
-----------------------------------
HELIOS, INCORPORATED
By: /s/ R. Joseph Saunders
-------------------------------------
Name: R. Joseph Saunders
-----------------------------------
Title: Vice President
----------------------------------
APPLIED ROBOTIC TECHNOLOGIES, INC.
By: /s/ R. Joseph Saunders
-------------------------------------
Name: R. Joseph Saunders
-----------------------------------
Title: Vice President
----------------------------------
AIR BEARINGS, INCORPORATED
By: /s/ R. Joseph Saunders
-------------------------------------
Name: R. Joseph Saunders
-----------------------------------
Title: Vice President
----------------------------------
SANTA BARBARA METRIC, INC.
By: /s/ R. Joseph Saunders
-------------------------------------
Name: R. Joseph Saunders
-----------------------------------
Title: Vice President
----------------------------------
<PAGE> 94
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A.,
as Trustee
By: /s/ Jeanne Mar
-------------------------------------
Name: Jeanne Mar
-----------------------------------
Title: Assistant Vice President
----------------------------------
<PAGE> 95
EXHIBIT A-1
(Face of Senior Note) 10-3/4% Senior Notes due 2005
No.___ $_______________ CUSIP NO. 717217 AA 1
Phase Metrics, Inc. promises to pay to _________________ or registered
assigns, the principal sum of ___________ Dollars on February 1, 2005.
Interest Payment Dates: February 1 and August 1
Record Dates: January 15 and July 15
PHASE METRICS, INC.
By:
-------------------------------------
Name: R. Joseph Saunders
Title: Chief Financial Officer
This is one of the
Senior Notes referred to in the
within-mentioned Indenture:
Dated:___________, ____
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee
By:
-------------------------------------
Authorized Signatory
<PAGE> 96
(Back of Senior Note) 10-3/4% Senior Notes due 2005
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.](1)
- ---------------
(1) This paragraph should be included only if the Senior Note is issued
in global form.
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<PAGE> 97
[THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL NOT,
RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING
THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI
THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.](2)
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Phase Metrics, Inc., a Delaware corporation, or its
successor (the "Company"), promises to pay interest on the principal amount of
this Senior Note at the rate of
- ----------------
(2) This paragraph should be removed upon the exchange of Senior Notes
for New Senior Notes in the Exchange Offer or upon the registration of the
Senior Notes pursuant to the terms of the Registration Rights Agreement.
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<PAGE> 98
10-3/4% per annum and shall pay the Liquidated Damages, if any, payable
pursuant to Section 5 of the Registration Rights Agreement referred to below.
The Company will pay interest and Liquidated Damages, if any, in United States
dollars (except as otherwise provided herein) semi-annually in arrears on
February 1 and August 1, commencing on August 1, 1998, or if any such day is not
a Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Senior Notes shall accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default or Event of Default in
the payment of interest, and if this Senior Note is authenticated between a
record date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such next succeeding Interest Payment
Date, except in the case of the original issuance of Senior Notes, in which case
interest shall accrue from the date of authentication. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess
of the then applicable interest rate on the Senior Notes to the extent lawful;
it shall pay interest (including post-petition interest in any proceeding under
any Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace period) at the same rate to the extent
lawful. Interest shall be computed on the basis of a 360-day year comprised of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes
(except defaulted interest) and Liquidated Damages, if any, on the applicable
Interest Payment Date to the Persons who are registered Holders of Senior Notes
at the close of business on the January 15 or July 15 next preceding the
Interest Payment Date, even if such Senior Notes are canceled after such record
date and on or before such Interest Payment Date, except as provided in Section
2.12 of the Indenture with respect to defaulted interest. The Senior Notes shall
be payable as to principal, premium and Liquidated Damages, if any, and interest
at the office or agency of the Company maintained for such purpose within or
without the City and State of New York, or, at the option of the Company,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the Holders at their addresses set forth in the register of Holders; provided
that payment by wire transfer of immediately available funds shall be required
with respect to principal of, premium and Liquidated Damages, if any, and
interest on, all Global Notes and all other Senior Notes the Holders of which
shall have provided written wire transfer instructions to the Company and the
Paying Agent. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust
Company of California, N.A., the Trustee under the Indenture, shall act as
Paying Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. INDENTURE. The Company issued the Senior Notes under an Indenture
dated as of January 30, 1998 ("Indenture") among the Company, the Subsidiary
Guarantors and the Trustee. The terms of the Senior Notes include those stated
in the Indenture and those made a part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
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<PAGE> 99
77aaa-77bbbb) (the "TIA"). The Senior Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Senior Notes are general unsecured Obligations of the Company limited
to $110,000,000 in aggregate principal amount, plus amounts, if any, sufficient
to pay premium or Liquidated Damages, if any, and interest on outstanding Senior
Notes as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION. Except as set forth in the next paragraph, the
Senior Notes shall not be redeemable at the Company's option prior to February
1, 2002. Thereafter, the Senior Notes shall be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below together with accrued and unpaid interest and any
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on February 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002...................................... 105.375 %
2003...................................... 102.688 %
2004 and thereafter....................... 100.000 %
</TABLE>
Notwithstanding the foregoing, at any time prior to February 1, 2001,
the Company may redeem up to 33% of the original aggregate principal amount of
Notes at a redemption price of 110.75% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date, with the net cash proceeds of a Public Equity Offering; provided that at
least 67% of the original aggregate principal amount of Notes remains
outstanding immediately after the occurrence of such redemption; and provided,
further, that such redemption shall occur within 90 days of the date of the
closing of such Public Equity Offering.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of
Senior Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
date of purchase. Within 30 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control setting forth the procedures governing the
Change of Control Offer required by the Indenture.
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<PAGE> 100
(b) When the aggregate amount of Excess Proceeds exceeds $15.0
million, the Company shall offer to all Holders of Senior Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Notes that may be
purchased out of the Excess Proceeds at an offer price in cash equal to 100% of
principal amount thereof, plus accrued and unpaid interest, and Liquidated
Damages thereon, if any, to the date of purchase in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for any general
corporate purposes. If the aggregate principal amount of Senior Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
(c) Holders of the Senior Notes that are the subject of an offer
to purchase will receive a Change of Control Offer or Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Senior
Notes purchased by completing the form titled "Option of Holder to Elect
Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Senior Notes are to be redeemed at its registered address. Senior Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Senior Notes held by a Holder are to be
redeemed. On and after the redemption date, interest and Liquidated Damages, if
any, ceases to accrue on the Senior Notes or portions thereof called for
redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered
form without coupons in initial denominations of $1,000 and integral multiples
of $1,000. The transfer of the Senior Notes may be registered and the Senior
Notes may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company
need not exchange or register the transfer of any Senior Note or portion of a
Senior Note selected for redemption, except for the unredeemed portion of any
Senior Note being redeemed in part. Also, it need not exchange or register the
transfer of any Senior Notes for a period of 15 days before a selection of
Senior Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following
paragraphs, the Indenture, the Senior Notes and the Note Guarantees may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Senior Notes then outstanding (including, without
limitation, consents obtained in connection with a
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<PAGE> 101
purchase of or, tender offer or exchange offer for Senior Notes), and any
existing Default or Event of Default or compliance with any provision of the
Indenture, the Senior Notes or the Note Guarantees may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Senior Notes (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes).
Without the consent of any Holder of Senior Notes, the Company and the
Trustee may amend or supplement the Indenture, the Note Guarantees or the Senior
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of the Company's or a Subsidiary
Guarantor's obligations to Holders of Senior Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Senior Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act or to allow any Subsidiary to
guarantee the Senior Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on or Liquidated Damages, if any, with
respect to the Senior Notes; (ii) default in payment when due of the principal
of or premium, if any, on the Senior Notes; (iii) failure by the Company or any
Restricted Subsidiary to comply with the provisions described in Sections 4.10,
4.13 or 5.1 of the Indenture; (iv) failure by the Company or any Restricted
Subsidiary for 30 days after notice from the Trustee or at least 25% in
principal amount of the Senior Notes to comply with the provisions described in
Sections 4.7 and 4.9, of the Indenture; (v) failure by the Company or any
Subsidiary for 60 days after notice from the Trustee or the Holders of at least
25% in principal amount of the Senior Notes then outstanding to comply with its
other agreements in the Indenture or the Senior Notes; (vi) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of their its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date hereof, which default (A) (i)
is caused by a failure to pay when due at final stated maturity (giving effect
to any grace period related thereto) any principal of or premium, if any, or
interest on such Indebtedness (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and (B) in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $5.0
million or more; (vii) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are not
paid, discharged or stayed within 60 days after their entry; and (viii) certain
events of bankruptcy or insolvency with respect to the Company, any of its
Significant Subsidiaries or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due
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<PAGE> 102
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, with respect
to the Company or any of its Significant Subsidiaries all outstanding Senior
Notes will become due and payable without further action or notice. Holders of
the Senior Notes may not enforce the Indenture or the Senior Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Senior Notes may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders of
the Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company, the Subsidiary Guarantors or their respective Affiliates, and
may otherwise deal with the Company, the Subsidiary Guarantors or their
respective Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of the Company or any Subsidiary Guarantor, as
such, shall have any liability for any obligations of the Company or any
Subsidiary Guarantor under the Senior Notes, the Indenture or the Note
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Senior Notes by accepting a Senior
Note waives and releases all such liability. The waiver and release are part of
the consideration for the issuance of the Senior Notes and any Note Guarantee.
15. AUTHENTICATION. This Senior Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of the Senior Notes under the
Indenture, Holders of Transferred Restricted Securities (as defined in the
Registration Rights Agreement) shall have all the rights set forth in the
Registration Rights Agreement, dated as of the date hereof, among the Company,
the Subsidiary Guarantors and the Initial Purchaser (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to the Holders. No
representation is made as to the accuracy of such numbers either as
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<PAGE> 103
printed on the Senior Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Phase Metrics, Inc.
10260 Sorrento Valley Road
San Diego, California 92121
Telecopier No. (619) 646-4990
Chief Financial Officer
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<PAGE> 104
ASSIGNMENT FORM
To assign this Senior Note, fill in the form below: (I) or (we) assign
and transfer this Senior Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint_____________________________________________ to transfer
this Senior Note on the books of the Company. The agent may substitute another
to act for him.
Date:_________________
Your Signature:
--------------------------
(Sign exactly as your name appears on the
face of this Senior Note)
Signature Guarantee:
[Signature must be guaranteed by an Eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if Senior Notes are to be delivered
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<PAGE> 105
other than to and in the name of the registered holder.]
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<PAGE> 106
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Senior Note purchased by the Company
pursuant to Section 4.10 or 4.13 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.13
If you want to elect to have only part of the Senior Note purchased by
the Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
principal amount you elect to have purchased:
$
- -------------
Date: Your Signature:
----------------------- --------------------------
(Sign exactly as your name appears on the
Senior Note)
Tax Identification No.:
------------------------
Signature Guarantee.
[Signature must be guaranteed by an Eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15.]
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<PAGE> 107
SCHEDULE OF EXCHANGES OF SENIOR NOTES(3)
THE FOLLOWING EXCHANGES OF A PART OF THIS GLOBAL
NOTE FOR OTHER SENIOR NOTES HAVE BEEN MADE:
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF AMOUNT OF INCREASE IN
DECREASE IN INCREASE IN THIS GLOBAL
PRINCIPAL PRINCIPAL NOTE
AMOUNT OF AMOUNT OF FOLLOWING
DATE OF THIS GLOBAL THIS GLOBAL SUCH
EXCHANGE NOTE NOTE DECREASE
- ------------ ------------ ------------ ---------------
<S> <C> <C> <C>
</TABLE>
(3) This should be included only if the Senior Note is issued in global form.
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<PAGE> 108
EXHIBIT A-2
(Face of Regulation S Temporary Global Note) 10-3/4% Senior Notes due 2005
No._____ $_______________ ISIN NO.: USU 7172EAA11
Phase Metrics, Inc. promises to pay to ________________ or registered
assigns, the principal sum of ________ Dollars on February 1, 2005.
Interest Payment Dates: February 1 and August 1
Record Dates: January 15 and July 15
PHASE METRICS, INC.
By:
-------------------------------------
Name:
Title:
This is one of the Senior Notes referred to in the within-mentioned Indenture:
Dated:
-----------------------------
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee
By:
--------------------------------
Authorized Signatory
<PAGE> 109
(Back of Regulation S Temporary Global Note)
10-3/4% Senior Notes due 2005
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN
THE SECOND SENTENCE HEREOF. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL NOT,
RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING
THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI
THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER
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<PAGE> 110
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS
THIS NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT INTEREST FROM
ACCRUING ON THIS NOTE.](1)
Until this Regulation S Temporary Global Note is exchanged for
Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to
receive payments of interest or Liquidated Damages, if any, hereon although
interest and Liquidated Damages, if any, will continue to accrue; until so
exchanged in full, this Regulation S Temporary Global Note shall in all other
respects be entitled to the same benefits as other Senior Notes under the
Indenture.
This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Regulation S Permanent Global Notes or U.S. Global Notes
only (i) on or after the termination of the 40-day restricted period (as defined
in Regulation S) and (ii) upon presentation of certificates (accompanied by an
Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon
exchange of this Regulation S Temporary Global Note for one or more Regulation S
Permanent Global Notes or U.S. Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
This Regulation S Temporary Global Note shall not become valid or
obligatory until the certificate of authentication hereon shall have been duly
manually signed by the Trustee in accordance with the Indenture. This Regulation
S Temporary Global Note shall be governed by and construed in accordance with
the laws of the State of the New York. All references to "$," "Dollars,"
"dollars" or "U.S. $" are to such coin or currency of the United States of
America as at the time shall be legal tender for the payment of public and
private debts therein.
- --------------------
(1) These paragraphs should be removed upon the exchange of Regulation S
Temporary Global Notes for Regulation S Permanent Global Notes pursuant to the
Indenture.
A-2-3
<PAGE> 111
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Phase Metrics, Inc., a Delaware corporation, or its
successor (the "Company"), promises to pay interest on the principal amount of
this Senior Note at the rate of 10-3/4% per annum and shall pay the Liquidated
Damages, if any, payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages, if any, in United States dollars (except as otherwise provided herein)
semi-annually in arrears on February 1 and August 1, commencing on August 1,
1998, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). Interest on the Senior Notes shall accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of issuance; provided that if there is no existing
Default or Event of Default in the payment of interest, and if this Senior Note
is authenticated between a record date referred to on the face hereof and the
next succeeding Interest Payment Date, interest shall accrue from such next
succeeding Interest Payment Date, except in the case of the original issuance of
Senior Notes, in which case interest shall accrue from the date of
authentication. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the then applicable interest rate on the
Senior Notes to the extent lawful; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful. Interest shall
be computed on the basis of a 360-day year comprised of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes
(except defaulted interest) and Liquidated Damages, if any, on the applicable
Interest Payment Date to the Persons who are registered Holders of Senior Notes
at the close of business on the January 15 or July l5 next preceding the
Interest Payment Date, even if such Senior Notes are canceled after such record
date and on or before such Interest Payment Date, except as provided in Section
2.12 of the Indenture with respect to defaulted interest. The Senior Notes shall
be payable as to principal, premium and Liquidated Damages, if any, and interest
at the office or agency of the Company maintained for such purpose within or
without the City and State of New York, or, at the option of the Company,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the Holders at their addresses set forth in the register of Holders; provided
that payment by wire transfer of immediately available funds shall be required
with respect to principal of, premium and Liquidated Damages, if any, and
interest on, all Global Notes and all other Senior Notes the Holders of which
shall have provided written wire transfer instructions to the Company and the
Paying Agent. Such payment shall be in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust
Company of California, N.A., the Trustee under the Indenture, shall act as
Paying Agent and Registrar. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
A-2-4
<PAGE> 112
4. INDENTURE. The Company issued the Senior Notes under an Indenture
dated as of January 30, 1998 ("Indenture") among the Company, the Subsidiary
Guarantors and the Trustee. The terms of the Senior Notes include those stated
in the Indenture and those made a part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb)
(the "TIA"). The Senior Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. The Senior
Notes are general unsecured Obligations of the Company limited to $110,000,000
in aggregate principal amount, plus amounts, if any, sufficient to pay premium
or Liquidated Damages, if any, and interest on outstanding Senior Notes as set
forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION. Except as set forth in the next paragraph, the
Senior Notes shall not be redeemable at the Company's option prior to February
1, 2002. Thereafter, the Senior Notes shall be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below together with accrued and unpaid interest and any
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on February 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002...................................... 105.375 %
2003...................................... 102.688 %
2004 and thereafter....................... 100.000 %
</TABLE>
Notwithstanding the foregoing, at any time prior to February 1, 2001,
the Company may redeem up to 33% of the original aggregate principal amount of
Senior Notes at a redemption price of 110.75% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net proceeds of a Public Equity Offering; provided
that at least 67% of the original aggregate principal amount of Senior Notes
remains outstanding immediately after the occurrence of such redemption; and
provided, further, that such redemption shall occur within 90 days of the date
of the closing of such Public Equity Offering.
6. MANDATORY REDEMPTION. Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder of
Senior Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the
date of purchase. Within 30 days following any Change of Control, the Company
will mail a notice to each Holder
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<PAGE> 113
describing the transaction or transactions that constitute the Change of Control
setting forth the procedures governing the Change of Control Offer required by
the Indenture.
(b) When the aggregate amount of Excess Proceeds exceeds $15.0
million, the Company shall offer to all Holders of Senior Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Notes that may be
purchased out of the Excess Proceeds at an offer price in cash equal to 100% of
principal amount thereof, plus accrued and unpaid interest, and Liquidated
Damages thereon, if any, to the date of purchase in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for any general
corporate purposes. If the aggregate principal amount of Senior Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
(c) Holders of the Senior Notes that are the subject of an offer
to purchase will receive a Change of Control Offer or Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such Senior
Notes purchased by completing the form titled "Option of Holder to Elect
Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Senior Notes are to be redeemed at its registered address. Senior Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Senior Notes held by a Holder are to be
redeemed. On and after the redemption date, interest and Liquidated Damages, if
any, ceases to accrue on the Senior Notes or portions thereof called for
redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered
form without coupons in initial denominations of $1,000 and integral multiples
of $1,000. The transfer of the Senior Notes may be registered and the Senior
Notes may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company
need not exchange or register the transfer of any Senior Note or portion of a
Senior Note selected for redemption, except for the unredeemed portion of any
Senior Note being redeemed in part. Also, it need not exchange or register the
transfer of any Senior Notes for a period of 15 days before a selection of
Senior Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior Note may be
treated as its owner for all purposes.
A-2-6
<PAGE> 114
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following
paragraphs, the Indenture, the Senior Notes and the Note Guarantees may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Senior Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of or, tender offer
or exchange offer for Senior Notes), and any existing Default or Event of
Default or compliance with any provision of the Indenture, the Senior Notes or
the Note Guarantees may be waived with the consent of the Holders of a majority
in principal amount of the then outstanding Senior Notes (including consents
obtained in connection with a tender offer or exchange offer for Senior Notes).
Without the consent of any Holder of Senior Notes, the Company and the
Trustee may amend or supplement the Indenture, the Note Guarantees or the Senior
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of the Company's or a Subsidiary
Guarantor's obligations to Holders of Senior Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of Senior Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act or to allow any Subsidiary to
guarantee the Senior Notes.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on or Liquidated Damages, if any, with
respect to the Senior Notes; (ii) default in payment when due of the principal
of or premium, if any, on the Senior Notes; (iii) failure by the Company or any
Restricted Subsidiary to comply with the provisions described in Sections 4.10,
4.13 or 5.1 of the Indenture; (iv) failure by the Company or any Restricted
Subsidiary for 30 days after notice from the Trustee or at least 25% in
principal amount of the Senior Notes to comply with the provisions described in
Sections 4.7 and 4.9, of the Indenture; (v) failure by the Company or any
Subsidiary for 60 days after notice from the Trustee or the Holders of at least
25% in principal amount of the Senior Notes then outstanding to comply with its
other agreements in the Indenture or the Senior Notes; (vi) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of their its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date hereof, which default (A) (i)
is caused by a failure to pay when due at final stated maturity (giving effect
to any grace period related thereto) any principal of or premium, if any, or
interest on such Indebtedness (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and (B) in each
case, the principal amount of any such Indebtedness, together with the principal
amount of any other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates $5.0
million or more; (vii) failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $5.0 million, which judgments are not
paid discharged or stayed within 60 days after their entry; and (viii) certain
events of bankruptcy or insolvency with respect to the
A-2-7
<PAGE> 115
Company, any of its Significant Subsidiaries or any group of Subsidiaries that,
taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
of its Significant Subsidiaries all outstanding Senior Notes will become due and
payable without further action or notice. Holders of the Senior Notes may not
enforce the Indenture or the Senior Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Senior Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders of the Senior Notes notice
of any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company, the Subsidiary Guarantors or their respective Affiliates, and
may otherwise deal with the Company, the Subsidiary Guarantors or their
respective Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of the Company or any Subsidiary Guarantor, as
such, shall have any liability for any obligations of the Company or any
Subsidiary Guarantor under the Senior Notes, the Indenture or the Note
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Senior Notes by accepting a Senior
Note waives and releases all such liability. The waiver and release are part of
the consideration for the issuance of the Senior Notes and any Note Guarantee.
15. AUTHENTICATION. This Senior Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of the Senior Notes under the
Indenture, Holders of Transferred Restricted Securities (as defined in the
Registration Rights Agreement) shall have all the rights set forth in the
Registration Rights Agreement, dated as of the date hereof, among the Company,
the Subsidiary Guarantors and the Initial Purchaser (the "Registration Rights
Agreement").
A-2-8
<PAGE> 116
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Senior Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to the Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Senior Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Phase Metrics, Inc.
10260 Sorrento Valley Road
San Diego, California 92121
Telecopier No. (619) 646-4990
Chief Financial Officer
A-2-9
<PAGE> 117
SCHEDULE OF EXCHANGES FOR GLOBAL NOTES
The following exchanges of a part of this Regulation S Temporary Global
Note for other Global Notes have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount Signature of
Decrease in Increase in of this Global authorized
Principal Amount Principal Amount Note following officer of
Date of of this Global of this Global such decrease Trustee or Senior
Exchange Note Note (or increase) Note Custodian
- --------------------- ------------------ ---------------- ----------------- -------------------
<S> <C> <C> <C> <C>
</TABLE>
A-2-10
<PAGE> 118
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, CA 90017
Re: 10-3/4% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of January 30, 1998
(the "Indenture"), among Phase Metrics, Inc., as issuer (the "Company"), certain
of its subsidiaries, and State Street Bank and Trust Company of California,
N.A., as trustee. Capitalized terms used but not defined herein shall have the
meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Notes] or interest in such Notes] specified in Annex A hereto, in the principal
amount of $___________ in such Notes] or interests (the "Transfer"), to
__________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
U.S. GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO RULE 144A. The
Transfer is being effected pursuant to and in accordance with Rule 144A under
the United States Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies that the beneficial
interest or Restricted Definitive Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Restricted Definitive Note for its own account, or for one or more
accounts with respect to which such Person exercises sole investment discretion,
and such Person and each such account is a "qualified institutional buyer"
within the meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A and such Transfer is in compliance with any applicable blue sky
securities laws of any state of the United States. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Restricted Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the 144A Global Note and/or the Restricted Definitive Note and in the Indenture
and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A RESTRICTED
DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person in the United States and (x) at the time the buy
order was
<PAGE> 119
originated, the Transferee was outside the United States or such Transferor and
any Person acting on its behalf reasonably believed and believes that the
Transferee was outside the United States or (y) the transaction was executed in,
on or through the facilities of a designated offshore securities market and
neither such Transferor nor any Person acting on its behalf knows that the
transaction was prearranged with a buyer in the United States, (ii) no directed
selling efforts have been made in contravention of the requirements of Rule
903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act and (iv) if the proposed Transfer is being
made prior to the expiration of the 40-day restricted period, the Transfer is
not being made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred beneficial interest
or Restricted Definitive Note will be subject to the restrictions on Transfer
enumerated in the Private Placement Legend printed on the Regulation S Global
Note, the Temporary Regulation S Global Note and/or the Definitive Note and in
the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A RESTRICTED
DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE
144A OR REGULATION S. The Transfer is being effected in compliance with the
transfer restrictions applicable to Restricted Definitive Notes and pursuant to
and in accordance with the Securities Act and any applicable blue sky securities
laws of any state of the United States, and accordingly the Transferor hereby
further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a Subsidiary
thereof;
or
(c) [ ] such Transfer is being effected pursuant to an effective
registration statemeNT under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor
hereby further certifies that the Transfer complies with the transfer
restrictions applicable to Restricted Definitive Notes and the requirements of
the exemption claimed, which certification is supported by (1) a certificate
executed by the Transferee in the form of Exhibit D to the Indenture and (2) if
such Transfer is in respect of a principal amount of Notes at the time of
transfer of less than $250,000, an Opinion of Counsel provided by the Transferor
or the
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<PAGE> 120
Transferee (a copy of which the Transferor has attached to this certification),
to the effect that such Transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Restricted Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Notes and in the Indenture
and the Securities Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN
UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is
being effecteD pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Unrestricted
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Unrestricted Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Unrestricted Definitive Note will not be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes or Restricted Definitive Notes and in the Indenture.
B-4
<PAGE> 121
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
[Insert Name of Transferor]
By:
---------------------------------------
Name:
Title:
Dated: ,
------------------ --------
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<PAGE> 122
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] U.S. 144A Global Note (CUSIP: 717217AA1/ISIN:
USU717217 AA14), or
(ii) [ ] Regulation S Global Note (CUSIP: 717217AB9/ISIN:
USU7172EAA11), or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP 717217 AA1), or
(ii) [ ] Regulation S Global Note (CUSIP/ISIN 717217 AB 9/
USU7172EAA11), or
(iii) [ ] Unrestricted Global Note (CUSIP); or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-6
<PAGE> 123
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, CA 90017
Re: 10-3/4% Senior Notes due 2005 (CUSIP )
Reference is hereby made to the Indenture, dated as of January 30, 1998
(the "Indenture"), among Phase Metrics, Inc. as issuer (the "Company"), certain
subsidiaries of the Company and State Street Bank and Trust Company of
California, N.A., as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
________________ , (the "Owner") owns and proposes to exchange the
Notes] or interest in such Notes] specified herein, in the principal amount of
$____________ in such Notes] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the United States
Securities Act of 1933, as amended (the "Securities Act"), (iii) the
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest in an Unrestricted Global Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance
<PAGE> 124
with the Securities Act and (iv) the Unrestricted Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED
GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] [ ] U.S. Global Note or [ ] Regulation S GLOBal Note, with an equal
principal amount, the Owner hereby certifies (i) such Owner acquired such
Restricted Definitive Note in a transaction pursuant to Rule 144A or Regulation
S, (ii) the beneficial interest is being acquired for the Owner's own account
without transfer and (iii) such Exchange has been effected in compliance with
the transfer restrictions applicable to the Restricted Global Notes and pursuant
to and in accordance with the Securities Act, and in compliance with any
applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Exchange in accordance
<PAGE> 125
with the terms of the Indenture, the beneficial interest issued will be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the relevant Restricted Global Note and in the Indenture and the
Securities Act.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
[Insert Name of Owner]
By:
-----------------------------------------
Name:
Title:
Dated: ,
----------------- -------
C-3
<PAGE> 126
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street, Suite 3100
Los Angeles, CA 90017
Re: 10-3/4% Senior Notes due 2005
Reference is hereby made to the Indenture, dated as of January 30, 1998
(the "Indenture"), among Phase Metrics, Inc., as issuer (the "Company"), certain
of the Company's subsidiaries and State Street Bank and Trust Company, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of Restricted Definitive Notes we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the Notes have not been registered under the
Securities Act, and that the Notes and any interest therein may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of each account for which we acquire any Notes (for which
are acting as hereinafter stated), that such Notes may be offered, resold,
pledged or otherwise transferred only (i) to a person whom we reasonably believe
to be a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, in a
transaction meeting the requirements of Rule 144 under the Securities Act,
outside the United States in a transaction meeting the requirements of Rule 904
under the Securities Act, or in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Company so requests), (ii) to the Company or (iii) pursuant to an
effective registration statement, and, in each case, in accordance with any
applicable securities laws of any State of the United States or any other
applicable jurisdiction. We further agreement to provide to any person
purchasing the Definitive Note or a beneficial interest in a Global Note from us
in a transaction meeting the requirements of (i) or (ii) of this paragraph a
notice advising such purchaser that resales thereof are restricted as stated
herein.
<PAGE> 127
3. We understand that, on any proposed resale of the Notes or beneficial
interest therein, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes without a view to distribution thereof in
violation of the Securities Act for our own account or for one or more accounts
(each of which is an institutional "accredited investor") as to each of which we
exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
------------------------------------
[Insert Name of Accredited Investor]
By:
---------------------------------
Name:
Title:
Dated: ,
-------------- ------
<PAGE> 128
EXHIBIT E
NOTE GUARANTEE
Subject to Section 10.6 of the Indenture, each Subsidiary Guarantor
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Senior Note authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the validity and enforceability of
the Indenture, the Senior Notes and the Obligations of the Company under the
Senior Notes or under the Indenture, that: (a) the principal of, premium, if
any, interest and Liquidated Damages, if any, on the Senior Notes will be
promptly paid in full when due, subject to any applicable grace period, whether
at maturity, by acceleration, redemption or otherwise, and interest on overdue
principal, premium, if any, (to the extent permitted by law) interest on any
interest, if any, and Liquidated Damages, if any, on the Senior Notes and all
other payment Obligations of the Company to the Holders or the Trustee under the
Indenture or under the Senior Notes will be promptly paid in full and performed,
all in accordance with the terms thereof; and (b) in case of any extension of
time of payment or renewal of any Senior Notes or any of such other payment
Obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, subject to any applicable
grace period, whether at stated maturity, by acceleration, redemption or
otherwise. Failing payment when so due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Subsidiary Guarantors will be
jointly and severally obligated to pay the same immediately.
The obligations of the Subsidiary Guarantor to the Holders and to the
Trustee pursuant to this Note Guarantee and the Indenture are expressly set
forth in Article 10 of the Indenture, and reference is hereby made to such
Indenture for the precise terms of this Note Guarantee. The terms of Article 10
of the Indenture are incorporated herein by reference. This Note Guarantee is
subject to release as and to the extent provided in Section 10.4 of the
Indenture.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon each Subsidiary Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Company's Obligations under the Senior Notes and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This is a Note
Guarantee of payment and not a guarantee of collection.
This Note Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Senior Note upon which this Note
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
<PAGE> 129
For purposes hereof, each Subsidiary Guarantor's liability shall be
limited to the lesser of (i) the aggregate amount of the Obligations of the
Company under the Senior Notes and the Indenture and (ii) the amount, if any,
which would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such
term is defined in the Bankruptcy Law and in the Debtor and Creditor Law of the
State of New York) or (B) left such Subsidiary Guarantor with unreasonably small
capital at the time its Note Guarantee of the Senior Notes was entered into;
provided that, it will be a presumption in any lawsuit or other proceeding in
which a Subsidiary Guarantor is a party that the amount guaranteed pursuant to
the Note Guarantee is the amount set forth in clause (i) above unless any
creditor, or representative of creditors of such Subsidiary Guarantor, or debtor
in possession or trustee in bankruptcy of such Subsidiary Guarantor, otherwise
proves in such a lawsuit that the aggregate liability of the Subsidiary
Guarantor is limited to the amount set forth in clause (ii) above. The Indenture
provides that, in making any determination as to the solvency or sufficiency of
capital of a Subsidiary Guarantor in accordance with the previous sentence, the
right of such Subsidiary Guarantors to contribution from other Subsidiary
Guarantors and any other rights such Subsidiary Guarantors may have, contractual
or otherwise, shall be taken into account.
{remainder of page intentionally left blank}
E-2
<PAGE> 130
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
Dated as of January 30, 1998 HELIOS, INCORPORATED
By:
--------------------------------------
Name: R. Joseph Saunders
Title:
Dated as of January 30, 1998 APPLIED ROBOTIC TECHNOLOGIES, INC.
By:
--------------------------------------
Name: R. Joseph Saunders
Title:
Dated as of January 30, 1998 AIR BEARINGS, INCORPORATED
By:
--------------------------------------
Name: R. Joseph Saunders
Title:
Dated as of January 30, 1998 SANTA BARBARA METRIC, INC.
By:
--------------------------------------
Name: R. Joseph Saunders
Title:
E-3
<PAGE> 131
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
___________, between Subsidiary Guarantor (the "New Subsidiary Guarantor"), a
subsidiary of Phase Metrics, Inc., a Delaware corporation (the "Company"), and
State Street Bank and Trust Company of California, N.A., as trustee under the
indenture referred to below (the "Trustee"). Capitalized terms used herein and
not defined herein shall have the meaning ascribed to them in the Indenture (as
defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of January 30, 1998, providing
for the issuance of an aggregate principal amount of $110,000,000 of 10-3/4 %
Senior Notes due 2005 (the "Senior Notes");
WHEREAS, Section 10.5 of the Indenture provides that under certain
circumstances the Company may cause, and Section 10.3 of the Indenture provides
that under certain circumstances the Company must cause, certain of its
subsidiaries to execute and deliver to the Trustee a supplemental indenture
pursuant to which such subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Senior Notes pursuant to a Note Guarantee on the
terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Senior Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO NOTE GUARANTEE. The New Subsidiary Guarantor hereby
agrees, jointly and severally with all other Subsidiary Guarantors, to guarantee
the Company's Obligations under the Senior Notes and the Indenture on the terms
and subject to the conditions set forth in Article 10 of the Indenture and to be
bound by all other applicable provisions of the Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or any Subsidiary Guarantor under the Senior Notes, any
<PAGE> 132
Note Guarantees, the Indenture or this Supplemental Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Senior Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Senior
Notes.
4. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
5. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Subsidiary
Guarantor.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated:
------------------ [NAME OF NEW SUBSIDIARY GUARANTOR]
By:
---------------------------------------
Name:
Title:
Dated: , as Trustee
-------------------- ------------------------------------------
By:
---------------------------------------
Name:
Title:
F-2
<PAGE> 133
CROSS-REFERENCE TABLE*
Trust Indenture
<TABLE>
<CAPTION>
Act Section Indenture Section
<S> <C> <C>
310 (a)(1)................................ 7.10
(a)(2)................................ 7.10
(a)(3)................................ N.A.
(a)(4)................................ N.A.
(a)(5)................................ 7.10
(b)................................... 7.03; 7.10
(c)................................... N.A.
311 (a)................................... 7.11
(b)................................... 7.11
(c)................................... N.A.
312 (a)................................... 2.05
(b)................................... 11.03
(c)................................... 11.03
313 (a)................................... 7.06
(b)(1)................................ 7.06
(b)(2)................................ 7.06; 7.07
(c)................................... 7.06; 11.02
(d)................................... 7.06
314 (a)................................... 4.03; 11.05
(b)................................... N.A.
(c)(1)................................ 11.04
(c)(2)................................ 11.04
(c)(3)................................ N.A.
(d)................................... N.A.
(e)................................... 11.05
(f)................................... N.A.
315 (a)................................... 7.01
(b)................................... 7.05, 11.02
(c)................................... 7.01
(d)................................... 7.01
(e)................................... 6.11
316 (a)(last sentence).................... 2.09
(a)(1)(A)............................. 6.05
(a)(1)(B)............................. 6.04
</TABLE>
F-3
<PAGE> 134
<TABLE>
<CAPTION>
Act Section Indenture Section
<S> <C> <C>
(a)(2)................................ N.A.
(b)................................... 6.07
316 (c)................................... 2.13
317 (a)(1)................................ 6.08
(a)(2)................................ 6.09
(b)................................... 2.04
318 (a)................................... 11.01
(b)................................... N.A.
(c)................................... 11.01
</TABLE>
- -------------------
N.A. means not applicable
*This Cross-Reference Table is not part of the Indenture.
F-4
<PAGE> 1
EXHIBIT 4.4
================================================================================
- --------------------------------------------------------------------------------
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of January 30, 1998
by and among
Phase Metrics, Inc.
Helios, Incorporated
Applied Robotic Technologies, Inc.
Air Bearings, Incorporated
Santa Barbara Metric, Inc.
and
Donaldson, Lufkin & Jenrette Securities Corporation
- --------------------------------------------------------------------------------
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of January 30, 1998, by and among Phase Metrics, Inc., a
Delaware corporation (the "COMPANY"), Helios, Incorporated, Applied Robotic
Technologies, Inc., Air Bearings, Incorporated and Santa Barbara Metric, Inc.
(the "GUARANTORS"), and Donaldson, Lufkin & Jenrette Securities Corporation (the
"INITIAL PURCHASER"), each of whom has agreed to purchase the Company's 10 3/4%
Senior Notes due 2005 (the "SENIOR NOTES") pursuant to the Purchase Agreement
(as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
January 23, 1998 (the "PURCHASE AGREEMENT"), by and among the Company, the
Guarantors and the Initial Purchaser. In order to induce the Initial Purchaser
to purchase the Series A Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchaser set
forth in Section 9 of the Purchase Agreement. Capitalized terms used herein and
not otherwise defined shall have the meaning assigned to them the Indenture,
dated January 30, 1998, between the Company and State Street Bank and Trust
Company of California, N.A., as Trustee, relating to the Senior Notes and the
New Senior Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange
Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the New Senior Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of New Senior Notes in the same aggregate
principal amount as the aggregate principal amount of Senior Notes tendered by
Holders thereof pursuant to the Exchange Offer.
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof.
<PAGE> 3
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The exchange and issuance by the Company of a
principal amount of New Senior Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Senior Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchaser
proposes to sell the Senior Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
NEW SENIOR NOTES: The Company's 10 3/4% Senior Notes due 2005 to be
issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
PROSPECTUS: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
and the Guarantors relating to (a) an offering of New Senior Notes pursuant to
an Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
REGULATION S: Regulation S promulgated under the Act.
RULE 144: Rule 144 promulgated under the Act.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
<PAGE> 4
TRANSFER RESTRICTED SECURITIES: Each Senior Note, until the earliest
to occur of (a) the date on which such Senior Note is exchanged in the Exchange
Offer for a New Senior Note which is entitled to be resold to the public by the
Holder thereof without complying with the prospectus delivery requirements of
the Act, (b) the date on which such Senior Note has been disposed of in
accordance with a Shelf Registration Statement (and the purchases thereof have
been issued New Senior Notes therefor), or (c) the date on which such Senior
Note is distributed to the public pursuant to Rule 144 under the Act and (d)
each New Senior Note until the date on which such New Senior Note is disposed of
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including the delivery of the Prospectus
contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 60 days after the
Closing Date (such 60th day being the "FILING DEADLINE"), (ii) use its best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 120 days after the
Closing Date (such 120th day being the "EFFECTIVENESS DEADLINE"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the New Senior Notes to be made under the Blue Sky laws of such
jurisdictions as are reasonably necessary to permit Consummation of the Exchange
Offer, and (iv) upon the effectiveness of such Exchange Offer Registration
Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall
be on the appropriate form permitting (i) registration of the New Senior Notes
to be offered in exchange for the Senior Notes that are Transfer Restricted
Securities and (ii) resales of New Senior Notes by Broker-Dealers that tendered
into the Exchange Offer Senior Notes that such Broker-Dealer acquired for its
own account as a result of market making activities or other trading activities
(other than Senior Notes acquired directly from the Company or any of its
Affiliates) as contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the New Senior Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their respective
-3-
<PAGE> 5
best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter (such 30th day
being the "CONSUMMATION DEADLINE").
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted Securities
that were acquired for the account of such Broker-Dealer as a result of
market-making activities or other trading activities (other than Senior Notes
acquired directly from the Company or any Affiliate of the Company), may
exchange such Transfer Restricted Securities pursuant to the Exchange Offer.
Such "Plan of Distribution" section shall also contain all other information
with respect to such sales by such Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Transfer Restricted Securities held by any such Broker-Dealer, except to the
extent required by the Commission as a result of a change in policy, rules or
regulations after the date of this Agreement. See the Shearman & Sterling
no-action letter (available July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any New
Senior Notes received by such Broker-Dealer in the Exchange Offer, the Company
and Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for such
sales of New Senior Notes by Broker-Dealers, the Company and the Guarantors
agree to use their respective best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented, amended and current
as required by and subject to the provisions of Sections 6(a) and (c) hereof and
in conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of one year from the Consummation Deadline or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Registration
Statement have been sold pursuant thereto. The Company and the Guarantors shall
provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one day after
such request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted
by applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation Deadline that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the New Senior Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Senior
Notes acquired directly from the Company or any of its Affiliates, then the
Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i) the
date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above
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and (ii) the date on which the Company receives the notice specified in clause
(a)(ii) above, (such earlier date, the "FILING DEADLINE"), a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to the
Exchange Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")),
relating to all Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 60 days after the
Filing Deadline for the Shelf Registration Statement (such 60th day the
"EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline for the Shelf Registration Statement set forth in clause
(y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), the Company and
the Guarantors shall use their respective best efforts to keep any Shelf
Registration Statement required by this Section 4(a) continuously effective,
supplemented, amended and current as required by and subject to the provisions
of Sections 6(b) and (c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for as long as the Initial Purchaser is deemed to
be an affiliate of the Company but in no event less than the shorter of (i) two
years (as extended pursuant to Section 6(c)(i)) following the Closing Date, or
(ii) the date on which all Transfer Restricted Securities covered by such Shelf
Registration Statement have been sold pursuant thereto.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such
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<PAGE> 7
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly
and severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues for the
first 90-day period immediately following the occurrence of such Registration
Default. The amount of the liquidated damages shall increase by an additional
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.25 per week
per $1,000 in principal amount of Transfer Restricted Securities; provided that
the Company and the Guarantors shall in no event be required to pay liquidated
damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, the accrual of liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated damages
are due cease to be Transfer Restricted Securities, all obligations of the
Company and the Guarantors to pay liquidated damages with respect to securities
shall survive until such time as such obligations with respect to such
securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of New Senior Notes by
Broker-Dealers that tendered in the Exchange Offer Senior Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Senior Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company and the Guarantors hereby
agree to seek a no-action letter or other favorable decision from the
Commission allowing the Company and the Guarantors to Consummate an
Exchange Offer for such Transfer Restricted Securities. The Company and
the Guarantors hereby agree to pursue the issuance of such a decision to
the Commission staff level. In connection with the foregoing, the Company
and the Guarantors hereby agree to take all such other
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<PAGE> 8
actions as may be requested by the Commission or otherwise required in
connection with the issuance of such decision, including without
limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange
Offer, each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company and the Guarantors (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an Affiliate of
the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution of the New Senior Notes to be issued in the Exchange Offer
and (C) it is acquiring the New Senior Notes in its ordinary course of
business. Each Holder using the Exchange Offer to participate in a
distribution of the New Senior Notes hereby acknowledges and agrees that,
if the resales are of New Senior Notes obtained by such Holder in exchange
for Senior Notes acquired directly from the Company or an Affiliate
thereof, it (1) could not, under Commission policy as in effect on the
date of this Agreement, rely on the position of the Commission enunciated
in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital
Holdings Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and similar
no-action letters (including, if applicable, any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the registration
and prospectus delivery requirements of the Act in connection with a
secondary resale transaction and that such a secondary resale transaction
must be covered by an effective registration statement containing the
selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and the
Guarantors are registering the Exchange Offer in reliance on the position
of the Commission enunciated in Exxon Capital Holdings Corporation
(available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5,
1991) as interpreted in the Commission's letter to Shearman & Sterling
dated July 2, 1993, and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation that neither
the Company nor any Guarantor has entered into any arrangement or
understanding with any Person to distribute the New Senior Notes to be
received in the Exchange Offer and that, to the best of the Company's and
each Guarantor's information and belief, each Holder participating in the
Exchange Offer is acquiring the New Senior Notes in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the New Senior Notes received in the
Exchange Offer and (C) any other undertaking or representation required by
the Commission as set forth in any no-action letter obtained pursuant to
clause (i) above, if applicable.
(b) Shelf Registration Statement. (i) In connection with the Shelf
Registration Statement, the Company and the Guarantors shall (x) comply with all
the provisions of Section 6(c) below and (y) use their respective best efforts
to effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated
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<PAGE> 9
in the information furnished to the Company pursuant to Section 4(b) hereof),
and pursuant thereto the Company and the Guarantors will prepare and file with
the Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the Transfer Restricted Securities in accordance with the intended method or
methods of distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(ii) The Company shall issue, upon the request of any Holder
(after having sold the Senior Notes) or purchaser of Senior Notes (who can
receive the New Senior Notes) covered by any Shelf Registration Statement
contemplated by this Agreement, New Senior Notes having an aggregate principal
amount equal to the aggregate principal amount of Senior Notes sold pursuant to
the Shelf Registration Statement and surrendered to the Company for
cancellation; the Company shall register the New Senior Notes in the name of the
purchaser(s) who purchased securities subject to the Shelf Registration
Statement.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company and
the Guarantors shall:
(i) use their respective best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained therein
(A) to contain a material misstatement or omission or (B) not to be
effective and usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company and the Guarantors
shall file promptly an appropriate amendment to such Registration
Statement curing such defect, and, if Commission review is required, use
their respective best efforts to cause such amendment to be declared
effective as soon as practicable;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may be;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with Rules 424, 430A and 462, as applicable,
under the Act in a timely manner; and comply with the provisions of the
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set
forth in such Registration Statement or supplement to the Prospectus;
(iii) advise each Holder and the Initial Purchaser promptly
and, if requested by such Person, confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to any applicable Registration Statement
or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, (D) of the existence of
any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any
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<PAGE> 10
additions to or changes in the Registration Statement in order to make the
statements therein not misleading, or that requires the making of any
additions to or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws,
the Company and the Guarantors shall use their respective best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(v) furnish to each Holder and the Initial Purchaser in
connection with such exchange or sale, if any, before filing with the
Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such Registration
Statement or Prospectus (including all documents incorporated by reference
after the initial filing of such Registration Statement), which documents
will be subject to the review and comment of such Persons in connection
with such sale, if any, for a period of at least five Business Days, and
the Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which such Persons shall reasonably object within five Business Days after
the receipt thereof. Such Person shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed, contains
a material misstatement or omission or fails to comply with the applicable
requirements of the Act;
(vi) promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each Holder and the Initial Purchaser
in connection with such exchange or sale, if any, make the Company's and
the Guarantors' representatives available for discussion of such document
and other customary due diligence matters, and include such information in
such document prior to the filing thereof as such Persons may reasonably
request;
(vii) make available, at reasonable times, for inspection by
each selling Holder and the Initial Purchaser and any attorney or
accountant retained by such Persons, all financial and other records,
pertinent corporate documents of the Company and the Guarantors and cause
the Company's and the Guarantors' officers, directors and employees to
supply all information reasonably requested by any such Persons, attorney
or accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and
prior to its effectiveness;
(viii) if requested by any Holders in connection with such
exchange or sale or the Initial Purchaser, promptly include in any
Registration Statement or Prospectus, pursuant to a
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supplement or post-effective amendment if necessary, such information as
such selling Persons may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities and the use of the
Registration Statement or Prospectus for market making activities; and
make all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(ix) furnish to each selling Holder in connection with such
exchange or sale and the Initial Purchaser without charge, at least one
copy of the Registration Statement, as first filed with the Commission,
and of each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(x) deliver to each selling Holder and the Initial Purchaser
without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company and the Guarantors hereby
consent to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each selling Person in connection with
the offering and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto and all market
making activities of the Initial Purchaser, as the case may be;
(xi) upon the request of any Holder, enter into such customary
agreements (including underwriting agreements) and make such reasonable
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any applicable Registration
Statement contemplated by this Agreement as may be reasonably requested by
any Holder in connection with any sale or resale pursuant to any
applicable Registration Statement. In such connection , and also in
connection with market making activities by the Initial Purchaser, the
Company and the Guarantors shall:
(A) upon request of such Person, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be
furnished) to each such Person, upon Consummation of the Exchange
Offer or upon the effectiveness of the Shelf Registration Statement,
as the case may be:
(1) a certificate, dated such date, signed on behalf of
the Company and each Guarantor by (x) the President or any
Vice President and (y) a principal financial or accounting
officer of the Company and such Guarantor, confirming, as of
the date thereof, the matters set forth in paragraphs (a)
through (d) of Section 9 of the Purchase Agreement and such
other similar matters as such Person may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantors covering matters similar to those
set forth in paragraph (c) of Section 9 of the Purchase
Agreement and such other matter as such Person may reasonably
request, and in any event including a statement to the effect
that such counsel has participated in conferences with
officers and other representatives of the Company and the
Guarantors, representatives of the
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independent public accountants for the Company and the
Guarantors and has considered the matters required to be
stated therein and the statements contained therein, although
such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such
counsel advises that, on the basis of the foregoing, no facts
came to such counsel's attention that caused such counsel to
believe that the applicable Registration Statement, at the
time such Registration Statement or any post-effective
amendment thereto became effective and, in the case of the
Exchange Offer Registration Statement, as of the date of
Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date and,
in the case of the opinion dated the date of Consummation of
the Exchange Offer, as of the date of Consummation, contained
an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data
included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to Section 9(g) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by such Persons to evidence compliance with
clause (A) above and with any customary conditions contained in the
any agreement entered into by the Company and the Guarantors
pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may reasonably request and do any and
all other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that neither the
Company nor any Guarantor shall be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any action
that would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to
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facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities
in such denominations and such names as the selling Holders may request at
least two Business Days prior to such sale of Transfer Restricted
Securities;
(xiv) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xii)
above;
(xv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with the Depository
Trust Company;
(xvi) otherwise use their respective best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use its best efforts to cause the Trustee to execute,
all documents that may be required to effect such changes and all other
forms and documents required to be filed with the Commission to enable
such Indenture to be so qualified in a timely manner; and
(xviii) provide promptly to each Holder and the Initial
Purchaser, upon request, each document filed with the Commission pursuant
to the requirements of Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security and the Initial Purchaser agrees that, upon receipt
of the notice referred to in Section 6(c)(iii)(C) or any notice from the Company
of the existence of any fact of the kind described in Section 6(c)(iii)(D)
hereof (in each case, a "SUSPENSION NOTICE"), such Person will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until (i) such Person has received copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof,
or (ii) such Person is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (in
each case, the "RECOMMENCEMENT DATE"). Each Person receiving a Suspension Notice
hereby agrees that it will either (i) destroy any Prospectuses, other than
permanent file copies, then in such Person's possession which have been replaced
by the Company with more recently dated Prospectuses or (ii) deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Person's possession of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of the
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Suspension Notice. The time period regarding the effectiveness of such
Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall
be extended by a number of days equal to the number of days in the period from
and including the date of delivery of the Suspension Notice to the date of
delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the New Senior Notes to be issued in the Exchange Offer and printing of
Prospectuses whether for exchanges, sales, market making or otherwise),
messenger and delivery services and telephone; (iv) all fees and disbursements
of counsel for the Company, and counsel for the Guarantors and the Holders of
Transfer Restricted Securities in connection with any Shelf Registration
Statement; (v) all application and filing fees in connection with listing the
New Senior Notes on a national securities exchange or automated quotation system
pursuant to the requirements hereof; and (vi) all fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and the Guarantors'
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Shelf Registration Statement, the Company
and the Guarantors will reimburse the Holders of Transfer Restricted Securities
who are selling or reselling Senior Notes or New Senior Notes pursuant to the
"Plan of Distribution" contained in the Shelf Registration Statement, as
applicable, for the reasonable fees and disbursements of not more than one
counsel, who shall be Wilson Sonsini Goodrich & Rosati, Professional
Corporation, unless another firm shall be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, the Initial Purchaser, their respective
directors, officers and each Person, if any, who controls such Persons (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from
and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto) provided by the Company to any holder
or any prospective purchaser (who becomes a holder) of New Senior Notes or
registered Senior Notes, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
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<PAGE> 15
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or judgments are caused by an untrue statement or
omission or alleged untrue statement or omission that is based upon information
relating to any of the Holders furnished in writing to the Company by any of the
Holders.
(b) Each Holder of Transfer Restricted Securities and the Initial
Purchaser agrees, severally and not jointly, to indemnify and hold harmless the
Company and the Guarantors, and their respective directors and officers, and
each person, if any, who controls (within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) the Company, or the Guarantors to the same
extent as the foregoing indemnity from the Company and the Guarantors set forth
in Section 8(a) above, but only with reference to information relating to such
Person furnished in writing to the Company by such Person expressly for use in
any Registration Statement. In no event shall any Person be liable or
responsible for any amount in excess of the amount by which the total amount
received by such Person with respect to its sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds (i) the amount paid by
such Person for such Transfer Restricted Securities and (ii) the amount of any
damages that such Person has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder
and/or the Initial Purchaser). Any indemnified party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by such counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by a majority of the Holders and/or the
Initial Purchaser, in the case of the parties indemnified pursuant to Section
8(a), and by the Company, in the case of parties indemnified pursuant to Section
8(b). The indemnifying party shall indemnify and hold harmless the indemnified
party from and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (i) effected with its
written consent or (ii) effected without its written consent if the settlement
is entered into more than twenty business days after the indemnifying party
shall have received a request from the indemnified party for reimbursement for
the fees and expenses of counsel (in any case where such fees and expenses are
at the expense of the indemnifying party) and, prior to the date of such
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<PAGE> 16
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Guarantors, on the one hand, and the Holders and the Initial Purchaser, on
the other hand, from their sale of Transfer Restricted Securities or (ii) if the
allocation provided by clause 8(d)(i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company
and the Guarantors, on the one hand, and of the Holder and the Initial
Purchaser, on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative fault of the
Company and the Guarantors, on the one hand, and of the Holder and the Initial
Purchaser, on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or such Guarantor, on the one hand, or by the Holder and
the Initial Purchaser, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and judgments referred to above shall be
deemed to include, subject to the limitations set forth in the second paragraph
of Section 8(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company, the Guarantors and each Holder and the Initial
Purchaser agree that it would not be just and equitable if contribution pursuant
to this Section 8(d) were determined by pro rata allocation (even if the Holders
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any matter, including any action that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Holder nor the Initial Purchaser, nor their
respective directors, officers or any Person, if any, who controls such Person
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the total received by such Holder with respect to the sale of
its Transfer Restricted Securities pursuant to a Registration Statement exceeds
the sum of (A) the amount paid by such Holder and the Initial Purchaser for such
Transfer Restricted Securities plus (B) the amount of any damages which such
Holder and the Initial Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
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<PAGE> 17
The Holders' and the Initial Purchaser, obligations to contribute pursuant to
this Section 8(c) are several in proportion to the respective principal amount
of Transfer Restricted Securities held by each Holder or the Initial Purchaser,
hereunder and not joint.
SECTION 9. RULE 144A AND RULE 144
The Company and each Guarantor agrees with each Holder, for so long
as any Transfer Restricted Securities remain outstanding and during any period
in which the Company or such Guarantor (i) is not subject to Section 13 or 15(d)
of the Exchange Act, to make available, upon request of any Holder of Transfer
Restricted Securities, to any Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) No Inconsistent Agreements. Neither the Company nor any
Guarantor will, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any Guarantor has previously entered into any agreement
granting any registration rights with respect to its securities to any Person
other than pursuant to that certain Securityholders Agreement dated November 23,
1994. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company's and the Guarantors' securities under any agreement in effect on the
date hereof.
(b) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(b)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose securities are being tendered pursuant to the Exchange Offer
and that does not affect directly or indirectly the rights of other Holders
whose securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities subject to such Exchange Offer.
(c) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchaser, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
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<PAGE> 18
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
Phase Metrics, Inc.
10260 Sorrento Valley Road
San Diego, CA 92121
Telecopier No.: (619) 646-4990
Attention: Chief Financial Officer
With a copy to:
Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, #1000
Newport Beach, CA 92660-1846
Telecopier No.: (714) 752-7535
Attention: Greg T. Williams, Esq.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf
Registration Statement, as the case may be, notice shall be delivered to
Donaldson, Lufkin & Jenrette Securities Corporation, the Initial Purchaser (in
the form attached hereto as Exhibit A) and shall be addressed to: Attention:
Louise Guarneri (Compliance Department), 277 Park Avenue, New York, New York
10172.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided, that
nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Transfer Restricted Securities in violation of the terms hereof
or of the Purchase Agreement or the Indenture. If any transferee of any Holder
shall acquire Transfer Restricted Securities in any manner, whether by operation
of law or otherwise, such Transfer Restricted Securities shall be held subject
to all of the terms of this Agreement, and by taking and holding such Transfer
Restricted Securities such Person shall be conclusively deemed to have agreed to
be bound by and to perform all of the terms and provisions of this Agreement,
including the restrictions on resale set forth in this Agreement and, if
applicable, the Purchase Agreement, and such Person shall be entitled to receive
the benefits hereof.
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<PAGE> 19
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
[**remainder of page intentionally left blank**]
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<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PHASE METRICS, INC.
By: /s/ R. J. Saunders
----------------------------------
Name: R. J. Saunders
Title: Vice President
HELIOS, INCORPORATED
By: /s/ R. J. Saunders
----------------------------------
Name: R. J. Saunders
Title: Vice President
APPLIED ROBOTIC TECHNOLOGIES, INC.
By: /s/ R. J. Saunders
----------------------------------
Name: R. J. Saunders
Title: Vice President
AIR BEARINGS, INCORPORATED
By: /s/ R. J. Saunders
----------------------------------
Name: R. J. Saunders
Title: Vice President
SANTA BARBARA METRIC, INC.
By: /s/ R. J. Saunders
----------------------------------
Name: R. J. Saunders
Title: Vice President
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Steven D. Smith
---------------------------------
Name: Steven D. Smith
Title: Senior Vice President
<PAGE> 21
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: Phase Metrics, Inc.
10 3/4% Senior Notes due 2005
Date: ________________, 1998
For your information only (NO ACTION REQUIRED):
Today, ______________, 1998, we filed [an A/B Exchange Registration
Statement/a Shelf Registration Statement] with the Securities and Exchange
Commission. We currently expect this registration statement to be declared
effective within __ business days of the date hereof.
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<PAGE> 1
EXHIBIT 10.1
[California Net Lease]
LEASE AGREEMENT
THIS LEASE AGREEMENT is made this 5th day of June, 1995, between
Security Capital Industrial Trust ("Landlord"), and the Tenant named below.
<TABLE>
<S> <C>
Tenant: Phase Metrics, Inc., a California corporation
Tenant's representative, address, and phone no.: Ron Miyahara, 47600 Westinghouse Drive, Fremont,
CA 94539, (510/226-4800)
Premises: Approximately 72,080 square feet as shown on
Exhibit A.
Project: Bayside Corporate Center, Phase I (see Exhibit A)
Building (if not the same as the Project): All of Building B commonly known as 47639
Fremont Boulevard and all of Building C commonly
known as 47655 Fremont Boulevard
Tenant's Proportionate Share of Project: 70.34%
Tenant's Proportionate Share of Building B: 100%
Tenant's Proportionate Share of Building C: 100%
Lease Term: Beginning on the Commencement Date and ending
on the last day of the 60th full calendar month
thereafter.
Commencement Date: October 9, 1995
Initial Monthly Base Rent: $51,537
Initial Estimated Monthly Operating Expense 1. Utilities: N/A
Payments: (estimates only and subject to adjustment
to actual costs and expenses according to the 2. Common Area Charges: $2,883
provisions of this Lease)
3. Taxes: $7,712
4. Insurance: $217
5. Others: N/A
Initial Estimated Monthly $10,813
Operating Expense Payments:
Initial Monthly Base Rent and $62,350
Operating Expense Payments:
Security Deposit: $51,537
Broker: Chip Sutherland, CB Commercial
Scott Newman, CB Commercial
Addenda: Addendums 1, 2, 3, 5, 6, and 7, Exhibits
A, B, C, D and E
</TABLE>
<PAGE> 2
1. GRANTING CLAUSE. In consideration of the obligation of Tenant to pay
rent as herein provided and in consideration of the other terms, covenants, and
conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord,
the Premises, to have and to hold for the Lease Term, subject to the terms,
covenants and conditions of this Lease.
2. ACCEPTANCE OF PREMISES. Landlord agrees to install the tenant
improvements (the "Initial Tenant Improvements") described in the Construction
Addendum attached hereto as Addendum 2 and Tenant shall accept the Premises in
its condition as of the Commencement Date, subject to all applicable laws,
ordinances and regulations. Tenant acknowledges that Landlord has made no
representation or warranty as to the suitability of the Premises for the conduct
of Tenant's business, and Tenant waives any implied warranty that the Premises
are suitable for Tenant's intended purposes. The taking of possession of the
Premises shall be conclusive evidence that Tenant accepts the Premises and that
the Premises were in good condition at the time possession was taken except for
any punchlist items agreed to in writing by Landlord and Tenant. In no event
shall Landlord be liable for any defects in the Premises (except as set forth in
this Paragraph 2 of the Lease) or for any limitation on its use (except as a
direct result of construction defects).
Landlord shall deliver the Premises to Tenant clean and free of
debris on the Commencement Date and warrants to Tenant (which warranty shall
survive for a period of one year following the Commencement Date) that the
existing structural portions of the Premises including roof, roof membranes and
surface, foundations, exterior walls, support beams, plumbing, fire sprinkler
system, lighting, HVAC, window seals, electrical systems, and loading doors, if
any, in the Premises shall be in good operating condition on the Commencement
Date. If a non-compliance exists as of the Commencement Date, Landlord shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Tenant setting forth the nature and extent of such non-compliance,
rectify same at Landlord's cost and expense.
The Building and that portion of the Premises already constructed
and to be constructed by Landlord or Landlord's contractor, have been or will be
constructed in material compliance with all current governmental regulations,
ordinances, and laws including zoning and building codes, regulations and
ordinances and all applicable covenants and restrictions of record which are in
effect on or prior to the completion of the buildout of the Tenant Improvements,
including the provisions of Title III of the Americans with Disabilities Act as
they may apply to the Building and that portion of the Premises already
constructed.
Landlord will be fully responsible for making all alterations and
repairs to the Building and the Premises at its cost (which shall not be
included as Operating Expenses), resulting from or necessitated by the failure
by Landlord, Landlord's contractor, the Building or the Premises to comply with
such governmental regulations, ordinances and laws, all as in effect as of the
Commencement Date only, provided that such non-compliance is not the result of
Tenant's use or occupancy of the Building or the Premises.
3. USE. The Premises shall be used only for the purpose of receiving,
light manufacturing, storing, shipping and selling products, materials and
merchandise made and/or distributed by Tenant and for such other lawful purposes
as may be incidental thereto. Tenant shall not conduct or give notice of any
auction, liquidation, or going out of business sale on the Premises. Tenant will
use the Premises in a careful, safe and proper manner and will not commit waste
thereon.
Tenant, at its sole expense, shall comply with all laws (including,
without limitation, Environmental Requirements, as defined herein, and laws
regarding access for handicapped or disabled persons), ordinances and
regulations, and all declarations, covenants, and restrictions, applicable to
Tenant's use or occupation of the Premises, and with all governmental orders and
directives of public officers which impose any duty or restriction with respect
to the use or occupation of the Premises. Outside storage, including without
limitation, storage of trucks and other vehicles, is prohibited without
Landlord's prior written consent. No use shall be made of the Premises that
would constitute the Project as a place of public accommodation under the
Americans with
2
<PAGE> 3
Disabilities Act or similar state statutes or local ordinances or any
regulations promulgated thereunder, all as may be amended from time to time (the
"ADA"); and Tenant shall cause the Premises (and, to the extent required by
improvements to the Premises, the Project) to comply with the ADA. All
improvements constructed pursuant to the Construction Addendum shall comply, as
of the Commencement Date, with the ADA; provided, however that Landlord shall
not be required to make any improvements which may be required if the Premises
are to be used as a place of public accommodation.
Tenant shall not permit any objectionable or unpleasant odors,
smoke, dust, gas, noise, or vibrations, all as reasonably determined by
Landlord, to emanate from the Premises, or take any other action that, in the
reasonable opinion of Landlord, would constitute a nuisance or would disturb,
unreasonably interfere with, or endanger Landlord or any other tenants of the
Project. Landlord has inspected Tenant's warehouse space located at 47600
Westinghouse Drive, Fremont, California, and does not believe that the
operations at such site would constitute a nuisance if such operations occurred
in the Project. Tenant will not use or permit the Premises to be used for any
purpose or in any manner that would void Tenant's or Landlord's insurance,
increase the insurance risk, or cause the disallowance of any sprinkler credits.
If any increase in the cost of any insurance on the Premises or the Project is
caused by Tenant's use of the Premises, then Tenant shall pay the amount of such
increase to Landlord.
4. BASE RENT. Tenant shall pay Base Rent in the amount set forth above.
The first month's Base Rent, the Security Deposit, and the first monthly
installment of estimated Operating Expenses (as hereafter defined) shall be due
and payable on the date hereof, and Tenant promises to pay to Landlord in
advance, without demand, deduction or set-off, monthly installments of Base Rent
on or before the first day of each calendar month succeeding the Commencement
Date. Payments of Base Rent for any fractional calendar month shall be prorated.
All payments required to be made by Tenant to Landlord hereunder shall be
payable at such address as Landlord may specify from time to time by written
notice delivered in accordance herewith. The obligation of Tenant to pay Base
Rent and other sums to Landlord and the obligations of Landlord under this Lease
are independent obligations. Tenant shall have no right at any time to abate,
reduce, or set-off any rent due hereunder except where expressly provided in
this Lease.
If Tenant is delinquent in any monthly installment of Base Rent or
of estimated Operating Expenses for more than 5 days, Tenant shall pay to
Landlord on demand a late charge equal to 3 percent of such delinquent sum. The
provision for such late charge shall be in addition to all of Landlord's other
rights and remedies hereunder or at law and shall not be construed as a penalty.
Notwithstanding the above, Tenant shall not be obligated to pay the late charge
until Landlord has given Tenant 5 days written notice of the delinquent payment
(which may be give at any time during the delinquency); provided, however, that
such notice shall not be required more than twice in any 12-month period or five
times over the term of the Lease.
5. SECURITY DEPOSIT. Tenant shall deposit with Landlord on the date hereof
the Security Deposit, which shall be held by Landlord as security for the
performance of Tenant's obligations under this Lease. The Security Deposit is
not an advance rental deposit or a measure of Landlord's damages in case of
Tenant's default. Upon each occurrence of an Event of Default (hereinafter
defined), Landlord may use all or part of the Security Deposit to pay delinquent
payments due under this Lease, and the cost of any damage, injury, expense or
liability caused by such Event of Default, without prejudice to any other remedy
provided herein or provided by law. Tenant shall pay Landlord on demand the
amount that will restore the Security Deposit to its original amount. Landlord's
obligation respecting the Security Deposit is that of a debtor, not a trustee;
no interest shall accrue thereon. The Security Deposit shall be the property of
Landlord, but shall be paid to Tenant when Tenant's obligations under this Lease
have been completely fulfilled. Landlord shall be released from any obligation
with respect to the Security Deposit upon transfer of this Lease and the
Premises to a person or entity assuming Landlord's obligations under this
Paragraph 5. Tenant shall have no obligation or liability to any person or
entity which assumes Landlord's interest in this Lease, the Premises or Project
to pay any additional Security Deposit if Landlord falls to transfer such
Security Deposit to such person or entity.
3
<PAGE> 4
6. OPERATING EXPENSE PAYMENTS. During each month of the Lease Term, on the
same date that Base Rent is due, Tenant shall pay Landlord an amount equal to
1/12 of the annual cost, as estimated by Landlord from time to time, of Tenant's
Proportionate Share (hereinafter defined) of Operating Expenses for the Project.
Payments thereof for any fractional calendar month shall be prorated. The term
"Operating Expenses" means all costs and expenses incurred by Landlord with
respect to the ownership, maintenance, and operation of the Project including,
but not limited to costs of: Taxes (hereinafter defined) and reasonable fees
payable to tax consultants and attorneys for consultation and contesting taxes;
insurance; utilities; maintenance and repair of the roof of Building B or
Building C; maintenance and repair of all common area portions of the Project,
including without limitation, paving and parking areas, roads, alleys, and
driveways, mowing, landscaping, exterior painting of the Premises, utility
lines, mechanical systems serving the Premises or the common areas and other
items described in Paragraph 11 below; amounts paid to contractors and
subcontractors for work or services performed in connection with any of the
foregoing; charges or assessments of any association to which the Project is
subject; property management fees payable to a property manager in an amount not
to exceed the "market rate" in Fremont, California, including any affiliate of
Landlord, or if there is no property manager, an administration fee of 5 percent
of Operating Expenses payable to Landlord; security services, if any; trash
collection, sweeping and removal; and additions or alterations made by Landlord
to the Project in order to comply with applicable laws or codes (not in effect
as of the Commencement Date) as amended from time to time or that are
appropriate to the continued operation of the Project as a bulk warehouse
facility in the market area, provided that the cost of such additions or
alterations that are required to be capitalized for federal income tax purposes
shall be amortized on a straight line basis over a period equal to the lesser of
the useful life thereof for federal income tax purposes or 10 years. Operating
Expenses do not include the following matters: costs or expenses or depreciation
or amortization for capital repairs and capital replacements required to be made
by Landlord under Paragraph 10 of this Lease, debt service under mortgages or
ground rent under ground leases, costs of restoration to the extent of net
insurance proceeds received by Landlord with respect thereto, leasing
commissions, the costs of renovating space for tenants expenses of initial
development and construction, including, but not limited to, grading, paving,
landscaping and decorating; expenses for which Landlord is reimbursed or
indemnified (either by an insurer, condemnor, warrantor, or otherwise); losses
which would have been insured losses if Landlord had carried the insurance
required of Landlord under this Lease; legal expenses arising out of the initial
construction of the Premises, or any tenant improvements or disputes with other
tenants of the Project; the cost of any work or service performed for or
facilities furnished to Tenant at Tenant expense; any cost or expense
representing an amount paid to an entity affiliated in any way with Landlord
which is in excess of the market rate for such work or service; any interest or
penalties imposed upon Landlord by any taxing authority for late payment or
otherwise; any costs related to the sale or financing of the Premises, or any
part thereof; costs relating to the disposition of Hazardous Materials (but this
exclusion shall not constitute a release by Landlord of Tenant for any such
costs for which Tenant is liable pursuant to Paragraph 30 of this Lease);
Landlord's advertising or promotional costs or charitable contributions; any
costs or expenses incurred in connection with any voluntary/traffic mitigation
actions; costs of maintenance, repair or replacements covered by warranty; costs
of correcting latent or patent defects in the construction of the Building, the
Premises or the Project, and any fines, penalties or interest charged against
Landlord.
Within a reasonable period after the conclusion of each calendar
year (or more frequently, if desired by Landlord) Landlord shall furnish Tenant
with a statement (the "Operating Expense Statement") showing in reasonable
detail the Operating Expense for the appropriate period. If Tenant's total
payments for any year are less than Tenant's Proportionate Share of actual
Operating Expenses for such year, Tenant shall pay the difference to Landlord
within 30 days after demand. If the total payments of Tenant for any year are
more than Tenant's Proportionate Share of actual Operating Expenses for such
year, Landlord shall retain such excess and credit it against Tenant's next
payments. For purposes of calculating Tenant's Proportionate Share of Operating
Expenses, a year shall mean a calendar year except the first year, which shall
begin on the Commencement Date, and the last year, which shall end on the
expiration of this Lease. With respect to Operating Expenses which Landlord
allocates to the entire Project, Tenant's "Proportionate Share" shall be the
percentage set forth on the first page of this Lease as Tenant's Proportionate
Share of the Project as reasonably adjusted by Landlord in the future for
changes in the physical size of the Premises or the Project; and, with respect
to Operating Expenses which Landlord allocates only
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<PAGE> 5
to the Building, Tenant's "Proportionate Share" shall be the percentage set
forth on the first page of this Lease as Tenant's Proportionate Share of the
Building as reasonably adjusted by Landlord in the future for changes in the
physical size of the Premises or the Building. Landlord may equitably increase
Tenant's Proportionate Share for any item of expense or cost reimbursable by
Tenant that relates to a repair, replacement, or service that benefits only the
Premises or only a portion of the Project that includes the Premises or that
vanes with the occupancy of the Project. The estimated Operating Expenses for
the Premises set forth on the first page of this Lease are only estimates, and
Landlord makes no guaranty or warranty that such estimates will be accurate. At
any time within 3 months after Landlord has issued an Operating Statement, and
after at least 2 days prior written notice to Landlord, Tenant will have the
right, during normal business hours, to review and audit the books and records
of Landlord (at the office of Landlord at which such books and records are
routinely maintained) relating to such Operating Expense Statement only, in
order to verify the sums paid by Tenant for Operating Expenses.
7. UTILITIES. Tenant shall pay for all water, gas, electricity, heat,
light, power, telephone, sewer, sprinkler services, refuse and trash collection,
and other utilities and services used on the Premises, all maintenance charges
for utilities, and any storm sewer charges or other similar charges for
utilities imposed by any governmental entity or utility provider, together with
any taxes, penalties, surcharges or the like pertaining to Tenant's use of the
Premises. Landlord shall have the right to cause at Tenant's expense any of said
services to be separately metered or charged directly to Tenant by the provider.
Tenant shall pay its share of all charges for jointly metered utilities based
upon consumption, as reasonably determined by Landlord. Except as set forth
below, Landlord shall not be liable for any interruption or failure of utilities
or any other service to the Premises and no such interruption or failure shall
result in the abatement of rent hereunder. If an interruption or cessation of
utilities occurs and the Premises are not usable by Tenant for the conduct of
Tenant's business as a result thereof, Base Rent and applicable Operating
Expenses not actually incurred by Tenant shall be abated for the period which
commences five (5) business days after the date Tenant gives Landlord notice of
such interruption until such utilities are restored. Tenant agrees to limit use
of water and sewer for normal restroom use and nothing herein contained shall
impose upon Landlord any duty to provide sewer or water usage for other than
normal restroom usage.
8. TAXES. Landlord agrees to pay all taxes, assessments and governmental
charges of any kind and nature (collectively referred to as "Taxes") that accrue
against the Project during the Lease Term, which shall be included as part of
the Operating Expenses charged to Tenant hereunder, provided Landlord shall have
the right to contest by appropriate legal proceedings the amount, validity, or
application of any Taxes or liens thereof. All capital levies or other taxes
assessed or imposed on Landlord upon the rents payable to Landlord under this
Lease and any franchise tax, any excise, transaction, sales or privilege tax,
assessment, levy or charge measured by or based, in whole or in part, upon such
rents from the Premises and/or the Project or any portion thereof shall be paid
by Tenant to Landlord monthly in estimated installments or, within 20 days after
demand, at the option of Landlord, as additional rent; provided, however, in no
event shall Tenant be liable for any net income taxes imposed on Landlord unless
such net income taxes are in substitution for any Taxes payable hereunder. If
any such tax or excise is levied or assessed directly against Tenant, then
Tenant shall be responsible for and shall pay the same at such times and in such
manner as the taxing authority shall require. Tenant shall be liable for all
taxes levied or assessed against any personal properly or fixtures placed in the
Premises, whether levied or assessed against Landlord or Tenant.
9. INSURANCE. Landlord shall maintain all risk property insurance covering
the replacement cost of the Project, commercial liability insurance and rent
loss insurance. Landlord may, but is not obligated to, maintain such other
insurance and additional coverages as it may deem necessary. All such insurance
shall be included as part of the Operating Expenses charged to Tenant hereunder.
The Project may be included in a blanket policy (in which case the cost of such
insurance allocable to the Project will be determined by Landlord based upon the
insurer's cost calculations).
Tenant, at its expense, shall maintain during the Lease Term a
policy or policies of: all risk property insurance coveting the replacement cost
of all property and improvements, installed or placed in the
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<PAGE> 6
Premises by Tenant at Tenant's expense; worker's compensation insurance with no
less than the minimum limits required by law; employer's liability insurance
with such limits as required by law; and commercial liability insurance, with a
minimum limit of $1,000,000 per occurrence and a minimum umbrella limit of
$1,000,000, for a total minimum combined general liability and umbrella limit of
$2,000,000 (together with such additional umbrella coverage as Landlord may
reasonably require) for properly damage, personal injuries, or deaths of persons
occurring in or about the Premises. The commercial liability policies shall name
Landlord as an additional insured, insure on an occurrence and not a claims-made
basis, be issued by insurance companies which are reasonably acceptable to
Landlord, not be cancelable unless 30 days prior written notice shall have been
given to Landlord, contain a hostile fire endorsement and a contractual
liability endorsement and provide primary coverage to Landlord (any policy
issued to Landlord providing duplicate or similar coverage shall be deemed
excess over Tenant's policies). Such policies or certificates thereof shall be
delivered to Landlord by Tenant upon commencement of the Lease Term and upon
each renewal of said insurance.
The all risk property insurance obtained by Landlord and Tenant
shall include a waiver of subrogation by the insurers and all rights based upon
an assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its officers,
directors, employees, managers, agents, invitees or contractors shall be liable
to the other for loss or damage caused by any risk coverable by all risk
property insurance, and each party waives any claims against the other party,
and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver.
10. LANDLORD'S REPAIRS. Landlord shall maintain, at its expense, only the
structural soundness of the roof, foundation, and exterior walls of the building
of which the Premises are a part in good repair, reasonable wear and tear and
casualty losses and damages caused by Tenant excluded. The term "walls" as used
in this Paragraph 10 shall not include windows, glass or plate glass, doors or
overhead doors, special store fronts, dock bumpers, dock plates or levelers, or
office entries. Tenant shall immediately give Landlord written notice of any
repair required by Landlord pursuant to this Paragraph 10, after which Landlord
shall have a reasonable opportunity to repair.
11. TENANT'S REPAIRS. Landlord shall maintain in good repair and condition
all parts of the Premises and the parking areas, driveways, alleys, spur tracks,
and landscape and grounds surrounding the Premises. Such maintenance shall be at
Tenant's cost and expense except as to those repairs for which Landlord is
responsible under Paragraph 10. If Tenant leases less than the entire Project,
Tenant shall only be responsible for its Proportionate Share of the costs of
maintaining any items outside its Premises. Landlord shall at Tenant's expense
maintain the heating and air conditioning and other mechanical systems and
components of the Premises, including lighting, electrical systems, and plumbing
lines and equipment. Tenant shall reimburse Landlord for all such costs and
expenses in accordance with the provisions of Paragraph 6 above, except to the
extent such repairs and replacements are covered by insurance on the Project
under policies naming Landlord as the insured. Landlord may at any time upon
Tenant's prior written consent which shall not be unreasonably withheld require
Tenant to assume the maintenance and repair obligations set forth in this
paragraph as they relate to the Premises. In such case, Tenant, at its own cost
and expense, shall enter into and deliver to Landlord maintenance service
contracts reasonably acceptable to Landlord with a contractor(s) approved by
Landlord for hot water, heating and air conditioning, and other mechanical
systems and equipment within or serving the Premises. The service and
maintenance contract(s) must include all services required by Landlord and must
become effective within 30 days after Landlord's request. In the event Tenant
does not so deliver the service contract(s), Landlord shall have the right to
contract for said service upon 48 hours prior written notice to Tenant, and
Tenant shall upon demand reimburse Landlord for the full cost thereof. Subject
to the provisions of Paragraphs 9 and 15, Tenant shall repair and pay for any
damage to the Premises or the Project caused by Tenant or Tenant's employees,
agents, or invitees, or caused by Tenant's default hereunder, reasonable wear
and tear excepted.
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12. TENANT IMPROVEMENTS AND TRADE FIXTURES. Any alterations, additions, or
improvements made by or on behalf of Tenant to the Premises ("Tenant
Improvements") of greater than $25,000 shall be subject to Landlord's prior
written consent, which shall not be unreasonably withheld provided that the roof
membrane and the structural components and mechanical systems of the Building
are unaffected. No alterations, additions or improvements of less than $25,000
shall affect the roof membrane, structural components or mechanical systems of
the Building. All Tenant Improvements shall comply with insurance requirements
and with applicable laws, ordinances, and regulations, including, without
limitation and to the extent applicable, laws and regulations regarding removal
or alteration of structural or architectural barriers to handicapped or disabled
persons (and Tenant shall construct at its expense any alteration required by
such laws or regulations, as they may be amended). All Tenant Improvements shall
be constructed in a good and workmanlike manner and only good grades of
materials shall be used. All plans and specifications for any Tenant
Improvements shall be submitted to Landlord for its approval, and Landlord may
monitor construction of the Tenant Improvements; and Tenant shall reimburse
Landlord for its actual, out-of-pocket reasonable costs in reviewing plans and
documents and in monitoring construction. Landlord may post on and about the
Premises notices and give notices that Landlord shall not be liable on account
of any damage or claim in connection with such construction, and Tenant shall
provide Landlord with the identities and mailing addresses of all persons
performing work or supplying materials, prior to beginning such construction.
Landlord's right to review plans and specifications and monitor construction
shall be solely for its own benefit, and Landlord shall have no duty to see that
such plans and specifications or construction comply with applicable laws,
codes, rules, or regulations. At Landlord's request, Tenant shall obtain payment
and performance bonds for any Tenant Improvements, the cost of which exceed
$100,000 which bonds shall be delivered to Landlord prior to commencement of
work on the Tenant Improvements and shall be in form and substance reasonably
satisfactory to Landlord. Upon completion of any Tenant Improvements, Tenant
shall deliver to Landlord sworn statements setting forth the names of all
contractors and subcontractors who did work on the Tenant Improvements and final
lien waivers from all such contractors and subcontractors.
Tenant, at its own cost and expense, may erect such shelves, bins,
machinery and trade fixtures (collectively "Trade Fixtures") as it desires
provided that such items do not alter the basic character of the Premises or the
Project, do not overload or damage the same, and may be removed without injury
to the Premises, and provided that the construction, erection, and installation
thereof complies with all applicable governmental laws, ordinances, regulations
and with Landlord's requirements. Subject to Paragraph 21 below, upon the
expiration of the Lease Term. Tenant shall remove its Trade Fixtures and shall
repair any damage caused by such removal, by the last day of the Lease Term.
13. SIGNS. Tenant shall not make any changes to the exterior of the
Premises, install any exterior lights, decorations, balloons, flags, pennants,
banners, or painting, or erect or install any signs, windows or door lettering,
placards, decorations, or advertising media of any type which can be viewed from
the exterior of the Premises, without Landlord's prior written consent which
shall not be unreasonably withheld or delayed provided that the Sign Criteria
set forth on Exhibit D has been satisfied. Upon vacation of the Premises, Tenant
shall remove all signs and repair, paint, and/or replace the building facia
surface to which its signs are attached. Tenant shall obtain all applicable
governmental permits and approvals for sign and exterior treatments. All signs,
decorations, advertising media, blinds, draperies and other window treatment or
bars or other security installations visible from outside the Premises shall be
subject to Landlord's approval and conform in all respects to Landlord's
requirements.
14. PARKING. Tenant shall be entitled to park in common with other tenants
of the Project in those areas designated for nonreserved parking. In addition,
Tenant shall be entitled to approximately 3.5 unmarked parking spaces per
thousand square feet of Premises. Landlord may allocate parking spaces among
Tenant and other tenants in the Project if Landlord determines that such parking
facilities are becoming crowded.
15. FIRE AND CASUALTY DAMAGE. If at any time during the Lease Term, the
Premises or the Project is damaged by fire or other casualty, Landlord shall
notify Tenant, within 45 days after such damage, as to the amount of time
Landlord reasonably estimates it will take to repair such damage. If the amount
of such time
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exceeds 6 months, either Landlord or Tenant may elect, upon notice to the other
party delivered as soon as practicable but not later than 30 days after
Landlord's notice, to terminate this Lease. If neither party elects to terminate
this Lease or if Landlord estimates that the, damage will take 6 months or less
to repair, Landlord shall promptly repair and reconstruct the improvements,
subject to delays arising from the collection of insurance proceeds or from
Force Majeure events, except that Landlord shall not be required to repair and
reconstruct any fixtures, additions, or other improvements paid for by Tenant;
and this Lease shall remain in full force and effect provided that the Lease
Term will be extended for a time equal to the period beginning on the date the
loss or damage was suffered until the repairs and replacement are completed.
Tenant at Tenant's expense shall promptly perform, subject to delays arising
from the collection of insurance proceeds, all repairs or restoration not
required to be done by Landlord and shall promptly reenter the Premises and
commence doing business in accordance with this Lease. Notwithstanding the
foregoing, either party may terminate this Lease if the improvements are damaged
during the last year of the Lease Term and Landlord reasonably estimates that it
will take more than one month to repair such damage.
If the Premises or a portion thereof is not usable as a result of
damage by fire or other casualty to the Premises or building in which the
Premises are located, and Landlord elects to repair and/or reconstruct the
damaged improvements, Base Rent and Operating Expenses shall be abated for the
period of repair and reconstruction in the proportion which the area of the
Premises which is not usable by Tenant bears (as reasonably determined by
Landlord and Tenant) to the total area of the Premises. Such abatement shall be
the sole remedy of Tenant, and to the extent permitted by applicable law, and
except as provided herein, Tenant waives any right to terminate the Lease by
reason of damage or casualty loss.
Notwithstanding anything in this Section 15 to the contrary, if
Landlord fails to use all reasonable efforts to complete repair and restoration
of damage to the Premises within six (6) months after determination of the
estimated repair and restoration period Tenant may, at its option, terminate
this Lease effective as of the date of damage upon written notice to Landlord
given at any time within 10 days after the 180th day after the date of damage to
the Premises. If, however, Landlord is unable to complete the repair or
restoration to the Premises within 6 months after the use of all reasonable
efforts to do so (and such failure is not the result of an event of Force
Majeure), Tenant shall have no right to terminate the Lease unless Landlord
fails to complete the repair or restoration within 270 days after the date
damage occurs, in which event Tenant may terminate this Lease upon written
notice to Landlord given at any time within 10 days thereafter. If as a result
of an event of Force Majeure, Landlord is unable to complete the repair and
restoration to the Premises within six months after determination of the
estimated repair and restoration period, Landlord shall continue to use its best
efforts to complete the work of repair and restoration and Tenant shall have no
right to terminate this Lease unless Landlord fails to complete work of repair
and restoration within 12 months after the determination of the estimated repair
and restoration period.
16. CONDEMNATION. If any part of the Premises or the Project should be
taken for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would prevent or materially
interfere with use of the Premises as reasonably determined by Tenant or in
Landlord's judgment would materially interfere with or impair its ownership or
operation of the Project, then upon written notice by Landlord or Tenant, as the
case may be this Lease shall terminate and Base Rent and Operating Expenses
shall be apportioned as of said date. If part of the Premises shall be Taken,
and this Lease is not terminated as provided above, the Base Rent and Operating
Expenses payable hereunder during the unexpired Lease Term shall be reduced by
the proportion that the square footage taken bears to the total square footage
of the Premises. In the event of any such Taking, Landlord shall be entitled to
receive the entire price or award from any such Taking without any payment to
Tenant, and Tenant hereby assigns to Landlord Tenant's interest, if any, in such
award. Tenant shall have the right, to the extent that same shall not diminish
Landlord's award, to make a separate claim against the condemning authority (but
not Landlord) for such compensation as may be separately awarded or recoverable
by Tenant for moving expenses and damage to Tenant's Trade Fixtures, if a
separate award for such items is made to Tenant.
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17. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written consent,
which Landlord shall not unreasonably withhold, Tenant shall not assign this
Lease or sublease the Premises or any part thereof or mortgage, pledge, or
hypothecate its leasehold interest or grant any concession or license within the
Premises and any attempt to do any of the foregoing shall be void and of no
effect. For purposes of this paragraph, a transfer of the ownership interests
controlling Tenant shall be deemed an assignment of this Lease unless Tenant's
ownership interests are publicly traded. Notwithstanding the above, Tenant may
assign or sublet the Premises, or any part thereof, to any entity controlling
Tenant, controlled by Tenant or under common control with Tenant (a "Tenant
Affiliate"), without the prior written consent of Landlord. Provided no default
has occurred and is continuing under this Lease, upon 10 days prior written
notice to Landlord, Tenant may, without Landlord's prior written consent, assign
this Lease to an entity into which Tenant is merged or consolidated or to an
entity to which substantially all of Tenant's assets are transferred, provided
(x) such merger, consolidation, or transfer of assets is for a good business
purpose and not principally for the purpose of transferring Tenant's leasehold
estate, and (y) the assignee or successor entity has a net worth at least equal
to the net worth of Tenant immediately prior to such merger, consolidation, or
transfer. Tenant shall reimburse Landlord for all of Landlord's reasonable
out-of-pocket expenses in connection with any assignment or sublease, not to
exceed $1,000 in each case. Upon Landlord's receipt of Tenant's written notice
of a desire to assign or sublet the Premises, or any part thereof (other than to
a Tenant Affiliate), Landlord may, by giving written notice to Tenant within 10
days after receipt of Tenant's notice, terminate this Lease with respect to the
space described in Tenant's notice, as of the date specified in Tenant's notice
for the commencement of the proposed assignment or sublease. If Landlord so
terminates the Lease, Landlord may enter into a lease directly with the proposed
sublessee or assignee. Tenant may withdraw its notice to sublease or assign by
notifying Landlord within 10 days after Landlord has given Tenant notice of such
termination, in which case the Lease shall not terminate but shall continue.
It shall be reasonable for the Landlord to withhold its consent to
any assignment or sublease in any of the following instances: (i) an Event of
Default has occurred and is continuing that would not be cured upon the proposed
sublease or assignment; (ii) the assignee or sublessee does not have a
reasonable net worth as determined by Landlord in its sole discretion; (iii) the
intended use of the Premises by the assignee or sublessee is not reasonably
satisfactory to Landlord; (iv) occupancy of the Premises by the assignee or
sublessee would, in Landlord's opinion, violate an agreement binding upon
Landlord or the Project with regard to the identity of tenants, usage in the
Project, or similar matters; (v) the identity or business reputation of the
assignee or sublessee will, in the good faith judgment of Landlord, tend to
damage the goodwill or reputation of the Project; (vi) in the case of a
sublease, the subtenant has not acknowledged that the Lease controls over any
inconsistent provision in the sublease; or (vii) the proposed assignee or
sublessee is a governmental agency. Tenant and Landlord acknowledge that each of
the foregoing criterion are reasonable as of the date of execution of this
Lease. The foregoing criteria shall not exclude any other reasonable basis for
Landlord to refuse its consent to such assignment or sublease. Any approved
assignment or sublease shall be expressly subject to the terms and conditions of
this Lease. Tenant shall provide to Landlord all information concerning the
assignee or sublessee as Landlord may request.
Notwithstanding any assignment or subletting, Tenant shall at all
times remain fully responsible and liable for the payment of the rent and for
compliance with all of Tenant's other obligations under this Lease (regardless
of whether Landlord's approval has been obtained for any such assignments or
sublettings). In the event that the rent due and payable by a sublessee or
assignee (or a combination of the rental payable under such sublease or
assignment plus any bonus or other consideration therefor or incident thereto)
exceeds the rental payable under this Lease, then Tenant shall be bound and
obligated to pay Landlord as additional rent hereunder 50% of such excess rental
and other excess consideration within 10 days following receipt thereof by
Tenant.
If this Lease be assigned or if the Premises be subleased (whether
in whole or in part) or in the event of the mortgage, pledge, or hypothecation
of Tenant's leasehold interest or grant of any concession or license within the
Premises or if the Premises be occupied in whole or in part by anyone other than
Tenant, then upon a default by Tenant hereunder Landlord may collect rent from
the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold
interest was hypothecated, concessionee or licensee or other occupant and,
except to the extent
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set forth in the preceding paragraph, apply the amount collected to the next
rent payable hereunder; and all such rentals collected by Tenant shall be held
in trust for Landlord and immediately forwarded to Landlord. No such transaction
or collection of rent or application thereof by Landlord, however, shall be
deemed a waiver of these provisions or a release of Tenant from the further
performance by Tenant of its covenants, duties, or obligations hereunder.
18. INDEMNIFICATION AND WAIVER. Except for the negligence or willful
misconduct of Landlord, its agents, employees, or contractors and to the extent
permitted by law, Tenant agrees to indemnify, defend and hold harmless Landlord,
and Landlord's agents, employees and contractors, from and against any and all
losses, liabilities, damages, costs and expenses (including attorneys' fees)
resulting from claims by third parties for injuries to any person and damage to
or theft or misappropriation or loss of property occurring in or about the
Project and arising from the use and occupancy of the Premises or from any
activity, work, or thing done, permitted or suffered by Tenant in or about the
Premises or due to any other act or omission of Tenant, its subtenants,
assignees, invitees, employees, contractors and agents. The furnishing of
insurance required hereunder shall not be deemed to limit Tenant's obligations
under the provisions of this Paragraph 18.
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ADDENDUM 6
CAP ON OPERATING EXPENSES
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED JUNE 5, 1995, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
PHASE METRICS, INC.
Once the Base Year has been established, Tenant shall not be
obligated to pay for increases in Operating expenses in any year to the extent
they have increased by more than ten percent (10%) from the prior year. The base
year as defined herein shall be the first full year of stabilized occupancy of
the project and full assessment for real estate tax purposes. For purposes of
this Addendum, Operating Expenses shall mean all operating expenses defined in
Paragraphs 6, 7, and 8 of the Lease. In no event, however, shall expenses or
utility costs which are separately metered be subject to a cap. Operating
Expenses shall be determined on an aggregate basis and not on an individual
basis, and the cap on Operating Expenses shall be determined on Operating
Expenses as they have been adjusted for vacancy or usage pursuant to the terms
of this Lease.
Notwithstanding the above, after full assessment, Tenant shall not
be obligated to pay for increases in real estate taxes of more than 2% per year.
In the event of a sale of the Premises during the original Term of this Lease,
the Tenant shall not be required to pay for increases in real estate taxes of
more than 25% on a cumulative basis during the original Term of this Lease.
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ADDENDUM 7
LANDLORD'S ENVIRONMENTAL DISCLOSURE
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED JUNE 5, 1995, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
PHASE METRICS, INC.
Landlord has delivered to Tenant the Environmental Reports described
below. It is understood by Tenant, that Landlord has not made any independent
investigations to confirm the accuracy or completeness of the Environmental
Reports, and Landlord makes no representation or warranty as to the accuracy of
such reports. Tenant agrees to keep the Environmental Reports confidential and
not to disclose the contents thereof to any other party without the prior
written consent of Landlord.
ENVIRONMENTAL REPORTS: Phase I Environmental Site Assessment for the
Bayside Business Park dated December 8, 1993 Project No. 5093-1106M prepared by
SWL Environmental Services.
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EXHIBIT A
PLAN OF THE PREMISES
ATTACHED
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[diagram]
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EXHIBIT B
FLOOR PLAN
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED JUNE 5, 1995, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
PHASE METRICS, INC.
The premises shall be constructed generally in accordance with the
preliminary floor plan (attached hereto) drawn by TSH Architects and dated March
8, 1995. Attached as Exhibit C is the Work Letter Agreement which defines the
level of finishes Landlord is prepared to include with this tenant improvement.
Landlord acknowledges that Tenant's architect, J. Wolcott, will be making
certain modifications to the preliminary floor plan, and Landlord shall have the
right to review and approve any and all such modifications, together with the
final plans for all of Tenant's improvement work. Landlord shall not
unreasonably withhold its consent to the modifications to the preliminary floor
plan or the Final Plan.
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[diagram]
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EXHIBIT C
WORK LETTER AGREEMENT
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED JUNE 5, 1995, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
PHASE METRICS, INC.
Landlord's required completion date for the final plans is June 30,
1995. Improvements shall be constructed in accordance with these plans and
incorporate the tenant improvement standards as set forth below and the attached
Bayside Corporate Center tenant finish standards.
Tenant Improvement Standards.
(a) Office Area
1. Carpet throughout the office area for ceramic tile in the restrooms and
vinyl composition tile in the mail, computer, storage, connector link,
lunch area and lab area. Carpet shall consist of 30 ounce direct glue down
carpet by Design Weave, or comparable, without pad. Tenant shall have
choice of colors for the various finishes.
2. Suspended acoustical ceiling consisting of 2' x 4' exposed grid at 10' in
height. The office adjacent to the store fronts shall have ceilings at 12'
in height.
3. Recessed fluorescent lighting fixtures, to code.
4. Heating, ventilating and air conditioning throughout. Provide exhaust fans
at restrooms and lunchrooms.
5. Doors and partitions as shown with partitions to be textured finished
drywall except for glass portions as shown. Doors are B-3 prefinished
Birch, solid core with 20-minute label nine (9') feet high with 2' side
lights.
6. Standard bathroom fixtures as shown. Toilet paper dispenser, paper
towel/trash dispensers, toilet seat cover dispensers, sanitary napkin
disposal.
7. Electrical service as shown with standard switching. Telephone outlets
include pull wire, cable provided by others.
8. Blinds will be provided on all exterior windows.
9. Plastic laminate upper/lower cabinets in lunchroom. Landlord shall provide
dishwasher at Tenant's expense.
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<PAGE> 18
(b) Assembly/Stores Area
1. Standard chain hung strip fluorescent lighting 10' off finish floor (no
drop ceiling).
2. All walls to be firetaped and painted.
3. Electrical service as shown.
4. Dump HVAC throughout.
5. VCT floor covering.
(c) Shipping/Receiving/Inspection/Machine Shop Areas
1. Standard chain hung strip fluorescent lighting 12' off finish floor (no
drop ceiling).
2. All walls to be firetaped and painted.
3. Electrical service as shown.
4. Dump HVAC throughout.
5. Sealed concrete floor.
6. All walls to be firetaped and painted.
(d) Buyoff Area
1. Suspended acoustical ceiling consisting of 2' x 4' exposed grid at 10' in
height.
2. Recessed fluorescent lighting fixtures, to code.
3. Heating, ventilating and air conditioning throughout.
4. Vinyl composition floor covering throughout.
5. Electrical service as shown with standard switching.
(e) Exclusions
The tenant improvement standards do not include the following items:
1. Electrical data gathering lines or security equipment.
2. Telephonic or other communications equipment and cabling.
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EXHIBIT D
SIGN CRITERIA
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED JUNE 5, 1995, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
PHASE METRICS, INC.
WINDOW IDENTIFICATION SIGNS:
Each Tenant will be allowed one window sign placed either to the left or the
right of the entrance door, whichever provides the best visibility.
Company names, logos or symbols will be allowed in this area-color and size to
be determined by the Tenant. All other copy in this are except for logos or
symbols will be mat white vinyl pressure sensitive letters.
Copy must start at 5' from grade, working down to no more than 3 1/2' from
grade. Sign layout including copy, sizes and color must be approved by the
building management. Management reserves the right to deny any copy or color it
considers unsuitable.
One security decal only may be applied to the front door glass in the lower
corner if the Tenant so desires. All exterior alarm bells are to be mounted to
the rear of the building only.
DIRECTORY SIGN IDENTIFICATION:
A monument directory sign has been provided for each building. If only one
Tenant occupies an entire building, that Tenant shall be allowed to utilize the
entire directory sign area for their pressure sensitive, matte, Pearl Gray vinyl
letters with a letter height suitable for the area allowed, and logo if so
desired, also in Pearl Gray.
If two or more Tenants occupy a building, signs shall be shared equally by the
number of tenants within the building, utilizing pressure sensitive, matte,
pearl Gray vinyl letters with a letter height suitable for the area allowed. A
logo will be allowed if so desired, to the left of the company name also in
Pearl Gray. A thin line will divide the areas between tenants.
REAR LOADING SIGNS:
Each Tenant will be allowed to identify its rear door for shipping and receiving
purposes. The company name shall be placed on a 36" x 24" aluminum panel
adjacent to the rear doors. The aluminum panel shall be painted gray to match
the building.
Copy shall consist of 3" white vinyl capital letters only in Futura Bold style.
Company names and logos only are allowed.
Management reserves the right to deny any copy it considers unsuitable. Layout
is to be approved by building management. The cost of all lettering and logos
will be the responsibility of the Tenant. No other signs are allowed in the
windows or doors.
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<PAGE> 20
EXHIBIT E
SCHEDULE
The following schedule summarizes the required dates referenced in
Addendum 2, Paragraph (d) as approved by JWA and Landlord:
KEY DATES DELIVERIES
June 9 Approved space study
June 30 Complete construction documents (A&E): issue
drawings for bid
July 13 Review construction bids
July 20 Award construction contract
July 24 Receive permits. Begin constructions.
October 9 Construction to be completed eleven (11)
weeks from receipt of permit
20
<PAGE> 1
EXHIBIT 10.2
SUBLEASE
SUBLANDLORD: Hitachi America Ltd.
SUBJECT PROPERTY: 47427 Fremont Boulevard, Fremont
SUBTENANT: Phase Metrics, Inc., a California Corporation
DATE: April 1, 1997
1. PARTIES:
This Sublease is made and entered into as of April 1, 1997, by and
between Hitachi America Ltd. ("Sublandlord"), and Phase Metrics, Inc.
("Subtenant"), under the Master Lease dated July 26, 1995, between Security
Capital Industrial Trust, as "Lessor" and Sublandlord under this Sublease as
"Lessee." A copy of the Master Lease is attached hereto as Attachment I and
incorporated herein by this reference.
2. PROVISIONS CONSTITUTING SUBLEASE:
2.1 This Sublease is subject to all of the terms and conditions of the
Master Lease. Subtenant hereby assumes and agrees to perform all of the
obligations of "Lessee" under the Master Lease to the extent said obligations
apply to the Subleased Premises and Subtenant's use of the Common Areas, except
as specifically set forth herein. Sublandlord hereby agrees to cause Lessor
under the Master Lease to perform all of the obligations of Lessor thereunder to
the extent said obligations apply to the Subleased Premises and Subtenant's use
of the Common Areas. Subtenant shall not commit or permit to be committed on the
Subleased Premises or on any other portion of the Project any act or omission
which violates any term or condition of the Master Lease. Except to the extent
waived or consented to in writing by the other party or parties hereto who are
affected thereby, neither of the parties hereto will, by renegotiation of the
Master Lease, assignment, subletting, default or any other voluntary action,
avoid or seek to avoid the observance or performance of the terms to be observed
or performed hereunder by such party, but will at all times in good faith assist
in carrying out all the terms of this Sublease and in taking all such action as
may be necessary or appropriate to protect the rights of the other party or
parties hereto who are affected thereby against impairment. If Sublandlord is
given the right under the Master Lease to terminate the Master Lease (e.g., in
case of destruction). Subtenant shall have the right, in its sole discretion, to
determine whether it wishes to have the Master Lease terminated. If Subtenant
elects to have the Master Lease terminated, Subtenant shall terminate this
Sublease, and Sublandlord shall in turn terminate the Master Lease. As long as
Subtenant is not in default of any provision of this Sublease, Sublandlord shall
be obligated to perform all its obligations under the Master Lease, and
Subtenant shall have quiet enjoyment of
1
<PAGE> 2
the Premises during the term of this Sublease.
2.2 All of the terms and conditions contained in the Master Lease are
incorporated herein, except as specifically provided below, and the terms and
conditions specifically set forth in this Sublease, shall constitute the
complete terms and conditions of this Sublease, except the following paragraphs
of the Master Lease which shall solely be the obligation of Sublandlord:
1, 4 (first sentence only), 17, 37(c), Addendum #1,2, Exhibit "C".
2.3 This Sublease is subject and subordinate to the Master Lease. Except
as specifically provided in this Sublease, all the terms, covenants and
conditions contained in the Master Lease shall be applicable to this Sublease
with the same force and effect as if Sublandlord were the Landlord and Subtenant
were the Tenant under the Master Lease. In case of any breach by Subtenant,
Sublandlord shall have al the rights against Subtenant as would be available to
Landlord against Tenant if such breach were by Tenant under the Master Lease.
2.4 Notwithstanding anything contained in this Sublease to the contrary,
the only services or rights to which Subtenant is entitled under this Sublease
are those to which Sublandlord is entitled under the Master Lease and Subtenant
will look to the Master Landlord under the Master Lease for all such services
and rights. If the approval of Landlord is required under the Master Lease, then
Subtenant shall obtain the approval of both Sublandlord and Master Landlord.
2.5 Subtenant shall neither do nor permit anything to be done which
would cause the Master Lease to be terminated or forfeited by reason of any
right of termination or forfeiture reserved or vested in the Master Landlord
under the Master Lease, and Subtenant shall indemnify and defend Sublandlord
from and against all claims of any kind whatsoever by reason of any breach or
default of Subtenant which caused the Master Lease to be terminated or
forfeited.
3. SUBLEASED PREMISES AND RENT:
3.1 Subleased Premises:
Sublandlord leases to Subtenant and Subtenant leases from
Sublandlord the Subleased Premises upon all of the terms, covenants and
conditions contained in this Sublease. The Subleased Premises consist of
approximately 30,400+ square feet located at 47427 Fremont Boulevard.
3.2 Rent:
Subtenant shall pay to Sublandlord as Rent for the Subleased
Premises the sum of Twenty-Seven Thousand Fifty-Six and 00/100 Dollars
($27,056.00) per month, without deductions, offset, prior notice or demand. Rent
shall be payable by Subtenant to Sublandlord in consecutive monthly installments
on or before the first day of each calendar month during the Sublease Term. If
the Sublease commencement date or the termination date of the Sublease
2
<PAGE> 3
occurs on a date other than the first day or the last day, respectively, of a
calendar month, then the Rent for such partial month shall be prorated and the
prorated Rent shall be payable on the Sublease commencement date or on the first
day of the calendar month in which the Sublease termination date occurs,
respectively. Notices for Rent payment: 47475 Fremont Boulevard, ATTN: Robert
Renner, Fremont, CA 94538.
3.3 Security Deposit:
In addition to the Rent specified above, Subtenant shall pay to
Sublandlord an equivalent of one month's rent as a non-interest bearing Security
Deposit. In the event Subtenant has performed all of the terms and conditions of
this Sublease during the term hereof, Sublandlord shall return to Subtenant,
within ten days after Subtenant has vacated the Subleased Premises, the Security
Deposit less any sums due and owing to Sublandlord. In addition to Security
Deposit, Sublessee, upon Sublease execution, shall prepay first and last months
rent. Total prepaid rent plus deposit equals $81,168.00.
3.4 Subtenant shall pay rent provided under this Sublease and shall pay
all additional rent provided in the Master Lease. Sublandlord shall be charged
for additional rent or other sums pursuant to the provisions of the Master
Lease, including without limitation Articles 6 (Operating Expense Payments) or
12 (Tenant-Made Alterations and Trade Fixtures), Subtenant shall be liable for
100% of such additional rent or sums. If Subtenant shall procure any additional
services from the building, such as alterations or after-hour air conditioning,
Subtenant shall pay for same at the rates charged by the Master Landlord and
shall make such payment to Sublandlord or Master Landlord, as Sublandlord shall
direct. Any rent or other sums payable by Subtenant under this Article shall be
additional rent and collectable as such.
4. RIGHTS OF ACCESS AND USE:
4.1 Use:
Subtenant shall use the Subleased Premises only for those
purposes permitted in the Master Lease, unless Sublandlord and Master Landlord
consent in writing to other uses prior to the commencement thereof.
5. SUBLEASE TERM:
5.1 Sublease Term:
The Sublease Term shall be for the period commencing on April 1,
1997 or sooner if available, and continuing through October 31, 2000. In no
event shall the Sublease Term extend beyond the Term of the Master Lease.
3
<PAGE> 4
5.2 Inability to Deliver Possession:
In the event Sublandlord is unable to deliver possession of the
Subleased Premises at the commencement of the term, Sublandlord shall not be
liable for any damage caused thereby, nor shall this Sublease be void or
voidable but Subtenant shall not be liable for Rent until such time as
Sublandlord offers to deliver possession of the Subleased Premises to Subtenant,
but the term hereof shall not be extended by such delay. If Subtenant, with
Sublandlord's consent, takes possession prior to commencement of the term,
Subtenant shall do so subject to all the covenants and conditions hereof and
shall pay Rent for the period ending with the commencement of the term at the
same rental as that prescribed for the first month of the term prorated at the
rate of 1/30th thereof per day. In the event Sublandlord has been unable to
deliver possession of the Subleased Premises within 30 days from the
commencement date, Subtenant, at Subtenant's option, may terminate this
Sublease.
6. NOTICES:
All notices, demands, consents and approvals which may or are required
to be given by either party to the other hereunder shall be given in the manner
provided in the Master Lease, at the addresses shown on the signature page
hereof. Sublandlord shall notify Subtenant of any Event of Default under the
Master Lease, or of any other event of which Sublandlord has actual knowledge
which will impair Subtenant's ability to conduct its normal business at the
Subleased Premises, as soon as reasonably practicable following Sublandlord's
receipt of notice from the Landlord of an Event of Default or actual knowledge
of Such impairment. If Sublandlord elects to terminate the Master Lease,
Sublandlord shall so notify Subtenant by giving at least 30 days notice prior to
the effective date of such termination.
7. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT:
Subtenant shall be responsible for the installation and cost of any and
all improvements, alterations or other work required on or to the Subleased
Premises or to any other portion of the property and/or building of which the
Subleased Premises are a part, required or reasonably necessary because of: (1)
Subtenant's use of the Subleased Premises or any portion thereof; (2) the use by
a subtenant by reason of assignment or sublease; or (3) both, including any
improvements, alterations or other work required under the Americans With
Disabilities Act of 1990. Compliance with the provisions of this Section 8 shall
be a condition of Sublandlord granting its consent to any assignment or Sublease
of all or a portion of this Sublease and the Subleased Premises described in
this Sublease.
8. COMPLIANCE WITH NONDISCRIMINATION REGULATIONS:
It is understood that it is illegal for Sublandlord to refuse to display
or sublease the Subleased Premises, or to assign, surrender or sell the Master
Lease, to any person because of race, color, religion, national origin, sex,
sexual orientation, marital status or disability.
4
<PAGE> 5
9. TOXIC CONTAMINATION DISCLOSURE:
Sublandlord and Subtenant each acknowledge that they have been advised
that numerous federal, state, and/or local laws, ordinances and regulations
("Laws") affect the existence and removal, storage, disposal, leakage of and
contamination by materials designated as hazardous or toxic ("Toxics"). Many
materials, some utilized in everyday business activities and property
maintenance, are designated as hazardous or toxic.
Some of the Laws require that Toxics be removed or cleaned up by
landowners, future landowners or former landowners without regard to whether the
party required to pay for "clean up" caused the contamination, owned the
property at the time the contamination occurred or even knew about the
contamination. Some items, such as asbestos or PCBs, which were legal when
installed, now are classified as Toxics, and are subject to removal
requirements. Civil lawsuits for damages resulting from Toxics may be filed by
third parties in certain circumstances.
Sublandlord and Subtenant each acknowledge that Broker has no specific
expertise with respect to environmental assessment or physical condition of the
Subleased Premises, including, but not limited to, matters relating to: (i)
problems which may be posed by the presence or disposal of hazardous or toxic
substances on or from the Subleased Premises, (ii) problems which may be posed
by the Subleased Premises being within the Special Studies Zone as designated
under the Alquist-Priolo Special Studies Zone Act (Earthquake Zones), Section
2621-2630, inclusive of California Public Resources Code, and (iii) problems
which may be posed by the Subleased Premises being within a HUD Flood Zone as
set forth in the U.S. Department of Housing and Urban Development "Special Flood
Zone Area Maps," as applicable.
Sublandlord and Subtenant each acknowledge that Broker has not made an
independent investigation or determination of the physical or environmental
condition of the Subleased Premises, including, but not limited to, the
existence or nonexistence of any underground tanks, sumps, piping, toxic or
hazardous substances on the Subleased Premises. Subtenant agrees that it will
rely solely upon its own investigation and/or the investigation of professionals
retained by it or Sublandlord, and neither Sublandlord nor Subtenant shall rely
upon Broker to determine the physical and environmental condition of the
Subleased Premises or to determine whether, to what extent or in what manner,
such condition must be disclosed to potential sublessees, assignees, purchasers
or other interested parties.
10. RENT ABATEMENT AND DAMAGES TO PERSONAL PROPERTY:
In the event Sublandlord, pursuant to the terms of the Master Lease, is
entitled to and receives rent abatement, then to the extent such rent abatement
affects the subleased premises, Subtenant shall be entitled to rent abatement in
an amount that the net rentable area of the subleased premises bears to the
total net rentable area of the Master Lease, and only to the extent any such
abatement applies to the sublease term. In addition, any amounts paid or
credited to Sublandlord under the terms of the Master Lease for damage to
personal property shall be credited to Subtenant, subject to the same
limitations set forth above.
5
<PAGE> 6
11. HAZARDOUS, MATERIAL KNOWLEDGE:
Sublandlord occupied the Premises as Tenant under the Master Lease from
October 1, 1995 to the effective date of the Sublease. To the best of
Sublandlord's knowledge, without making an independent inquiry or investigation:
(1) Sublandlord has complied with the Environmental Requirements of Section 30
of the Master Lease during its occupancy and there are no Hazardous Materials
located in the Premises and (ii) Sublandlord has received no written notice of
any violation of such Environmental Requirements. As of the effective date of
this Sublease, Subtenant shall be responsible for complying with the
Environmental Requirements. Subtenant shall provide written notice to
Sublandlord and Master Landlord and the owner of the property, within a
reasonable time of its knowledge or reasonable belief, that a release of
Hazardous Materials has occurred or will occur on the property or in the
Premises.
Subtenant shall not assign this lease nor sublet the subleased premises
in whole or in part, and shall not permit Subtenant's interest in this Sublease
to be vested in any third party by operation of law or otherwise.
Tenant represents that it has read and is familiar with the terms of the
Master Lease.
All prior understandings and agreements between the parties are merged
within this Sublease, which alone fully and completely sets forth the
understanding of the parties; and this Sublease may not be changed or terminated
orally or in any manner other than by an agreement in writing signed by both
parties. The covenants and agreements contained in this Sublease shall benefit
and bind Sublandlord and Subtenant and their respective executors,
administrators, successors and assigns.
SUBLANDLORD:
HITACHI AMERICA LTD.
By: /s/ HITACHI AMERICA LTD.
-----------------------------------------
Date: 4/4/97
-----------------------------------------
SUBTENANT:
PHASE METRICS, INC.
By: /s/ R.J. SAUNDERS
----------------------------------------
R.J. Saunders, Chief Financial Officer
Date: 4/2/97
----------------------------------------
6
<PAGE> 7
NOTICES: 10260 Sorrento Valley Road
San Diego, CA 92121
NOTICE TO SUBLANDLORD AND SUBTENANT: CORNISH & CAREY COMMERCIAL, IS NOT
AUTHORIZED TO GIVE LEGAL OR TAX ADVICE; NOTHING CONTAINED IN THIS SUBLEASE OR
ANY DISCUSSIONS BETWEEN CORNISH & CAREY AND SUBLANDLORD AND SUBTENANT SHALL BE
DEEMED TO BE A REPRESENTATION OR RECOMMENDATION BY CORNISH & CAREY COMMERCIAL,
OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
DOCUMENT OR ANY TRANSACTION RELATING THERETO. ALL PARTIES ARE ENCOURAGED TO
CONSULT WITH THEIR INDEPENDENT FINANCIAL CONSULTANTS AND/OR ATTORNEYS REGARDING
THE TRANSACTION CONTEMPLATED BY THIS PROPOSAL.
7
<PAGE> 8
Attachment I Master Lease
MASTER LANDLORD CONSENT
The undersigned, Lessor under the Master Lease attached as Attachment I,
hereby consents to the subletting of the Subleased Premises described herein on
the terms and conditions contained in this Sublease. This Consent shall apply
only to this Sublease and shall not be deemed to be a consent to any other
Sublease.
LANDLORD:
By:
-----------------------------------------
Date:
---------------------------------------
8
<PAGE> 9
CONSENT BY LANDLORD TO SUBLEASE
The undersigned, as Landlord under that certain Lease dated July 26,
1995 with Hitachi America Ltd., a New York Corporation ("Sublandlord") for
certain premises at 47427 Fremont Boulevard, in Fremont CA (the "Prime Lease"),
hereby consents to the entering into of the foregoing Sublease dated April 1,
1997 ("Sublease") between Sublandlord, as sublessor, and Phase Metrics, Inc., a
California Corporation, as subtenant ("Subtenant"), upon the express
understandings and conditions that:
a. Landlord neither approves nor disapproves the terms, conditions and
agreements contained in the Sublease (all of which shall be
subordinate and subject at all times to the terms, covenants and
conditions of the Prime Lease) and assumes no liability or
obligation of any kind whatsoever on account of anything contained
in the Sublease;
b. By executing this consent, Landlord shall not be deemed to have
waived any rights under the Prime Lease nor shall Landlord be deemed
to have waived Sublandlord's obligations to obtain any required
consents under the Prime Lease (other than consent to the Sublease
itself);
c. Notwithstanding anything in the Sublease to the contrary,
Sublandlord shall be and continue to remain liable for the payment
of rent and the full and prompt performance of all of the
obligations of Tenant under and as set forth in the Prime Lease;
d. Sublandlord shall pay Landlord 50 % of all excess monthly rent
received per Sublease, with each payment of rent under the Prime
Lease;
e. Nothing contained in the Sublease shall be taken or construed to in
any way modify, alter, waive or affect any of the terms, covenants
or conditions contained in the Prime Lease, or be deemed to grant
Subtenant any privity of contract with Landlord, or require Landlord
to accept any payments from Subtenant on behalf of Sublandlord;
f. The Sublease shall be deemed and agreed to be a sublease only and
not an assignment and there shall be no further subletting or
assignment of all or any portion of the premises demised under the
Prime Lease (including the premises demised by the foregoing
Sublease) except in accordance with the terms and conditions of the
Prime Lease; and
g. If Landlord terminates the Prime Lease as a result of a default by
Sublandlord thereunder, the Sublease shall automatically terminate
concurrently therewith
9
<PAGE> 10
unless Landlord elects in writing to keep the Sublease in full force
and effect in which case the Sublease shall become and be deemed to
be a direct indenture of lease between Landlord and Subtenant.
LANDLORD:
Security Capital Industrial Trust,
a Maryland Real Estate Investment Trust
/s/ Ned Anderson
--------------------------------------------
Ned K. Anderson
Title: Senior Vice President
Dated: 4/3/97
10
<PAGE> 11
EXHIBIT A
TO BE INSERTED
11
<PAGE> 1
EXHIBIT 10.3
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT (this "Agreement") is dated as of
May 5, 1995 and entered into by and between Phase Metrics, Inc. ("Debtor"), and
KOMAG, INCORPORATED, a Delaware corporation ("Komag").
WHEREAS, Debtor and Komag have entered into, and will enter into,
from time to time, an agreement (each such agreement, a "Purchase Agreement"
and, together with any other documents executed in connection therewith,
referred to collectively as the "Purchase Documents"), pursuant to which Komag
has agreed or will agree to provide Debtor with certain financing with respect
to such Purchase Documents to enable Debtor to purchase raw materials and other
goods for manufacture, fabrication and assembly to be sold to Komag under such
Purchase Documents.
WHEREAS, in order to induce Komag to enter into each of the
Purchase Documents and to provide the Debtor with the benefits thereunder,
Debtor has agreed to enter into this Agreement and to grant to Komag the
security interest in the Applicable Collateral (described below) with respect to
such Purchase Documents.
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
1. Grant of Security. With respect to each of the Purchase
Documents entered into by Komag and Debtor from time to time, as security for
all of Debtor's obligations to Komag under this Agreement and each of such
Purchase Documents, Debtor hereby transfers and grants to Komag a security
interest (the "Applicable Security Interest") in all of the following property,
wherever located, whether now owned or hereafter acquired or arising (the
"Applicable Collateral"): (a) all inventory acquired, created, developed or
assembled with funds advanced by Komag to Debtor pursuant to such Purchase
Documents, including all such inventory held for sale or lease, all raw
materials, work in process and finished goods and materials in each case
relating to goods purchased by Komag under such Purchase Documents and all
additions and accessions to any of the foregoing (collectively, the "Applicable
Pledged Inventory"); (b) all documents of title, bills of lading, warehouse
receipts and other documents in respect of the Applicable Pledged Inventory; (c)
any and all funds received as advance deposits and any other funds received for
a particular purchase order prior to the delivery of the purchased inventory
covered in such purchase order from time to time by the Debtor from Komag
pursuant to the terms of such Purchase Documents (the "Applicable Deposits") and
the deposit account into which the Applicable Deposits are deposited ("Komag
Deposit Account"); and (d) all proceeds of any of the Applicable Collateral. The
Debtor shall release the Applicable Deposits from the Komag Deposit Account in a
manner that complies with its Purchase Documents and the Debtor shall only
deposit the Applicable Deposits and no other amounts into the Komag Deposit
Account.
<PAGE> 2
2. Representations and Warranties. Debtor represents and warrants
that Debtor has the right to grant each Applicable Security Interest and, except
as already obtained or given, no authorization from, consent of or notice to any
other person or entity (including stockholders, partners or creditors), and no
authorization, consent, approval or other action by or notice to or filing with
any governmental authority, is required either for the grant of such Applicable
Security Interest hereunder or the execution, delivery or performance of this
Agreement by Debtor.
3. Covenants. Debtor agrees (a) to take all action and execute
such documents and financing statements that may be necessary, or that Komag may
reasonably request, in order to perfect and protect each Applicable Security
Interest and its priority, and to enable Komag to exercise and enforce its
rights and remedies hereunder, and not to bring or prosecute any infringement or
other action that hinders or prevents such exercise and enforcement; (b) upon
request, to confirm Debtor's compliance with the terms hereof; (c) other than to
Komag, not to surrender or lose possession of any of the Applicable Collateral
without prior written consent of Komag (except in connection with performing
Debtor's obligations under the applicable Purchase Documents), or sell, rent or
transfer (by operation of law or otherwise) any of the Applicable Collateral or
any right or interest therein; (d) to give Komag prior written notice before
removing any of the Applicable Collateral from the locations described below or
changing its chief executive office outside of California or name (except in
connection with performing Debtor's obligations under the applicable Purchase
Documents); and (e) to note in Debtor's books and records the serial number of
each chassis and, as appropriate, Komag's Applicable Security Interest therein.
4. Events of Default. Each of the following shall constitute an
"Event of Default" hereunder: (a) any material breach or default by Debtor in
the performance or observance of any provision of this Agreement, or any
Purchase Documents not cured within 10 days after the occurrence of such breach
or default; (b) the entry or filing of any judgment, writ, warrant of
attachment, execution or similar process against any of the Applicable
Collateral; or (c) Debtor shall commence a voluntary case or other proceeding
(or an involuntary case or proceeding shall be commenced against Debtor (which
involuntary case or proceeding shall remain undismissed and unstayed for a
period of 60 days)) seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy or other similar law or
seeking the appointment of a trustee, receiver, custodian or other similar
official of it or any substantial part of its property, or Debtor shall make a
general assignment for the benefit of creditors, or Debtor shall fail generally
to pay its debts as they become due.
5. Remedies. If any Event of Default shall have occurred, all
Applicable Deposits in the possession of Debtor shall be immediately returned to
Komag, and Komag may exercise all the rights and remedies of a secured party
under the California Uniform Commercial Code and all other available rights and
remedies (all of which are cumulative). Debtor waives, to the fullest extent
permitted by law, (a) any right of redemption with respect to the Applicable
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Applicable Collateral; (b) any right to require Komag (i) to
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<PAGE> 3
proceed against any person, (ii) to exhaust any other collateral or security,
(iii) to pursue any remedy in Komag's power, or (iv) to make or give any
presentments, demands for performance, notices of nonperformance, protests,
notices of protests or notices of dishonor in connection with any of the
Applicable Collateral; and (c) all claims, damages, and demands against Komag
arising out of the repossession, retention, sale or application of the proceeds
of any sale of the Applicable Collateral.
6. Costs and Expenses. Debtor agrees to pay or reimburse to Komag
on demand all reasonable costs and expenses of Komag (including attorneys' fees)
in connection with the enforcement of any Applicable Security Interest, the
preservation, protection and realization upon any of the Applicable Collateral
and any and all losses, costs and expenses sustained by Komag as a result of any
failure by Debtor to perform and observe its obligations to Komag hereunder or
under any Purchase Documents. Komag shall have no duty to exercise any of the
rights, privileges or powers afforded to it.
7. Successors; Governing Law. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by Komag and Debtor and their
respective successors, transferees and assigns and shall be governed by the laws
of the State of California.
8. Amendments, Etc. This Agreement and each of the Purchase
Documents contain the entire agreement of the parties with respect to the
subject matter hereof and any amendment, waiver or consent hereof or thereof
shall be in writing and signed by each of Komag and Debtor. No waiver or consent
shall be effective except with respect to the specific instance and to the
extent expressly provided.
9. Certain Waivers. Debtor waives any right to require Komag to
proceed against any guarantor or any other person or entity, to exhaust any
portion of any Applicable Collateral or any other security, to pursue any remedy
in Komag's power or to make or give any presentments, protests, demands for
performance or notices of nonperformance, protests or dishonor.
10. Notices. All notices and communications hereunder shall be in
writing and shall be mailed or delivered to the respective addresses set forth
below. All such notices and communications shall be effective upon the earlier
date or receipt or 3 business days after deposit in the mail, first class,
postage prepaid.
11. Severability. If any term or obligation hereunder shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining terms and obligations, or of such terms or
obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
12. Counterparts. This Agreement may be executed in one or more
counterparts.
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13. Power of Attorney. Upon the reasonable request of Komag,
Debtor shall execute and cause to be filed any continuation statements or other
financing statements necessary to continue the perfection and priority of the
Applicable Security Interest in the Applicable Collateral. If Debtor fails to so
execute and cause to be filed such financing statements, then to such extent
Komag is hereby granted a power of attorney to execute and file such financing
statements and continuation statements, which is coupled with an interest and
irrevocable until such time as there are no obligations outstanding under this
Agreement.
14. Negative Pledge. Debtor hereby agrees not to execute any
security agreement or grant any lien or security interest after the date hereof
in the Applicable Collateral during the term of this Agreement; provided,
however, that the grant of a security interest or lien in favor of Canadian
Imperial Bank of Commerce as agent (the "Agent") for the lenders under the
Credit Agreement dated as of March 15, 1995, as amended or modified from time to
time or any lenders refinancing such Credit Agreement, shall not be deemed to
violate this negative covenant even if it takes a security interest in all or
any portion of the Applicable Collateral so long as any refinancing lender
executes an intercreditor agreement on substantially the terms as the
intercreditor agreement executed by Canadian Imperial Bank of Commerce as agent
for the lenders (the "Intercreditor Agreement").
15. Termination. This Agreement shall create a continuing
security interest that shall only terminate as to any Applicable Security
Interest upon delivery of the purchased products as defined in the Purchase
Documents to which such Applicable Security Interest relates and the payment of
amounts owing by Debtor under Section 6 hereof and of the Intercreditor
Agreement. Upon such termination, Komag will, at the expense of Debtor, execute
and deliver to Debtor such documents as Debtor shall reasonably request to
evidence the termination of this Agreement as to such Applicable Security
Agreement and the termination and release of such Applicable Security Interest.
DEBTOR WARRANTS THAT ITS CHIEF OFFICE IS LOCATED AT (AND NOTICES SHOULD BE
DIRECTED TO) THE FOLLOWING ADDRESS:
3978 Sorrento Valley Blvd.
San Diego, California 95121
DEBTOR: KOMAG:
PHASE METRICS, INC. KOMAG, INCORPORATED
By: /s/ R. J. SAUNDERS By:
---------------------------- -----------------------------------
Title: Vice President Title:
------------------------- ----------------------------------
Address for Notices: Address for Notices:
3978 Sorrento Valley Blvd. 275 South Hillview Drive
San Diego, California 95121 Milpitas, CA 95035
Attn: Chief Financial Officer Attn: Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into as of November __, 1994, by and between PHASE METRICS, INC., a California
corporation (the "Company"), and John F. Schaefer ("Executive").
R E C I T A L S
A. Concurrently herewith, the Company and Executive, among
others, are entering into that certain Securities Purchase Agreement dated
November __, 1994 (the "Purchase Agreement").
B. Contingent upon the closing of the transactions contemplated
by the Purchase Agreement (the "Purchase Closing"), the Company and Executive
desire to enter into this Agreement, which shall govern the terms and conditions
of Company's employment of Executive.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions hereinafter set forth, the parties hereto agree as follows:
1. Contingent Agreement. This Agreement shall be effective only upon the
occurrence of the Purchase Closing. Nothing contained herein shall be construed
to require, commit or otherwise obligate any of the parties hereto to enter into
or consummate the transactions contemplated by the Purchase Agreement or the
Purchase Closing. In the event the Purchase Closing shall not occur, this
Agreement shall be of no force or effect, and neither party hereto shall have
any liability or obligation hereunder or in any way relating hereto.
2. Employment. The Company hereby employs Executive and Executive hereby
accepts employment with the Company. Subject to the provisions of Sections 7, 8
and 9 hereof, this Agreement shall be terminable at will by either party hereto
upon 30-days written notice to the other party. The period from the date hereof
until the date of such termination is sometimes referred to herein as the
"Term."
3. Duties and Authority.
(a) During the entire Term, Executive shall perform the duties
and have the authority of Chief Executive Officer and Chairman of the Board of
the Company. Subject to the direction of the Company's Board of Directors (the
"Board"), Executive shall have, among other things (along with Arthur Cormier
("Cormier") with respect to significant matters), full authority over all
departments, officers, employees and agents of the Company. Subject to the
direction of the Board, in the performance of Executive's duties, Executive
shall have (along with Cormier with respect to significant matters) full and
complete authority and discretion (in the same manner as heretofore exercised by
Executive) to take all
<PAGE> 2
action Executive deems appropriate to operate, manage and develop the business
of the Company. Subject to the terms of the Voting Agreement bearing even date
herewith between Executive and Cormier, the Board shall resolve any disagreement
between Executive and Cormier with respect to any of the foregoing business
operations.
(b) During the term of his employment hereunder, Executive will
devote substantially all of his business time and best efforts to the
performance of his duties hereunder and will not engage in any other business,
profession or occupation for compensation or otherwise which would conflict with
the rendition of such services either directly or indirectly, without the prior
written consent of the Board.
4. Compensation.
4.1 Salary. For Executive's services rendered hereunder, the
Company shall pay Executive an annual salary of Three Hundred Thousand Dollars
($300,000) ("Executive's Salary"). Executive's Salary shall be payable in equal
installments in conformity with the Company's normal payroll period. Executive's
Salary shall be reviewed by the Board from time to time at its discretion but
not less often than annually, and Executive shall receive such salary increases
(but not decreases) as the Board, in its sole discretion, shall determine,
taking into consideration Executive's performance and the overall performance of
the Company; provided, however, that until the occurrence of a public offering
under the Securities Act of 1933, as amended, of any of the Company's capital
stock (a "Company IPO"), Executive's Salary shall not be less than that of
Cormier. Immediately after the execution of this Agreement, the Company shall
pay to Executive in a lump sum salary from August 1, 1994 to the date hereof at
the rate set forth in this Section 4.1.
4.2 Annual Bonus. With respect to the Company's 1994 and 1995
fiscal years, Executive shall not be entitled to any bonus. With respect to each
fiscal year thereafter during the Term, in addition to Executive's Salary,
Executive shall be eligible to receive an annual bonus from the Company in
accordance with a bonus plan for the Company's officers which shall be
implemented by the Company. Each such bonus, if any, shall be payable to
Executive no later than 45 days after the end of the applicable fiscal year.
Unless Executive is terminated for Cause (as defined herein) or Executive
terminates his employment without Good Reason (as defined herein), in which case
Executive shall not be eligible for any bonus in respect of the fiscal year of
termination, for each fiscal year during which Executive is employed hereunder
for fewer than twelve (12) months, Executive shall receive a pro rata portion of
the annual bonus, if any, which he would otherwise have received for such full
fiscal year. For the period of time during which both Executive and Cormier are
employed by the Company, unless an IPO has occurred, all bonuses to Executive
and Cormier shall be in equal amounts.
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5. Executive Benefits.
Executive shall be entitled to the following benefits, which
benefits shall be, until the occurrence of a Company IPO, individually and in
the aggregate, of no less value than the benefits provided to Cormier:
5.1 Vacation. Executive shall be entitled to four (4) weeks paid
vacation during each year of the Term. Vacation which is not taken during any
respective year shall be accrued and carried forward to the following year of
the Term, provided, (a) in no event shall Executive be entitled to carry over
more than eight (8) weeks vacation from one year to the next year and (b)
Executive shall not be permitted to take more than three (3) consecutive weeks
of vacation without the prior consent of the Board.
5.2 Automobile. During the Term, the Company shall provide
Executive, for Executive's sole use, an automobile reasonably satisfactory to
Executive and the Company or, in lieu thereof, an automobile allowance in
accordance with Company policy. The Company shall pay all operating expenses of
any nature whatsoever with regard to such automobile and shall procure and
maintain in force insurance coverage on such automobile.
5.3 Group Benefits. Executive shall be entitled to participate in
any group life, health, accident, disability or other insurance programs,
deferred compensation, profit sharing and pension programs and any other fringe
benefits as the Company may from time to time generally make available to
executives of similar status.
5.4 Life Insurance. Subject to the approval of the Board, during
the Term the Company shall pay up to $5,000 each year of the Term of premiums
due annually on a policy of term life insurance on the life of Executive in the
face amount of Two Million Dollars ($2,000,000) (the "Policy"), the proceeds of
which will be payable to the beneficiary or beneficiaries designated by
Executive.
6. Business Expenses and ReimburSement. Provided Executive provides
proper documentation of such expenses, Executive shall be entitled to
reimbursement by the Company for any and all ordinary and reasonable business
expenses incurred by Executive in the performance of Executive's duties for and
on behalf of the Company during the Term, including, but not limited to, the
cost of entertainment, meals, travel expenses, conventions, meetings and
seminars. Immediately after execution of this Agreement, the Company shall
reimburse Executive an amount equal to $17,000, representing business expenses
incurred by Executive for the benefit of the Company up to the date hereof.
7. Death or Disability of Executive. Executive's employment shall be
terminated upon his death. In the event Executive's inability to perform his
services hereunder by reason of Disability (as defined below) occurring during
the Term, the Company may terminate Executive's employment. In the event of
Executive's termination due to Disability, Executive shall nevertheless be
entitled to receive Executive's Salary and benefits as provided for herein for a
period of one year after the occurrence of such Disability; provided,
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however, that if Executive has commenced receiving disability insurance benefits
referenced in Section 5.3 hereof, the Company's obligation to pay Executive's
Salary shall be reduced by the amount of the benefits received. "Disability"
shall mean that Executive has been mentally or physically impaired in a manner
rendering Executive unable to perform the duties of his usual employment for a
period of six (6) consecutive months or for an aggregate of six (6) months in
any eighteen (18) month period, all as attested to by a qualified medical
doctor.
8. Termination for Cause; Termination for Good Reason.
8.1 Termination for Cause. Except as provided below, the Company
shall have the right during the Term, at its election, to terminate Executive's
employment upon written notice (which shall specify the grounds for such
termination) for any of the following reasons, which shall constitute "Cause":
(a) Executive's willful and continued failure
substantially to perform Executive's services as provided herein (other than
Executive's actual or anticipated failure to perform resulting from termination
of this Agreement by Executive by reason of the Company's material breach of
this Agreement);
(b) Executive's commission of an act of fraud upon
the Company;
(c) Conviction of Executive of a felony;
(d) Executive's willful dishonesty in the
performance of his duties hereunder;
(e) Any material breach by Executive of Section
10.1 hereof or any breach of Sections 10.2 or 10.3 hereof; or
(f) Any other act or omission constituting material
misconduct which is materially injurious to the financial condition or business
reputation of the Company or any of its subsidiaries or affiliates;
provided, however, that the Company shall not have the right to terminate
Executive's employment under subsection (a) above until after (i) written notice
by the Board to Executive identifying, with a reasonable degree of specificity,
the basis for the Board's belief that Executive has willfully and continuously
refused to perform his duties hereunder, and (ii) Executive has failed, within
ten (10) days after such notice was received, to correct his performance
provided that, in the event of such failure substantially to perform hereunder,
there shall be no cure in the event of any subsequent willful and continued
failure substantially to perform hereunder of a similar nature.
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8.2 Payment Upon Termination For Cause. In the event of Executive's
termination for Cause by the Company or termination by the Executive without
Good Reason (as hereinafter defined), the Company shall only be obligated to pay
Executive (i) any of Executive's Salary due and owing to Executive for the
period through the effective date of such termination and (ii) benefits vested
under any applicable pension or other employee benefit plans.
8.3 Termination for Good Reason.
(a) Good Reason. Executive may unilaterally terminate his
employment under this Agreement immediately upon "written notice to the Company
and for ninety (90) days thereafter if (i) the Company fails to pay Executive
any material amounts owed to Executive and such failure to pay continues for
thirty (30) days following written notice from Executive to the Company of such
failure to pay, or (ii) Executive is required to relocate his principal place of
employment outside of a radius of fifty (50) miles from present place of
employment, or (iii) without Executive's written consent, there is any material
adverse change in Executive's duties, position, authority or responsibility
under this Agreement, including without limitation the assignment of any duties
which would constitute a material reduction in the importance of Executive's
position. authority or responsibilities provided, however, that Executive shall
not be able to terminate his employment under subsection (iii) above until after
(i) written notice by Executive to the Company identifying, with a reasonable
degree of specificity, the basis for Executive's belief that the Company has
materially adversely changed Executive's duties, position, authority or
responsibility under this Agreement, and (ii) the Company has failed, within ten
(10) days after such notice was received, to correct the material adverse
change; provided that, in the event of such material adverse change, there shall
be no opportunity to cure in the event of any subsequent material adverse change
hereunder of a similar nature. Any such termination by Executive shall be deemed
a termination with "Good Reason."
9. Payment Upon Termination Other Than For Cause. In the event that
this Agreement or Executive's employment under this Agreement is terminated for
any reason other than for Cause, death or Disability (including without
limitation, in the event Executive terminates this Agreement for Good Reason),
the following shall apply:
9.1 Accrued Salary and Benefits. The Company shall pay Executive
(a) the amounts payable under clauses (i) and (ii) of Section 8.2 hereof, and
(b) all vested, accrued and unused vacation time existing as of the effective
date of such termination as reflected in the Company's personnel records;
provided such amount does not exceed an amount equal to (i) the amount of
vacation remaining for such year and (ii) the maximum amount of vacation which
may be carried forward under Section 5.1 of this Agreement. Payment for such
vacation time shall be at a rate equal to Executive's Salary.
9.2 Severance. Subject to Executive's continued compliance with
Article 10, the Company shall continue to pay Executive's Salary and provide the
benefits set forth in Sections 5.2 and 5.3 of this Agreement, (i) if such
termination occurs prior to the first
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anniversary of the date hereof, for the period of time up to the second
anniversary of the date hereof, or (ii) if such termination occurs after the
first anniversary of the date hereof, for a period of one year after the
effective date of such termination, all without any offset for any amounts or
benefits received by Executive from any third parties, including without
limitation, subsequent employers of Executive.
9.3 Board Position. To the extent provided in that certain
Securityholders Agreement dated November 1994 by and among the Company,
Executive and certain other parties (the "Securityholders Agreement"), Executive
shall be entitled to retain his position as a member of the Board, provided that
Executive shall not receive any compensation hereunder for so serving on the
Board (but Executive shall be entitled to reimbursement for his reasonable
expenses in attending Board Meetings).
10. Covenants. Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and accordingly agrees as
follows:
10.1 Confidentiality. During the term of his employment and
thereafter, Executive shall keep in confidence and shall not use for the benefit
of any person or entity other than the Company, or divulge to others, any secret
or confidential information, knowledge, data, ideas or plans of the Company
gained in his capacity as an employee, officer or director of the Company,
unless authorized by the Company in writing.
10.2 Covenant Not to Compete. During the Term, employee shall not
compete, directly or indirectly, with the Company. In the event that (a) (i)
Company terminates this Agreement for Cause, or (ii) Executive terminates this
Agreement for any reason other than Good Reason, then Executive agrees that for
a period of two (2) years following the date of any such termination, and (b)
Executive's employment terminates for any other reason, then Executive agrees
that for so long as he shall be receiving compensation pursuant to Section 9.2,
Executive shall not (a) compete, directly or indirectly, with the business of
the Company as conducted by it on the date of such competition in such county or
counties within the United States where such business shall then be conducted or
(b) in any line of business, market or geographic area in which the Company has
plans to expand on the date of such termination. Ownership by Executive, as a
passive investment, of less than five percent (5%) of the outstanding shares of
capital stock of any corporation listed on a national securities exchange or
publicly traded in the over-the-counter market shall not constitute a breach of
this Section 10.2.
10.3 Covenant Not to Solicit Employees. Except with the prior
consent of the Company, both during the term of his employment and for the
period of two years thereafter, Executive will not directly or indirectly induce
any employees of the Company or any of its affiliates to engage in any activity
in which Executive is prohibited from engaging by Paragraphs 10.1 and 10.2 above
or to terminate such employee's employment with the Company or any of
affiliates, and will not directly or indirectly employ or offer employment
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to any person who was employed by the Company or any of its affiliates unless
such person shall have ceased to be employed by the Company or any of its
affiliates for a period of at least 12 months.
10.4 Enforceability of Non-Compete. It is expressly understood
and agreed that although Executive and the Company consider the restrictions
contained in this Article 10 to be reasonable, if a final judicial determination
is made by a court of competent jurisdiction that the time or territory or any
other restriction contained in this Agreement is an unenforceable restriction
against Executive, the provisions of this Agreement shall not be rendered void
but shall be deemed amended to apply as to such maximum time and territory and
to such maximum extent as such court may judicially determine or indicate to be
enforceable. Alternatively, if any court of competent jurisdiction finds that
any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding shall
not affect the enforceability of any of.the other restrictions contained herein.
11. Miscellaneous.
11.1 Notice. Any and all notices, designations, consents, offers,
acceptances, or any other communication provided for herein shall be given in
writing delivered personally, by overnight courier, by facsimile or registered
or certified mail, addressed as follows:
Company: Phase Metrics
3978 Sorrento Valley Boulevard
San Diego, CA 92121
Facsimile: (619) 552-1132
Executive: John Schaefer
1509 Dolphin Terrace
Corona Del Mar, CA 92625
Facsimile: (714) 760-1222
or to such other address as may be designated in writing or as otherwise
provided in this Agreement. Each such notice shall be deemed given (i) if by
hand, when personally delivered during normal working hours, (ii) if by
overnight courier, on the next business day following deposit by the sender with
such courier, (iii) if by telecopy, upon transmission during normal working
hours and receipt by the sender of a transmission confirmation, and (iv) if by
mail, on a date which is four (4) days after it is mailed in any post office or
branch post office regularly maintained by the United States Postal Service
(registered or certified, with postage prepaid and properly addressed).
11.2 Construction. This Agreement and the performance hereof
shall be governed, interpreted, construed and regulated by the laws of the State
of California without giving effect to the conflicts of law provisions thereof.
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11.3 Waiver. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of this Agreement.
11.4 Severability. If any term, covenant, condition or provision
of this Agreement, or the application thereof to any person or circumstance,
shall at any time or to any extent be invalid or unenforceable, the remainder of
this Agreement, or the application of such term or provision persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant, condition and provision
of this Agreement shall be valid and enforced to the fullest extent permitted by
law.
11.4 Entire Agreement. This Agreement, the Purchase Agreement and
the Securityholders Agreement constitute the entire agreement and understanding
of the parties with respect to the subject matter set forth herein, and
supersede all prior agreements, arrangements and understandings related to such
subject matter. This Agreement may not be amended except in a writing signed by
both of the parties hereto.
11.5 Attorney's Fees. In the event of any proceeding between the
parties hereto with respect to any dispute arising under this Agreement, the
prevailing party shall, in addition to such other relief as may be awarded, be
entitled to recover reasonable attorneys' fees and expenses.
11.7 Assignment; No Third Party Beneficiary. This Agreement shall
be binding upon and inure to the benefit of the Company and the Executive and
their respective executors, administrators, personal representatives, heirs,
successors and permitted assigns. Except as provided in this Section, this
Agreement shall not create, and shall not be construed as creating, any rights
or benefits in favor of, or enforceable by, any person or entity other than the
Company and the Executive.
8
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[SCHAEFER EMPLOYMENT AGREEMENT]
IN WITNESS WHEREOF, the Company and Executive have executed this
Agreement as of the day and year first above written.
"Company"
Phase Metrics,
a California corporation
By:
Title:
"Executive"
/s/ John F. Schaefer
-----------------------------------------------
JOHN F. SCHAEFER
9
<PAGE> 1
EXHIBIT 10.5
(714) 955-8705
May 5, 1995
Mr. Ted Siegler
Komag, Incorporated
Director of Planning
275 S. Hillview Drive
Milpitas, CA 95035
Re: Intercreditor Agreement regarding Phase Metrics, Inc.
Dear Mr. Siegler:
Phase Metrics, Inc. ( "Phase Metrics") and ProQuip, Inc. (collectively the
"Borrowers") have entered into a Credit Agreement with Canadian Imperial Bank of
Commerce as Agent for the Lenders listed in that certain Credit Agreement dated
as of March 15, 1995 (the "Credit Agreement"). Pursuant to the Credit Agreement,
Borrowers have executed a Security Agreement of even date (the "Security
Agreement") which grants a blanket lien in all assets of the Borrowers,
including inventory, work in process, and deposits (the "Agent's Collateral").
Komag has entered into a Master Security Agreement with Phase Metrics
dated as of May __, 1995 (the "Master Security Agreement") pursuant to which
Komag has taken a security interest in the Komag Deposit Account (the "Komag
Deposit Account") and the Applicable Collateral (the "Applicable Collateral")
each as defined in the Master Security Agreement.
In order to clarify the respective rights of Komag and the Agent for
itself and the benefit of the Lenders, the Agent for itself and on behalf of the
Lenders and Komag hereby agree as follows:
<PAGE> 2
Mr. Ted Siegler May 5, 1995
KOMAG, Inc. Page 2
1. The Agent for itself and on behalf of each of the Lenders hereby
agrees that neither it nor the Lenders shall have any lien or claim to any
amounts on deposit in the Komag Deposit Account.
2. The Agent for itself and on behalf of each of the Lenders hereby
agrees (a) that neither it nor the Lenders shall have any lien or claim in any
of the Applicable Collateral and (b) to the extent it is difficult or
impractical to segregate the Agent's Collateral from any of the Applicable
Collateral, to subordinate the priority of its and the Lenders' lien and
security interest in any of such Agent's Collateral and the Applicable
Collateral in favor of the lien and security interest, now or hereafter
existing, of Komag, regardless of the time or order of attachment or perfection
of any liens, the time or order of filing of financing statements, the
acquisition of purchase money or other liens, or any other circumstances
whatsoever. Until Phase Metrics has fully performed all of its obligations (the
"Phase Metrics Purchase Obligations") in favor of Komag under the Purchase
Agreements and the other documents entered into pursuant thereto (the "Purchase
Documents") the Agent for itself and on behalf of the Lenders agrees that
neither it nor the Lenders will enforce, or attempt to enforce, any rights or
remedies under or with respect to any Applicable Collateral (and any Agent's
Collateral that is impractical to segregate from the Applicable Collateral),
including causing or compelling the pledge or delivery of any such collateral,
any attachment of, levy upon, execution against, foreclosure upon or the taking
of other action against or institution of other proceedings with respect to any
such collateral, or asserting any claim or interest in any insurance with
respect to any such collateral. The Agent further agrees to execute (or cause to
be executed) any further documents or financing statements in order to evidence
the subordination provided for herein.
3. The Agent for itself and on behalf of the Lenders further agrees
that neither it nor the Lenders will interfere with or in any manner oppose a
disposition of any Applicable Collateral by Komag in accordance with applicable
law.
4. The Agent for itself and on behalf of the Lenders waives any and all
notice from Komag of the incurrance of any Phase Metrics Purchase Obligations or
any part thereof and any right to require Komag to marshall assets.
5. Until the payment and performance in full of all Phase Metrics
Purchase Obligations, the Agent for itself and on behalf of the Lenders agrees
that neither it nor the Lenders shall have, or shall directly or indirectly
exercise, any rights that any such party may acquire by way of subrogation
hereunder upon any payment or distribution to Komag hereunder or otherwise.
<PAGE> 3
Mr. Ted Siegler May 5, 1995
KOMAG, Inc. Page 3
6. Phase Metrics agrees to pay to Komag on demand all reasonable costs
and expenses of Komag, and the reasonable fees and disbursements of counsel, in
connection with the enforcement of this letter agreement.
7. This letter agreement is a continuing agreement of subordination and
shall continue in effect and be binding upon the Agent and the Lenders until
payment and performance in full of the Phase Metrics Purchase Obligations and
the termination of the Master Security Agreement. The subordinations, agreements
and priorities set forth herein shall remain in full force and effect regardless
of whether any party hereto in the future seeks to rescind, amend, terminate or
reform, by litigation or otherwise, its respective agreements with Phase
Metrics. This letter agreement shall continue to be effective or shall be
reinstated, as the case may be, if, for any reason, any payment of the Phase
Metrics Purchase Obligations by or on behalf of Phase Metrics shall be rescinded
or must otherwise be restored by Komag, whether as a result of any bankruptcy or
similar proceeding involving Phase Metrics or otherwise.
8. The Agent for itself and on behalf of the Lenders agrees that at any
time and from time to time, without notice to or the consent of the Agent or the
Lenders, without incurring responsibility to the Agent or the Lenders, and
without impairing or releasing the subordination provided for herein or
otherwise impairing the rights of Komag hereunder: (a) the time for Phase
Metrics performance of or compliance with any of its agreements contained in the
Purchase Documents may be extended or such performance or compliance may be
waived by Komag; (b) the agreements of Phase Metrics with respect to the
Purchase Documents may from time to time be modified by Phase Metrics and Komag
for the purpose of adding any requirements thereto or changing in any manner the
rights and obligations of Phase Metrics and Komag thereunder; provided, however,
that the defined terms "Applicable Security Interest", "Applicable Collateral",
"Applicable Pledged Inventory", "Applicable Deposits", "Komag Deposit Account"
or "Purchase Documents" (each as defined in the Master Security Agreement) may
not be amended nor may any amendment to the Master Security Agreement be made
which would adversely affect the rights of the Agent or the Lenders without the
prior written consent of the Agent, which will not be unreasonably withheld; (c)
the manner, place or terms for payment of any Phase Metrics Purchase
Obligations, or any portion thereof may be altered or the terms for payment
extended, or the Phase Metrics Purchase Obligations, may be renewed in whole or
in part; (d) the maturity of any Phase Metrics Purchase Obligations may be
accelerated in accordance with the terms of any present or future agreement by
either Phase Metrics and Komag; (e) any Applicable Collateral may be sold,
exchanged, released or substituted and any lien in favor of Komag may be
terminated, subordinated or fail to be perfected or become unperfected; (f)any
person liable in any manner for any Phase Metrics Purchase Obligations, may be
discharged, released or substituted; and (g)all other rights against Phase
Metrics, any other
<PAGE> 4
Mr. Ted Siegler May 5, 1995
KOMAG, Inc. Page 4
person or with respect to any Applicable Collateral may be exercised (or Komag
may waive or refrain from exercising such rights).
9. Komag agrees that at any time and from time to time, without notice
to or the consent of Komag, without incurring responsibility to Komag and
without impairing the rights of the Agent or the Lenders hereunder: (a) the time
for Phase Metrics performance of or compliance with any of its agreements
contained in the Credit Agreement, the Security Agreement and any of the other
"Loan Documents" (as defined in the Credit Agreement) may be extended or such
performance or compliance may be waived by the Agent or the Lenders; (b) the
Loan Documents may from time to time be modified by Phase Metrics and the Agent
and the Lenders for any reason whatsoever; (c) the manner, place or terms for
payment of any obligations or any portion thereof owing under the Loan Documents
may be altered or the terms for payment extended, or Phase Metrics' obligations
may be renewed in whole or in part; (d) the maturity of any obligations of Phase
Metrics under the Loan Documents may be accelerated in accordance with the terms
of any present or future agreement by either Phase Metrics or the Agent and the
Lenders; (e) any of the Agent's Collateral may be sold, exchanged, released or
substituted and any lien in favor of the Agent or the Lenders may be terminated,
subordinated or failed to be perfected of become unperfected; (f) any person
liable in any manner for any obligations of Phase Metrics under the Loan
Documents, may be discharged, released or substituted; and (g) all other rights
against Phase Metrics, any other person or with respect to any Agent's
Collateral may be exercised or the Agent and the Lenders may waive or refrain
from exercising such rights. Neither this Letter Agreement, the Security
Agreement nor any Purchase Document shall be considered to be a Loan Document.
10. This Letter Agreement shall be binding on each of the parties hereto
and any successors and assigns. This Letter Agreement shall be construed in
accordance with California law and may not be amended or modified unless in a
writing executed by both parties hereto. This Letter Agreement may be executed
in one or more counterparts.
<PAGE> 5
Mr. Ted Siegler May 5, 1995
KOMAG, Inc. Page 5
Please evidence your acceptance of the terms set forth in this Letter
Agreement by countersigning below where indicated.
Very truly yours,
CANADIAN IMPERIAL BANK OF
COMMERCE as Agent for the Lenders
By:______________________________________
Its:_____________________________________
Agreed and accepted:
Komag, Inc.
By:_________________________________
Its:________________________________
Consented to:
Phase Metrics, Inc.
By: /s/ R. J. SAUNDERS
---------------------------------
Its: Vice President
--------------------------------
<PAGE> 1
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ____ day of
_______________, 1997 between Phase Metrics, Inc., a Delaware corporation (the
"Company") and ____________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company have adopted a Certificate
of Incorporation (the "Certificate") permitting the Board of Directors to
indemnify certain officers and employees designated by the Board of Directors or
Chief Executive Officer (the "Officers") and directors (the "Directors") of the
Company; and
WHEREAS, the Certificate and Section 145 of the Delaware General
Corporation Law, as amended ("Law"), by their nonexclusive nature permit
contracts between the Company and the Officers and Directors of the Company with
respect to indemnification of such Officers and Directors; and
WHEREAS, in accordance with the authorization as provided by the Law, the
Company may purchase and maintain a policy or policies of Directors' and
Officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its Officers and Directors in the performance of their
obligations as Officers and Directors of the Company; and
WHEREAS, as a result of recent developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded the Company's Officers and Directors by such D & O
Insurance and said uncertainty also exists under statutory and bylaw
indemnification provisions; and
WHEREAS, in recognition of past services and in order to induce Indemnitee
to continue to serve as an officer and/or a director of the Company, the Company
has determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as an
officer and/or a director after the date hereof, the parties hereto agree as
follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to hold harmless
and indemnify Indemnitee to the full extent authorized or permitted by the
provisions of the Law, as such may be amended from time to time, and Article ___
of the Certificate, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
<PAGE> 2
(a) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 1(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 1(b),
Indemnitee shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2.
<PAGE> 3
2. ADDITIONAL INDEMNITY.
(a) Subject only to the exclusions set forth in Section 2(b)
hereof, the Company hereby further agrees to hold harmless and indemnify
Indemnitee against any and all Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with any
Proceeding (including an action by or on behalf of the Company) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of his Corporate Status; provided, however, that with respect
to actions by or on behalf of the Company, indemnification of Indemnitee against
any judgments shall be made by the Company only as authorized in the specific
case upon a determination that Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; and
(b) No indemnity pursuant to this Section 2 shall be paid by the
Company:
(i) In respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(ii) On account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(iii) On account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct; or
(iv) If a final decision by a court having jurisdiction in
the matter shall determine that such indemnification is not lawful.
3. CONTRIBUTION. If the indemnification provided in Sections 1 and 2 is
unavailable and may not be paid to Indemnitee for any reason other than those
set forth in paragraphs (i), (ii) and (iii) of Section 2(b), then in respect to
any Proceeding in which the Company is jointly liable with Indemnitee (or would
be if joined in such Proceeding), the Company shall contribute to the amount of
Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and by the Indemnitee on the other hand from the transaction from which
such Proceeding arose, and (ii) the relative fault of the Company on the one
hand and of the Indemnitee on the other hand in connection with the events which
resulted in such Expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations.
3.
<PAGE> 4
The relative fault of the Company on the one hand and of the Indemnitee on the
other hand shall be determined by reference to, among other things, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent the circumstances resulting in such Expenses, judgments, fines or
settlement amounts. The Company agrees that it would not be just and equitable
if contribution pursuant to this Section 3 were determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable considerations.
4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of this
Agreement, the Company shall advance all reasonable Expenses incurred by or on
behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee's
Corporate Status within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses. Any advances and undertakings to repay pursuant to this Section 5
shall be unsecured and interest free. Notwithstanding the foregoing, the
obligation of the Company to advance Expenses pursuant to this Section 5 shall
be subject to the condition that, if, when and to the extent that the Company
determines that Indemnitee would not be permitted to be indemnified under
applicable law, the Company shall be entitled to be reimbursed, within thirty
(30) days of such determination, by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
4.
<PAGE> 5
6. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Chief Executive Officer or Chief Financial
Officer a written request, including therein or therewith such documentation and
information as is reasonably available to Indemnitee and is reasonably necessary
to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary or any Assistant Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as hereinafter
defined) shall have occurred, by Independent Counsel (as hereinafter defined) in
a written opinion to the Board of Directors, a copy of which shall be delivered
to Indemnitee (unless Indemnitee shall request that such determination be made
by the Board of Directors or the stockholders, in which case the determination
shall be made in the manner provided in Clause (ii) below), or (ii) if a Change
in Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors (as hereinafter defined),
or (B) if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, said Disinterested Directors
so direct, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee, or (C) if so
directed by said Disinterested Directors, by the stockholders of the Company;
and, if it is determined that Indemnitee is entitled to indemnification, payment
to Indemnitee shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any Independent Counsel, member of
the Board of Directors, or stockholder of the Company shall act reasonably and
in good faith in making a determination under the Agreement of the Indemnitee's
entitlement to indemnification. Any costs or expenses (including attorneys' fees
and disbursements) incurred by Indemnitee in so cooperating with the person,
persons or entity making such determination shall be borne by the Company
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). If a Change in
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so
5.
<PAGE> 6
selected. If a Change in Control shall have occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board of Directors, in which event the preceding
sentence shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected. In either
event, Indemnitee or the Company, as the case may be, may, within 10 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection;
provided, however, that such objection may be asserted only on the ground that
the Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 14 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If a written objection is made and substantiated,
the Independent Counsel selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 6(a) hereof, no Independent
Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition the Court of Chancery of the State of Delaware or other
court of competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the due
commencement of any judicial proceeding or arbitration pursuant to Section
8(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the consent of the
Indemnitee to the settlement of any Proceeding which the Company has undertaken
to defend if the Company assumes full and sole responsibility for such
settlement and the settlement grants the Indemnitee a complete and unqualified
release in respect of the potential liability.
7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection
6.
<PAGE> 7
with the making by any person, persons or entity of any determination contrary
to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 6 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30-day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 7(b) shall
not apply (i) if the determination of entitlement to indemnification is to be
made by the stockholders pursuant to Section 6(b) of this Agreement and if (A)
within fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b) of
this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement (with or without court approval),
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
(d) For purposes of any determination of good faith, Indemnitee
shall be deemed to have acted in good faith if Indemnitee's action is based on
the records or books of account of the Enterprise (as hereinafter defined),
including financial statements, or on information supplied to Indemnitee by the
Officers and Directors of the Enterprise in the course of their duties, or on
the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
account-
7.
<PAGE> 8
ant or by an appraiser or other expert selected with reasonable care by the
Enterprise. In addition, the knowledge and/or actions, or failure to act, of any
director, officer, agent or employee of the Enterprise shall not be imputed to
Indemnitee for purposes of determining the right to indemnification under this
Agreement. The provisions of this Section 7(d) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which the Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.
8. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 3 or 4 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 6 or 7 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of
the American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 8(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 8 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
8.
<PAGE> 9
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 8, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 8,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 16 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated. The Company shall
indemnify Indemnitee against any and all expenses and, if requested by
Indemnitee, shall (within ten (10) days after receipt by the Company of a
written request therefor) advance such expenses to Indemnitee, which are
incurred by Indemnitee in connection with any action brought by Indemnitee to
recover under any Directors' and Officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advancement of expenses or
insurance recovery, as the case may be.
(e) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 8 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
9. NONEXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Certificate, any agreement, a vote of
stockholders or a resolution of Directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in the Law, whether
by statute or judicial decision, permits greater indemnification than would be
afforded currently under the Certificate and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every
9.
<PAGE> 10
other right and remedy shall be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for Directors, Officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
10. EXCEPTION TO RIGHT OF INDEMNIFICATION. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors or (b) such Proceeding
is being brought by the Indemnitee to assert his rights under this Agreement.
11. DURATION OF AGREEMENT. All agreements and obligations of the Company
contained herein shall continue during the period Indemnitee is an officer
and/or a director of the Company (or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 8 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
10.
<PAGE> 11
Indemnitee continues to serve as an officer and/or a director of the Company or
any other enterprise at the Company's request.
12. SECURITY. To the extent requested by the Indemnitee and approved by
the Board of Directors, the Company may at any time and from time to time
provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of the Indemnitee.
13. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer and/or a director of the Company, and
the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer and/or a director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
14. DEFINITIONS. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Company
occurring after the date of this Agreement of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the date of this Agreement (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Act, as amended) other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 15% or more of
the combined voting power of the Company's then outstanding securities (other
than any such person or any affiliate thereof that is such a 15% beneficial
owner as of the date hereof) without the prior approval of at least two-thirds
of the members of the Board of Directors in office immediately prior to such
person attaining such percentage interest; (ii) there occurs a proxy contest, or
the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a
11.
<PAGE> 12
majority of the Board of Directors thereafter; or (iii) during any period of two
consecutive years, other than as a result of an event described in clause
(a)(ii) of this Section 16, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new director
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the Directors then still in office
who were Directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board of Directors. A Change in Control
shall not be deemed to have occurred under item (i) above if the "person"
described under item (i) is entitled to report its ownership on Schedule 13G
promulgated under the Act and such person is able to represent that it acquired
such securities in the ordinary course of its business and not with the purpose
nor with the effect of changing or influencing the control of the Company, nor
in connection with or as a participant in any transaction having such purpose or
effect. If the "person" referred to in the previous sentence would at any time
not be entitled to continue to report such ownership on Schedule 13G pursuant to
Rule 13d-1(b)(3)(i)(B) of the Act, then a Change in Control shall be deemed to
have occurred at such time.
(b) "Corporate Status" describes the status of a person who is or
was a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(c) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
(d) "Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the express written request of the Company
as a director, officer, employee, agent or fiduciary.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
12.
<PAGE> 13
(f) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was an officer and/or a director of the Company, by
reason of any action taken by him or of any inaction on his part while acting as
an officer and/or a director of the Company, or by reason of the fact that he is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; in each case whether or not he is acting or serving in any such
capacity at the time any liability or expense is incurred for which
indemnification can be provided under this Agreement; including one pending on
or before the date of this Agreement; and excluding one initiated by an
Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under
this Agreement.
15. SEVERABILITY. If any provision or provisions of this Agreement shall
be held by a court of competent jurisdiction to be invalid, void, illegal or
otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
16. MODIFICATION AND WAIVER. No supplement, modification, termination or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall
13.
<PAGE> 14
constitute a waiver of any other provisions hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
__________________________________________
Phase Metrics, Inc.
10260 Sorrento Valley Road
San Diego, California 92121-1605
(b) If to the Company, to:
Phase Metrics, Inc.
10260 Sorrento Valley Road
San Diego, California 92121-1605
Attention: Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
20. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
14.
<PAGE> 15
21. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
22. GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
PHASE METRICS, INC.,
a Delaware corporation
By ______________________________________
John F. Schaefer
Chief Executive Officer
_________________________________________
_____________________________, Indemnitee
15.
<PAGE> 1
EXHIBIT 10.7
PHASE METRICS, INC.
1995 STOCK OPTION PLAN
(Amended through August 1, 1997)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option Plan is intended to promote the interests of
Phase Metrics, Inc., a California corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or
all administrative functions otherwise exercisable by the Board may be delegated
to the Committee. Members of the Committee shall serve for such period of time
as the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the Plan
Administrator shall be final and binding on all parties who have an interest in
the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to receive option grants under the Plan
are as follows:
(i) Employees,
<PAGE> 2
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any Parent or
Subsidiary, and
(iii) consultants who provide services to the
Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority to determine
which eligible persons are to receive option grants under the Plan, the time or
times when such option grants are to be made, the number of shares to be covered
by each such grant, the status of the granted option as either an Incentive
Option or a Non-Statutory Option, the time or times at which each option is to
become exercisable, the vesting schedule (if any) applicable to the option
shares and the maximum term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of shares
of Common Stock which may be issued over the term of the Plan shall not exceed
4,050,000(1)(2)(3)(4) shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. All shares issued under the Plan, whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of
- --------
(1) Includes the 250,000-share (pre-split) increase approved by the Board
on August 8, 1995, and the 250,000-share (pre-split) increase approved by the
Board on November 28, 1995. Also includes the 150,000-share (pre-split) increase
approved by the Board on July 24, 1996. The additional 150,000-share (pre-split)
contingent increase approved by the Board on July 24, 1996 is not included
because those shares were issued outside of this Plan in a 25102(f) transaction.
(2) Reflects 2-for-1 stock split effective September 27, 1996.
(3) Includes the 500,000-share (post-split) increase approved by the Board
on January 22, 1997, and approved by the Shareholders as of January 22, 1997.
(4) Includes the 2,500,000-share (post-split) increase approved by the
Board on August 1, 1997, and approved by the Shareholders as of August 1, 1997.
2.
<PAGE> 3
consideration, appropriate adjustments shall be made to (i) the maximum number
and/or class of securities issuable under the Plan and (ii) the number and/or
class of securities and the exercise price per share in effect under each
outstanding option in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive. In no event shall any such adjustments be made in
connection with the conversion of one or more outstanding shares of the
Corporation's preferred stock into shares of Common Stock.
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be less
than eighty-five percent (85%) of the Fair Market Value per share of
Common Stock on the option grant date.
(ii) If the person to whom the option is granted is a
10% Shareholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Three and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12(g) of the 1934 Act at the time the option is exercised, then
the exercise price may also be paid as follows:
(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
3.
<PAGE> 4
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written instructions
(a) to a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option grant. However, no option shall have a term in excess of
ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE. The following provisions
shall govern the exercise of any options held by the Optionee at the time of
cessation of Service or death:
(i) Should the Optionee cease to remain in Service for
any reason other than Disability or death, then the Optionee shall have a
period of three (3) months following the date of such cessation of Service
during which to exercise each outstanding option held by such Optionee.
(ii) Should such Service terminate by reason of
Disability, then the Optionee shall have a period of six (6) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee. However, should such
Disability be deemed to constitute Permanent Disability, then the period
during which each outstanding option held by the Optionee is to remain
exercisable shall be extended by an additional six (6) months so that the
exercise period shall be the twelve (12)- month period following the date
of the Optionee's cessation of Service by reason of such Permanent
Disability.
(iii) Should the Optionee die while holding one or more
outstanding options, then the personal representative of the Optionee's
estate or the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of descent and
distribution shall
4.
<PAGE> 5
have a period of twelve (12) months following the date of the Optionee's
death during which to exercise each such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date of
the Optionee's cessation of Service. However, should the Optionee's
Service terminate by reason of his or her death, then all of the shares
subject to each outstanding option held by the Optionee at the time of
death shall immediately vest, and each option may be exercised for any or
all of those vested shares at any time during the applicable post-Service
exercise period.
(vi) Upon the expiration of the applicable post-Service
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate and
cease to be outstanding to the extent it is not exercisable for vested
shares on the date of such cessation of Service.
D. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock under the Plan. Should the Optionee cease Service while holding such
unvested shares, the Corporation shall have the right to repurchase, at the
exercise price paid per share, all or (at the discretion of the Corporation and
with the consent of the Optionee) any of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right. The Plan Administrator may not impose
a vesting schedule upon any option grant or any shares of Common Stock subject
to the option which is more restrictive than twenty percent (20%) per year
vesting, beginning one (1) year after the option grant date.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12(g) of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be
5.
<PAGE> 6
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned option (or portion
thereof) shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of the Plan shall be applicable to Incentive Options. Options which
are specifically designated as Non-Statutory Options shall not be subject to the
terms specified in this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one (1) calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the
extent the Employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
6.
<PAGE> 7
III. CORPORATE TRANSACTION
A. In the event of any Corporate Transaction, each outstanding
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with such
Corporate Transaction. In addition, all outstanding repurchase rights under the
Plan shall terminate in the event of any Corporate Transaction, except to the
extent the repurchase rights are assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in the consummation of such Corporate Transaction,
had the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same.
C. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
7.
<PAGE> 8
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. Promissory notes may be authorized with or without security
or collateral. However, any promissory notes delivered by a consultant must be
secured by property other than the purchased shares of Common Stock. In all
events, the maximum credit available to each Optionee may not exceed the sum of
(i) the aggregate option exercise price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee in connection with the option exercise.
II. ADDITIONAL AUTHORITY
A. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding:
(i) to extend the period of time for which the option
is to remain exercisable following the Optionee's cessation of Service or
death from the limited period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate;
provided, that in no event shall such option be exercisable after the
specified expiration of the option term, and/or
(ii) to permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service or death
but also with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued in
Service.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective when adopted by the Board in April
1995 and was approved by the Corporation's shareholders in April 1995. On August
8, 1995, the Board approved a 250,000-share increase in the number of shares
authorized for issuance over the term of the Plan. The increase was approved by
the Corporation's shareholders on November 28, 1995. On November 28, 1995, the
Board approved a further 250,000-share increase in the
8.
<PAGE> 9
number of shares authorized for issuance over the term of the Plan. However, no
option granted in reliance upon such share increase may be exercised until the
increase is approved by the Corporation's shareholders. If such shareholder
approval is not obtained within twelve (12) months after the date of the Board's
adoption of the Plan, then all options previously granted in reliance upon such
increase shall terminate and cease to be outstanding, and no further options
shall be granted. Subject to such limitation, the Plan Administrator may grant
options under the Plan at any time after the effective date of the Plan and
before the date fixed herein for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the
expiration of the ten (10)-year period measured from the date the Plan is
adopted by the Board, (ii) the date on which all shares available for issuance
under the Plan shall have been issued or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all options and unvested stock issuances outstanding under the Plan
shall continue to have full force and effect in accordance with the provisions
of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall, without the consent of the Optionees, adversely
affect their rights and obligations under their outstanding options. In
addition, the Board shall not, without the approval of the Corporation's
shareholders, (i) increase the maximum number of shares issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) materially modify the eligibility
requirements for Plan participation or (iii) materially increase the benefits
accruing to Plan participants.
B. Options may be granted under the Plan to purchase shares of
Common Stock in excess of the number of shares then available for issuance under
the Plan, provided any such options actually granted may not be exercised until
there is obtained shareholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such shareholder approval is not obtained within twelve (12) months after the
date the excess grants are first made, then any options granted on the basis of
such excess shares shall terminate and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
9.
<PAGE> 10
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder
and the issuance of any shares of Common Stock upon the exercise of any option
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of the Optionee, which rights are
hereby expressly reserved by each, to terminate the Optionee's Service at any
time for any reason, with or without cause.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
10.
<PAGE> 11
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which one hundred percent
(100%) of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Phase Metrics, Inc., a California
corporation.
G. DISABILITY shall mean the inability of an individual to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances. Disability shall be deemed to constitute PERMANENT
DISABILITY in the event that such Disability is expected to result in death or
has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
A-1.
<PAGE> 12
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate, including the Corporation's earnings history, book value and
prospects in the light of market conditions generally.
L. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
M. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
N. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
O. OPTIONEE shall mean any person to whom an option is granted under
the Plan.
A-2.
<PAGE> 13
P. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Q. PLAN shall mean the Corporation's 1995 Stock Option Plan, as set
forth in this document.
R. PLAN ADMINISTRATOR shall mean either the Board or the Committee, to
the extent the Committee is at the time responsible for the administration of
the Plan.
S. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
T. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant, unless otherwise
specifically provided in the applicable stock option or stock purchase agreement
evidencing the option grant or the purchase of shares thereunder.
U. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
V. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
W. 10% SHAREHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
A-3.
<PAGE> 1
EXHIBIT 10.8
Grant No._________________
PHASE METRICS, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option")
to purchase shares of the Common Stock of Phase Metrics, Inc. (the
"Corporation"):
Optionee: __________________________________________________________
Grant Date: ________________________________________________________
Vesting Commencement Date: _________________________________________
Exercise Price: $____ per share
Number of Option Shares: ___________________ shares
Expiration Date: ___________________________________________________
Type of Option: _____ Incentive Stock Option
_____ Non-Statutory Stock Option
Date Exercisable: Immediately Exercisable
Vesting Schedule: The Option Shares shall be unvested and subject to
repurchase by the Corporation at the Exercise Price paid per share.
Optionee shall acquire a vested interest in, and the Corporation's
repurchase right will accordingly lapse with respect to, (i) twenty
percent (20%) of the Option Shares upon Optionee's completion of one
(1) year of Service measured from the Vesting Commencement Date and
(ii) the balance of the Option Shares in a series of forty-eight
(48) equal successive monthly installments upon Optionee's
completion of each additional month of Service over the forty-eight
(48)-month period measured from the first anniversary of the Vesting
Commencement Date. Should the Optionee die while in Employee status,
then all the Option Shares shall immediately vest and shall no
longer be subject to the Corporation's repurchase right. In no other
event shall any additional Option Shares vest after Optionee's
cessation of Service.
The Option is granted subject to and in accordance with the terms of
the Phase Metrics, Inc. 1995 Stock Option Plan (the "Plan"). Optionee shall be
bound by the terms of the Plan and the terms of the Option as set forth in the
Stock Option Agreement attached hereto as Exhibit A. Any Option Shares purchased
under the Option will be subject to the provisions of the Stock Purchase
Agreement attached hereto as Exhibit B.
<PAGE> 2
Optionee hereby acknowledges receipt of a copy of the Plan in the
form attached hereto as Exhibit C.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE
RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS
ASSIGNS UPON THE TERMS AND CONDITIONS SPECIFIED IN THE ATTACHED STOCK PURCHASE
AGREEMENT.
No Employment or Service Contract. Nothing in this Notice or in the
Plan shall confer upon Optionee any right to continue in Service for any period
of specific duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any Parent or Subsidiary employing or retaining
Optionee) or of Optionee, which rights are hereby expressly reserved by each, to
terminate Optionee's Service at any time for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
____________________, 199__
Date
PHASE METRICS, INC.
By: _____________________________________
Title: __________________________________
_________________________________________
OPTIONEE
Address: ________________________________
_________________________________________
ATTACHMENTS
- -----------
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - STOCK PURCHASE AGREEMENT
EXHIBIT C - 1995 STOCK OPTION PLAN
2.
<PAGE> 3
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 4
EXHIBIT B
STOCK PURCHASE AGREEMENT
<PAGE> 5
EXHIBIT C
1995 STOCK OPTION PLAN
<PAGE> 1
EXHIBIT 10.9
PHASE METRICS, INC.
STOCK OPTION AGREEMENT
RECITALS
A. Optionee is to render valuable services to the Corporation, and this
Agreement is intended to document the stock option grant which the Corporation
has this day made to Optionee as an incentive for him to continue in the
Corporation's Service.
B. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.
4. DATES OF EXERCISE. This option shall become exercisable for
the Option Shares in one or more installments as specified in the Grant Notice.
As the option becomes exercisable for such installments, those installments
shall accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
a. Should Optionee cease to remain in Service for any
reason (other than death or Disability) while this option is outstanding, then
Optionee shall have a period of
<PAGE> 2
three (3) months (commencing with the date of such cessation of Service) during
which to exercise this option, but in no event shall this option be exercisable
at any time after the Expiration Date.
b. Should Optionee die while this option is outstanding,
then the personal representative of Optionee's estate or the person or persons
to whom the option is transferred pursuant to Optionee's will or in accordance
with the laws of descent and distribution shall have the right to exercise this
option. Such right shall lapse and this option shall cease to be outstanding
upon the earlier of (i) the expiration of the twelve (12)- month period measured
from the date of Optionee's death or (ii) the Expiration Date.
c. Should Optionee cease Service by reason of Disability
while this option is outstanding, then Optionee shall have a period of six (6)
months (commencing with the date of such cessation of Service) during which to
exercise this option. However, should such Disability be deemed to constitute
Permanent Disability, then the period during which this option is to remain
exercisable shall be extended by an additional six (6) months so that the
exercise period shall be the twelve (12)-month period following the date of
Optionee's cessation of Service by reason of such Permanent Disability. In no
event shall this option be exercisable at any time after the Expiration Date.
d. During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for more than
the number of Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service.
e. Upon the expiration of the applicable post-Service
exercise period or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding for any otherwise exercisable Option
Shares for which the option has not been exercised. However, this option shall
immediately, upon Optionee's cessation of Service, terminate and cease to be
outstanding with respect to any and all Option Shares for which this Option is
not otherwise at that time exercisable.
6. SPECIAL TERMINATION OF OPTION.
a. This option, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date of
the Corporate Transaction, become exercisable for all of the Option Shares at
the time subject to this option and may be exercised for any or all of those
Option Shares as fully-vested shares of Common Stock. No such acceleration of
this option, however, shall occur if and to the extent: (i) this option is, in
connection with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof) or (ii) this option is to be replaced with a cash incentive program
2.
<PAGE> 3
of the successor corporation which preserves the spread existing on the unvested
Option Shares at the time of the Corporate Transaction (the excess of the Fair
Market Value of those Option Shares over the aggregate Exercise Price payable
for such shares) and provides for subsequent pay-out in accordance with the same
option exercise/vesting schedule set forth in the Grant Notice. The
determination of option comparability under clause (i) shall be made by the Plan
Administrator, and such determination shall be final, binding and conclusive.
b. If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
c. This Agreement shall not in any way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. SHAREHOLDER RIGHTS. The holder of this option shall not have
any shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
9. MANNER OF EXERCISING OPTION.
a. In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(1) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
3.
<PAGE> 4
(2) Pay the aggregate Exercise Price for the purchased
shares in cash or check made payable to the Corporation.
Should the Common Stock be registered under Section 12(g) of
the 1934 Act at the time the option is exercised, then the Exercise
Price may also be paid as follows:
(a) in shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(b) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
written instructions (a) to a Corporation-designated brokerage firm
to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate Exercise
Price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld
by the Corporation by reason of such exercise and (b) to the
Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to
the Corporation in connection with the option exercise.
(3) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if other
than Optionee) have the right to exercise this option.
(4) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in order
for it to comply with the applicable requirements of Federal and state
securities laws.
(5) Make appropriate arrangements with the Corporation
(or Parent or Subsidiary employing or retaining Optionee) for the
4.
<PAGE> 5
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
b. As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
c. In no event may this option be exercised for any
fractional shares.
10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE
EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN FIRST REFUSAL RIGHTS OF THE
CORPORATION AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE
TERMS SPECIFIED IN THE PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
a. The exercise of this option and the issuance of the
Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
b. The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
5.
<PAGE> 6
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure to
the benefit of, and be binding upon, the Corporation and its successors and
assigns and Optionee, Optionee's assigns and the legal representatives, heirs
and legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
6.
<PAGE> 7
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. COMMON STOCK shall mean the Corporation's common stock.
D. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which one hundred percent
(100%) of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
E. CORPORATION shall mean Phase Metrics, Inc., a California
corporation.
F. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation, subject to the Corporation's control and direction as to both the
work to be performed and the manner and method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per share as specified
in the Grant Notice.
A-1.
<PAGE> 8
J. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Board to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Board after taking into account
such factors as the Board shall deem appropriate, including the
Corporation's earnings history, book value and prospects in the light of
market conditions generally.
L. GRANT DATE shall mean the date of grant of the option as specified
in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option.
A-2.
<PAGE> 9
P. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
Q. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
R. SERVICE shall mean the Optionee's performance of services for the
Corporation in the capacity of an Employee or non-employee Board member or as an
independent consultant pursuant to the terms and conditions of the Consulting
Services Agreement between the Optionee and the Corporation dated _____________.
S. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
A-3.
<PAGE> 10
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement attached as Exhibit A
to the Notice of Stock Option Grant evidencing the stock option (the "Option")
which the Corporation granted to Optionee on _____________, 1996 to purchase
______________ shares of the Corporation's Common Stock under the Corporation's
1995 Stock Option Plan at an exercise price of $15.00 per share. All capitalized
terms used in this Addendum, to the extent not otherwise specifically defined
herein, shall have the meanings assigned to such terms in the Stock Option
Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. To the extent the Option is, in connection with a Corporate
Transaction, to be assumed or replaced with a comparable option in accordance
with Paragraph 6 of the Option Agreement, the Option shall not accelerate upon
the occurrence of that Corporate Transaction, and the Option shall accordingly
continue, over Optionee's period of Service after the Corporate Transaction, to
become exercisable for the Option Shares in one or more installments in
accordance with the provisions of the Option Agreement. However, should Optionee
cease Service by reason of an Involuntary Termination within twelve (12) months
following a Corporate Transaction in which the acquisition price payable per
share of Common Stock (determined on a fully-diluted basis as if all the
Corporation's outstanding securities exercisable or convertible into Common
Stock were in fact exercised or converted immediately prior to such Corporate
Transaction) is an amount not less than the minimum price per share indicated in
Paragraph 2 below for the fiscal year of the Corporation in which such Corporate
Transaction occurs, then the Option, to the extent outstanding at the time but
not otherwise fully exercisable, shall automatically accelerate so that the
Option shall become immediately exercisable for all the Option Shares at the
time subject to the Option and may be exercised for any or all of those Option
Shares as fully vested shares. The Option shall remain so exercisable until the
earlier of (i) the Expiration Date or (ii) the sooner termination of the Option
in accordance with Paragraph 5 of the Stock Option Agreement.
2. The minimum acquisition price payable per share of Common
Stock (determined on a fully-diluted basis in the manner indicated above) which
will serve as a requisite condition to the acceleration of the Option under
Paragraph 1 shall be determined in accordance with the table below on the basis
of the fiscal year of the Corporation in which the Corporate Transaction is
effected:
Fiscal Year Minimum
of Acquisition Price
Acquisition Per Share
<PAGE> 11
1996 $10.00
1997 or later $14.00
3. For purposes of this Addendum, Optionee will be deemed to
cease Service by reason of an Involuntary Termination if such cessation of
Service occurs:
- involuntarily upon Optionee's dismissal or discharge by
the Corporation for reasons other than fraud, any unauthorized use or disclosure
of the Corporation's trade secrets and other proprietary information, or any
other intentional misconduct adversely affecting the business or affairs of the
Corporation in a material manner, or
- voluntarily upon Optionee's resignation following (A) a
change in Optionee's position with the Corporation which materially reduces
Optionee's level of responsibility, (B) a reduction in Optionee's level of
compensation (including base salary, fringe benefits and any non-discretionary
and objective-standard incentive payment or bonus award) by more than fifteen
percent (15%) or (C) a relocation of Optionee's principal place of employment by
more than fifty (50) miles from Optionee's principal place of employment
immediately prior to the Corporate Transaction, provided and only if such
change, reduction or relocation is effected by the Corporation without
Optionee's consent.
IN WITNESS WHEREOF, Phase Metrics, Inc. has caused this Addendum to
be executed by its duly-authorized officer, and Optionee has executed this
Addendum, all as of the Effective Date specified below.
PHASE METRICS, INC.
By: _____________________________________
Title: __________________________________
_________________________________________
OPTIONEE
EFFECTIVE DATE: _____________________, 1996
2.
<PAGE> 1
EXHIBIT 10.10
PHASE METRICS, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this_______ day of______ 19___ , by and
among Phase Metrics, Inc., a California corporation, _________________________,
Optionee under the Corporation's 1995 Stock Option Plan, and __________________,
Optionee's spouse.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. EXERCISE. Optionee hereby purchases ________ shares of Common
Stock (the "Purchased Shares") pursuant to that certain option (the "Option")
granted Optionee on ____________________, 199__ (the "Grant Date") to purchase
up to _______________ shares of Common Stock under the Plan at the exercise
price of $______ per share (the "Exercise Price").
2. PAYMENT. Concurrently with the delivery of this Agreement to
the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares
in accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly-executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I) with respect to the
Purchased Shares.
3. SHAREHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right, the First Refusal Right or the Special Purchase
Right, Optionee (or any successor in interest) shall have all the rights of a
shareholder (including voting, dividend and liquidation rights) with respect to
the Purchased Shares, subject, however, to the transfer restrictions of Articles
B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that
<PAGE> 2
SEC Rule 144 issued under the 1933 Act which exempts certain resales of
unrestricted securities is not presently available to exempt the resale of the
Purchased Shares from the registration requirements of the 1933 Act.
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee
shall make no disposition of the Purchased Shares (other than a Permitted
Transfer) unless and until there is compliance with all of the following
requirements:
(i) Optionee shall have provided the Corporation with a
written summary of the terms and conditions of the proposed disposition.
(ii) Optionee shall have complied with all requirements of
this Agreement applicable to the disposition of the Purchased Shares.
(iii) Optionee shall have provided the Corporation with
written assurances in the form attached as Exhibit II to this Agreement.
(iv) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that the proposed disposition will not result in the
contravention of any transfer restrictions applicable to the Purchased
Shares pursuant to the provisions of the Rules of the California
Corporations Commissioner identified in Paragraph B.4.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not be
sold or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a `no action' letter of the
Securities and Exchange Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
(ii) "It is unlawful to consummate a sale or transfer of
this security, or any interest therein, or to receive any consideration
therefor, without the prior written consent of the Commissioner of
Corporations of the State of California, except as permitted in the
Commissioner's Rules."
2.
<PAGE> 3
(iii) "The shares represented by this certificate are
subject to certain repurchase rights and rights of first refusal granted
to the Corporation and accordingly may not be sold, assigned,
transferred, encumbered, or in any manner disposed of except in
conformity with the terms of a written agreement dated _______, 199__
between the Corporation and the registered holder of the shares (or the
predecessor in interest to the shares). A copy of such agreement is
maintained at the Corporation's principal corporate offices."
4. RECEIPT OF COMMISSIONER RULES. Optionee hereby acknowledges
receipt of a copy of Section 260.141.11 of the Rules of the California
Corporations Commissioner, a copy of which is attached as Exhibit III to this
Agreement.
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right, the Market Stand-Off or the Special Purchase Right.
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Optionee.
3. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by
the Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-Off") shall
be in effect for such period of time from and after the effective date of the
final prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred eighty
(180) days and the Market Stand-Off shall in all events terminate two (2) years
after the effective date of the Corporation's initial public offering.
(b) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are also
subject to similar restrictions.
3.
<PAGE> 4
(c) Any new, substituted or additional securities which
are by reason of any Recapitalization or Reorganization distributed with respect
to the Purchased Shares shall be immediately subject to the Market Stand-Off, to
the same extent the Purchased Shares are at such time covered by such
provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason other than death to remain in
Service or (if later) during the sixty (60)-day period following the execution
date of this Agreement, to repurchase at the Exercise Price all or, at the
discretion of the Corporation and with the consent of Optionee, any portion of
the Purchased Shares in which Optionee is not, at the time of his or her
cessation of Service, vested in accordance with the Vesting Schedule (such
shares to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall
be exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation prior to the close of
business on the date specified for the repurchase. Concurrently with the receipt
of such stock certificates, the Corporation shall pay to Owner, in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness), an
amount equal to the Exercise Price previously paid for the Unvested Shares which
are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right, (ii) the Market Stand-Off, and (iii) the Special
Purchase Right.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in
more than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
4.
<PAGE> 5
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right, but
only to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the number
and/or class of Purchased Shares subject to this Agreement and to the price per
share to be paid upon the exercise of the Repurchase Right in order to reflect
the effect of any such Recapitalization upon the Corporation's capital
structure; provided, however, that the aggregate purchase price shall remain the
same.
6. CORPORATE TRANSACTION.
(a) Immediately prior to the consummation of any Corporate
Transaction, the Repurchase Right shall automatically lapse in its entirety,
except to the extent the Repurchase Right is assigned to the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to the new capital
stock or other property (including any cash payment) received in exchange for
the Purchased Shares in consummation of the Corporate Transaction, but only to
the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
the aggregate purchase price shall remain the same.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the Vesting Schedule. For purposes of this Article E, the term "transfer" shall
include any sale, assignment, pledge, encumbrance or other disposition of the
Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or, at the discretion of the
Corporation and with the consent of Owner, all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and
5.
<PAGE> 6
(ii) provide satisfactory proof that the disposition of the Target Shares to
such third-party offeror would not be in contravention of the provisions set
forth in Articles B and C.
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The Corporation
shall bear the cost of such appraisal. The closing shall then be held on the
later of (i) the fifth (5th) business day following delivery of the Exercise
Notice or (ii) the fifth (5th) business day after such valuation shall have been
made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the Repurchase Right and the First Refusal Right, but the acquired shares
shall remain subject to the provisions of Article B and the Market Stand-Off. In
the event Owner does not effect such sale or disposition of the Target Shares
within the specified thirty (30)-day period, the First Refusal Right shall
continue to be applicable to any subsequent disposition of the Target Shares by
Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt
6.
<PAGE> 7
of the Exercise Notice, to effect the sale of the Target Shares pursuant to
either of the following alternatives:
(i) sale or other disposition of all the Target Shares to
the third-party offeror identified in the Disposition Notice, but in
full compliance with the requirements of Paragraph E.4, as if the
Corporation did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Paragraph E.3.
The First Refusal Right shall continue to be applicable to any
subsequent disposition of the remaining Target Shares until such right
lapses.
Failure of Owner to deliver timely notification to the
Corporation shall be deemed to be an election by Owner to sell the Target Shares
pursuant to alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Reorganization, but only to the extent the Purchased Shares
are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the earliest
to occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination is made by
the Board that a public market exists for the outstanding shares of Common Stock
or (iii) a firm commitment underwritten public offering, pursuant to an
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. MARITAL DISSOLUTION OR LEGAL SEPARATION
1. GRANT. In connection with the dissolution of Optionee's
marriage or the legal separation of Optionee and Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right") to purchase from
Optionee's spouse, in accordance with the provisions of Paragraph F.3, all or,
at the discretion of the Corporation and with the consent of Optionee's
7.
<PAGE> 8
spouse, any portion of the Purchased Shares which would otherwise be awarded to
such spouse in settlement of any community property or other marital property
rights such spouse may have in such shares.
2. NOTICE OF DECREE OR AGREEMENT. Optionee shall promptly provide
the Corporation with written notice (the "Dissolution Notice") of (i) the entry
of any judicial decree or order resolving the property rights of Optionee and
Optionee's spouse in connection with their marital dissolution or legal
separation or (ii) the execution of any contract or agreement relating to the
distribution or division of such property rights. The Dissolution Notice shall
be accompanied by a copy of the actual decree or order of dissolution or
contract or agreement between Optionee and Optionee's spouse which provides for
the award to the spouse of one or more Purchased Shares in settlement of any
community property or other marital property rights such spouse may have in such
shares.
3. EXERCISE OF THE SPECIAL PURCHASE RIGHT. The Special Purchase
Right shall be exercisable by delivery of written notice (the "Purchase Notice")
to Optionee and Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice) and the Fair Market Value to be paid for such Purchased Shares. Optionee
(or Optionee's spouse, to the extent such spouse has physical possession of the
Purchased Shares) shall, prior to the close of business on the date specified
for the purchase, deliver to the Corporation the certificates representing the
shares to be purchased. The Corporation shall, concurrently with the receipt of
the stock certificates, pay to Optionee's spouse (in cash or cash equivalents)
an amount equal to the higher of the Exercise Price or the Fair Market Value of
the Purchased Shares on the date specified for the purchase, such Fair Market
Value to be set forth in the Purchase Notice.
If Optionee's spouse does not agree with the Fair Market Value
specified for the shares in the Purchase Notice, then the spouse shall promptly
notify the Corporation in writing of such disagreement and the fair market value
of such shares shall thereupon be determined by an appraiser of recognized
standing selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two (2) appraisers
shall designate a third appraiser of recognized standing whose appraisal shall
be determinative of such value. The Corporation shall bear the cost of the
appraisal. The closing shall then be held on the fifth (5th) business day
following the completion of such appraisal; provided, however, that if the
appraised value is more than twenty-five percent (25%) greater than the Fair
Market Value specified for the shares in the Purchase Notice, the Corporation
shall have the right, exercisable prior to the expiration of such five (5)
business-day period, to rescind the exercise of the Special Purchase Right and
thereby revoke its election to purchase the shares awarded to the spouse. In the
event the Corporation so revokes its election, the Corporation shall bear the
entire cost of the appraisal.
8.
<PAGE> 9
4. LAPSE. The Special Purchase Right shall lapse upon the earlier
to occur of (i) the lapse of the First Refusal Right or (ii) the expiration of
the exercise period specified in Paragraph F.3, to the extent the Special
Purchase Right is not timely exercised in accordance with such paragraph.
G. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided by filing an election under Code Section
83(b). Such election must be filed within thirty (30) days after the date of
this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit IV. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS OR HER BEHALF.
H. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation. The
assignee of the Repurchase Right must make a cash payment to the Corporation in
an amount equal to the excess (if any) of (i) the Fair Market Value of the
Purchased Shares at the time subject to the assigned Repurchase Right over (ii)
the aggregate repurchase price payable for the Purchased Shares.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
or in the Plan shall confer upon Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
9.
<PAGE> 10
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right, the First Refusal Right or the Special Purchase
Right shall not constitute a waiver of any other repurchase rights and/or rights
of first refusal that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Optionee or
Optionee's spouse. No waiver of any breach or condition of this Agreement shall
be deemed to be a waiver of any other or subsequent breach or condition, whether
of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
I. MISCELLANEOUS PROVISIONS
1. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
2. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
3. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's assigns and the legal representatives,
heirs and legatees of Optionee's estate, whether or not any such person shall
have become a party to this Agreement and have agreed in writing to join herein
and be bound by the terms hereof.
4. POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee
his or her true and lawful attorney in fact, for him or her and in his or her
name, place and stead, and for his or her use and benefit, to agree to any
amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Optionee's spouse further gives and
grants unto Optionee as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby
10.
<PAGE> 11
ratifying and confirming all that Optionee shall lawfully do and cause to be
done by virtue of this power of attorney.
5. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
PHASE METRICS, INC.
By:
----------------------------------------
Title:
-------------------------------------
Address:
-----------------------------------
-------------------------------------------
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OPTIONEE
Address:
-----------------------------------
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11.
<PAGE> 12
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves
the foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation): (i)
the right of the Corporation (or its assigns) to repurchase any Purchased Shares
in which Optionee is not vested at the time of cessation of Service, and (ii)
the right of the Corporation (or its assigns) to purchase any and all interest
or right the undersigned may otherwise have in the Purchased Shares pursuant to
community property laws or other marital property rights.
-------------------------------------------
OPTIONEE'S SPOUSE
Address:
12.
<PAGE> 13
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions:
(i) a merger or consolidation in which one hundred percent (100%)
of the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution
of the Corporation.
F. CORPORATION shall mean Phase Metrics, Inc., a California corporation.
G. DISPOSITION NOTICE shall have the meaning assigned to such term in
Paragraph E.2.
H. DISSOLUTION NOTICE shall have the meaning assigned to such term in
Paragraph F.2.
I. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
J. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
K. FAIR MARKET VALUE of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined by
the Plan Administrator after taking into account such factors as it shall deem
appropriate, including the Corporation's earnings history, book value and
prospects in the light of market conditions generally.
L. FIRST REFUSAL RIGHT shall mean the right granted to the Corporation
in accordance with Article E.
M. GRANT DATE shall have the meaning assigned to such term in Paragraph
A.1.
A-1.
<PAGE> 14
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option pursuant
to which Optionee has been informed of the basic terms of the Option.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
Q. 1933 ACT shall mean the Securities Act of 1933, as amended.
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. OPTION shall have the meaning assigned to such term in Paragraph A.1.
U. OPTION AGREEMENT shall mean all agreements and other documents
evidencing the Option.
V. OPTIONEE shall mean the person to whom the Option is granted under
the Plan.
W. OWNER shall mean Optionee and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.
X. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Y. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Z. PLAN shall mean the Corporation's 1995 Stock Option Plan.
AA. PLAN ADMINISTRATOR shall mean either the Board or a committee of
Board members, to the extent the committee is at the time responsible for
administration of the Plan.
A-2.
<PAGE> 15
AB. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such
term in Paragraph D.4.
AC. PURCHASE NOTICE shall have the meaning assigned to such term in
Paragraph F.3.
AD. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
AE. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
AF. REORGANIZATION shall mean any of the following transactions:
(i) a merger or consolidation in which the Corporation is not
the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from
the persons holding those securities immediately prior to the merger, or
(iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company
structure.
AG. REPURCHASE RIGHT shall mean the right granted to the Corporation in
accordance with Article D.
AH. SEC shall mean the Securities and Exchange Commission.
AI. SERVICE shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by an individual in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or a consultant.
AJ. SPECIAL PURCHASE RIGHT shall mean the right granted to the
Corporation in accordance with Article F.
AK. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing
A-3.
<PAGE> 16
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
AL. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
AM. VESTING SCHEDULE shall mean the vesting schedule specified in the
Grant Notice.
AN. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-4.
<PAGE> 17
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED ______________________ hereby sell(s),
assign(s) and transfer(s) unto Phase Metrics, Inc. (the "Corporation"),
______________________ ( ______ ) shares of the Common Stock of the Corporation
standing in his or her name on the books of the Corporation represented by
Certificate No. _______________ herewith and do hereby irrevocably constitute
and appoint ______________________ Attorney to transfer the said stock on the
books of the Corporation with full power of substitution in the premises.
Dated:_________
Signature
-------------------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE> 18
EXHIBIT II
WRITTEN ASSURANCE IN CONNECTION WITH
DISPOSITION OF PURCHASED SHARES
I hereby notify you, Phase Metrics, Inc. (the "Company"), that I intend
to sell _______ shares of the Company's Common Stock which I purchased upon
exercise of an option granted to me under the Company's 1995 Stock Option Plan.
I [am] [am not] an affiliate of the Company for the purposes of the
Federal securities laws, and will accordingly effect the sale of the shares in
accordance with the requirements of Rule 701 under the Securities Act of 1933,
as amended.
A-6.
<PAGE> 19
EXHIBIT III
SECTION 260.141.11
TITLE 10, CALIFORNIA ADMINISTRATIVE CODE
260.141.11 Restriction on Transfer. (a) The issuer of any
security upon which a restriction on transfer has been imposed pursuant to
Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to
be delivered to each issuee or transferee of such security at the time the
certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to
consummate a sale or transfer of such security, or any interest therein, without
the prior written consent of the Commissioner (until this condition is removed
pursuant to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102
of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such securities
is not in violation of any securities law of the foreign state, territory or
country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
III-1.
<PAGE> 20
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or Subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112
or 25113 of the Code, provided that no order under Section 25140 or Subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to
such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped or
printed thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
III-2.
<PAGE> 21
EXHIBIT IV
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(B) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(B) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair Market
Value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(B)
ELECTION FOR EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:
(i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
(ii) The excess of (a) the Fair Market Value of the
Purchased Shares on the date the Option is exercised or (if later) on
the date any forfeiture restrictions applicable to the Purchased Shares
lapse over (b) the Exercise Price paid for the Purchased Shares will be
includible in Optionee's taxable income for alternative minimum tax
purposes.
(iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the
year of such disposition equal in amount to the excess of (a) the Fair
Market Value of the Purchased Shares on the date the Option is exercised
or (if later) on the date any forfeiture restrictions applicable to the
Purchased Shares lapse over (b) the Exercise Price paid for the
Purchased Shares. Any additional gain recognized upon the disqualifying
disposition will be either short-term or long-term capital gain
depending upon the period for which the Purchased Shares are held prior
to the disposition.
IV-1.
<PAGE> 22
(iv) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right. The term
"disqualifying disposition" means any sale or other disposition 1 of the
Purchased Shares within two (2) years after the Grant Date or within one
(1) year after the exercise date of the Option.
(v) In the absence of final Treasury Regulations relating
to Incentive Options, it is not certain whether Optionee may, in
connection with the exercise of the Option for any Purchased Shares at
the time subject to forfeiture restrictions, file a protective election
under Code Section 83(b) which would limit (a) Optionee's alternative
minimum taxable income upon exercise and (b) Optionee's ordinary income
upon a disqualifying disposition to the excess of the Fair Market Value
of the Purchased Shares on the date the Option is exercised over the
Exercise Price paid for the Purchased Shares. Accordingly, such election
if properly filed will only be allowed to the extent the final Treasury
Regulations permit such a protective election. Page 2 of the attached
form for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.
- --------
1/ Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee's spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.
IV-2.
<PAGE> 23
SECTION 83(B) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
___________ shares of the common stock of Phase Metrics, Inc.
(3) The property was issued on _____________, 199___.
(4) The taxable year in which the election is being made is the calendar
year 199____ .
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's employment with the issuer is
terminated. The issuer's repurchase right lapses in a series of annual
and monthly installments over a five (5)-year period ending on
.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $ per share.
(7) The amount paid for such property is $ _____________per share.
(8) A copy of this statement was furnished to Phase Metrics, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on _______________________, 199__.
- ---------------------------------- ------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 24
The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Internal Revenue Code (the "Code"). Accordingly,
it is the intent of the Taxpayer to utilize this election to achieve the
following tax results:
1. The purpose of this election is to have the alternative
minimum taxable income attributable to the purchased shares measured by the
amount by which the fair market value of such shares at the time of their
transfer to the Taxpayer exceeds the purchase price paid for the shares. In the
absence of this election, such alternative minimum taxable income would be
measured by the spread between the fair market value of the purchased shares and
the purchase price which exists on the various lapse dates in effect for the
forfeiture restrictions applicable to such shares. The election is to be
effective to the full extent permitted under the Code.
2. Section 421(a)(1) of the Code expressly excludes from income
any excess of the fair market value of the purchased shares over the amount paid
for such shares. Accordingly, this election is also intended to be effective in
the event there is a "disqualifying disposition" of the shares, within the
meaning of Section 421(b) of the Code, which would otherwise render the
provisions of Section 83(a) of the Code applicable at that time. Consequently,
the Taxpayer hereby elects to have the amount of disqualifying disposition
income measured by the excess of the fair market value of the purchased shares
on the date of transfer to the Taxpayer over the amount paid for such shares.
Since Section 421(a) presently applies to the shares which are the subject of
this Section 83(b) election, no taxable income is actually recognized for
regular tax purposes at this time, and no income taxes are payable, by the
Taxpayer as a result of this election.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(B) ELECTION FILED IN
CONNECTION WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER
THE FEDERAL TAX LAWS.
2.
<PAGE> 25
ADDENDUM
TO
STOCK PURCHASE AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Purchase Agreement attached as Exhibit
B to the Notice of Stock Option Grant evidencing the stock option (the "Option")
which the Corporation granted to Optionee on 11~ to purchase 15~ shares of the
Corporation's Common Stock under the Corporation's 1995 Stock Option Plan at an
exercise price of 14~ per share. All capitalized terms used in this Addendum, to
the extent not otherwise specifically defined herein, shall have the meanings
assigned to such terms in the Stock Purchase Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CORPORATE TRANSACTION
1. Should Optionee cease Service by reason of an Involuntary
Termination within twelve (12) months following a Corporate Transaction in which
the acquisition price payable per share of Common Stock (determined on a
fully-diluted basis as if all the Corporation's outstanding securities
exercisable or convertible into Common Stock were in fact exercised or converted
immediately prior to such Corporate Transaction) is an amount not less than the
minimum price per share indicated in Paragraph 2 below for the fiscal year of
the Corporation in which such Corporate Transaction occurs, then the
Corporation's Repurchase Right shall, immediately upon such Involuntary
Termination, lapse in its entirety and all the shares of Common Stock purchased
or purchasable under the Option shall immediately vest.
2. The minimum acquisition price payable per share of Common
Stock (determined on a fully-diluted basis in the manner indicated above) which
will serve as a requisite condition under Paragraph 1 to the accelerated vesting
of the shares of Common Stock purchased or purchasable under the Option shall be
determined in accordance with the table below on the basis of the fiscal year of
the Corporation in which the Corporate Transaction is effected:
<TABLE>
<CAPTION>
Fiscal Year Minimum
of Acquisition Price
Acquisition Per Share
----------- ---------
<S> <C> <C>
1995 $7.00
1996 $10.00
1997 or later $14.00
</TABLE>
3. For purposes of this Addendum, Optionee will be deemed to
cease Service by reason of an Involuntary Termination if such cessation of
Service occurs:
<PAGE> 26
- involuntarily upon Optionee's dismissal or discharge by
the Corporation for reasons other than fraud, any other intentional
misconduct adversely affecting the business or affairs of the
Corporation in a material manner or any other act of misconduct
specified in Paragraph (5)(f) of the Option Agreement, or
- voluntarily upon Optionee's resignation following (A) a
change in Optionee's position with the Corporation which materially
reduces Optionee's level of responsibility, (B) a reduction in
Optionee's level of compensation (including base salary, fringe benefits
and any non-discretionary and objective-standard incentive payment or
bonus award) by more than twenty-five percent (25%) or (C) a relocation
of Optionee's principal place of employment by more than fifty (50)
miles from Optionee's principal place of employment immediately prior to
the Corporate Transaction or Change in Control (as applicable), provided
and only if such change, reduction or relocation is effected by the
Corporation without Optionee's consent.
IN WITNESS WHEREOF, Phase Metrics, Inc. has caused this Addendum
to be executed by its duly-authorized officer, and Optionee has executed this
Addendum, all as of the Effective Date specified below.
PHASE METRICS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
--------------------------------------------
2~ 1~, OPTIONEE
EFFECTIVE DATE:
---------------
2.
<PAGE> 1
Exhibit 10.11
SECURITYHOLDERS AGREEMENT
dated as of
November 23, 1994
among
DLJ MERCHANT BANKING PARTNERS, L.P.,
DLJ INTERNATIONAL PARTNERS, C.V.,
DLJ OFFSHORE PARTNERS, C.V.,
DLJ MERCHANT BANKING FUNDING, INC.,
DLJ CAPITAL CORPORATION,
SPROUT GROWTH II, L.P.,
SPROUT CAPITAL VI, L.P.,
PM FUNDING, INC.,
ARTHUR J. CORMIER,
JOHN F. SCHAEFER
and
PHASE METRICS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
DEFINITIONS
1.1 Definitions.......................................................... 1
ARTICLE 2
CORPORATE GOVERNANCE
2.1 Composition of the Board............................................. 7
2.2 Removal.............................................................. 7
2.3 Vacancies............................................................ 7
2.4 Termination of Rights and Obligations................................ 8
2.5 Action by the Board.................................................. 8
2.6 Articles of Incorporation and Bylaws................................. 8
ARTICLE 3
RESTRICTIONS ON TRANSFER
3.1 General.............................................................. 8
3.2 Legend on Securities................................................ 10
3.3 Permitted Transferees................................................ 10
ARTICLE 4
RIGHTS OF FIRST REFUSAL; TAG ALONG RIGHTS;
PREEMPTIVE RIGHTS; DRAG ALONG RIGHTS; TERMINATION
AND INAPPLICABILITY OF PROVISIONS
4.1 Right of First Refusal; Tag along Rights............................. 10
4.2 Preemptive Rights.................................................... 14
4.3 Right to Compel Participation in Certain Transfers................... 15
4.4 Improper Transfer.................................................... 16
4.5 Termination of Agreement............................................. 16
4.6 Inapplicability of Transfer Restrictions and Corporate Governance
Provisions to PM Funding, Inc........................................ 16
</TABLE>
i
<PAGE> 3
ARTICLE 5
REGISTRATION RIGHTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.1 Demand Registration.................................................. 16
5.2 Incidental Registration.............................................. 19
5.3 Holdback Agreements.................................................. 20
5.4 Registration Procedures.............................................. 20
5.5 Indemnification by the Issuer........................................ 23
5.6 Indemnification by Participating Securityholders..................... 23
5.7 Conduct of Indemnification Proceedings............................... 24
5.8 Contribution......................................................... 25
5.9 Participation in Public Offering..................................... 26
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS
6.1 Confidentiality...................................................... 26
6.2 No Inconsistent Agreements........................................... 27
6.3 Agreement as Between PM Funding, Inc. and the Other DLJ Entities
Regarding Conversion of the Notes.................................... 27
ARTICLE 7
MISCELLANEOUS
7.1 Entire Agreement..................................................... 27
7.2 Binding Effect; Benefit.............................................. 28
7.3 Assignability........................................................ 28
7.4 Amendment; Waiver; Termination....................................... 28
7.5 Exclusive Financial Advisor and Investment Banking Advisor........... 28
7.6 Certain Requirements In Connection with Conversion of Shares of
Series B Preferred Stock............................................. 29
7.7 Notices.............................................................. 29
7.8 Headings............................................................. 31
7.9 Counterparts......................................................... 31
7.10 Applicable Law....................................................... 31
7.11 Specific Enforcement................................................. 31
7.12 Consent to Jurisdiction.............................................. 31
</TABLE>
ii
<PAGE> 4
SECURITYHOLDERS AGREEMENT
AGREEMENT dated as of November 23, 1994 among DLJ Merchant
Banking Partners, L.P., DLJ International Partners, C.V., DLJ Offshore Partners,
C.V., DLJ Merchant Banking Funding, Inc., DLJ Capital Corporation, Sprout Growth
II, L.P., Sprout Capital VI, L.P., PM Funding, Inc., a Delaware corporation
(each of the foregoing, a "DLJ Entity", and collectively, the "DLJ Entities"),
Arthur J. Cormier ("Cormier"), John F. Schaefer ("Schaefer") and Phase Metrics,
Inc. (the "Issuer").
W I T N E S S E T H:
WHEREAS, pursuant to the Securities Purchase Agreement dated as
of November 23, 1994 (the "Securities Purchase Agreement") among the DLJ
Entities (other than PM Funding, Inc.), Cormier, Schaefer and the Issuer,
certain of the parties hereto, concurrently with the execution of this
Agreement, are acquiring securities of the Issuer; and
WHEREAS, the parties hereto desire to enter into this Agreement
to govern certain of their rights, duties and obligations after consummation of
the transactions contemplated by the Securities Purchase Agreement and the
Bridge Securities Purchase Agreement;
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1. Definitions. (a) The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person, provided that no securityholder of the Issuer shall be deemed an
Affiliate of any other serurityholder solely by reason of any investment in the
Issuer. For the purpose of this definition, the term "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Affiliated Employee Benefit Trust" means any trust that is a
successor to the assets held by a trust established under an employee benefit
plan subject to ERISA or any other trust established directly or indirectly
under such plan or any other such plan having the same sponsor.
<PAGE> 5
"Allowable Transfer Amount" shall mean, as to Schaefer or
Cormier, as the case may be, at any time in any given calendar year, that number
of shares of Common Stock that equals the excess, if any, of (i) 25% of the
shares of Fully Diluted Common Stock owned by such individual on the date hereof
over (ii) the aggregate number of shares of Fully Diluted Common Stock
theretofore transferred (other than to permitted Transferees) by such individual
up to such time in such calendar year, provided that the Allowable Transfer
Amount of either such individual shall equal zero at such point as such
individual shall have transferred in aggregate after the date hereof (other than
to permitted Transferees) 50% of the shares of Fully Diluted Common Stock owned
by him on the date hereof (it being understood that all such determinations
shall be made taking into account any adjustments in accordance with the terms
of the applicable securities).
"Benchmark Shares" means shares of Common Stock sold or proposed
to be sold by the DLJ Entities (other than to their permitted Transferees)
subsequent to the Closing Date until the aggregate number of shares of Common
Stock so sold or proposed to be sold by the DLJ Entities (other than as
aforesaid) equals 225,000 (taking into account any stock dividend, stock split
or reverse stock split subsequent to the Closing Date).
"Board" means the board of directors of the Issuer.
"Bridge Securities Purchase Agreement" means the Bridge
Securities Purchase Agreement dated as of the date hereof between the Issuer and
PM Funding, Inc.
"Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York City are authorized by law to close.
"Common Stock" shall have the meaning set forth in the Securities
Purchase Agreement.
"Equity Securities" means Common Stock, securities convertible
into or exchangeable for Common Stock and options, warrants or other rights to
acquire Common Stock.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act, as amended.
"Fully Diluted" means, with respect to Common Stock and without
duplication, all outstanding shares and all shares issuable in respect of
securities convertible into or exchangeable for Common Stock, stock appreciation
rights or options, warrants and other irrevocable rights to purchase or
subscribe for Common Stock or securities convertible into or exchangeable for
Common Stock and any Person shall be deemed to own such number of Fully Diluted
shares of Common Stock as such Person has the right to acquire from any other
Person (including the Issuer).
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<PAGE> 6
"Initial Public Offering" means the initial sale after the date
hereof of Common Stock pursuant to an effective registration statement under the
Securities Act (other than a registration statement on Form S-8 or any successor
form).
"Notes" shall have the meaning set forth in the Securities
Purchase Agreement.
"Other Securityholders" means all Securityholders other than any
DLJ Entity, and their respective permitted Transferees.
"Percentage Ownership" means, with respect to any Securityholder
or any group of Securityholders at any time, (i) the number of shares of Fully
Diluted Common Stock that such Securityholder or group of Securityholders owns
at such time, divided by (ii) the total number of shares of Fully Diluted Common
Stock at such time.
"Permitted Transferee" means:
(i) in the case of any DLJ Entity, (A) any other DLJ Entity, (B)
any general or limited partner of any such entity (a "DLJ Partner"), and
any corporation, partnership, Affiliated Employee Benefit Trust or other
entity which is an Affiliate of any DLJ Partner (collectively, the "DLJ
Affiliates"), (C) any managing director, general partner, director,
limited partner, officer or employee of such DLJ Entity or a DLJ
Affiliate, or the heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any of the foregoing Persons
referred to in this clause (C) (collectively, "DLJ Associates"), (D) any
trust, the beneficiaries of which, or any corporation, limited liability
company or partnership, the stockholders, members or general or limited
partners of which, include only such DLJ Entity, DLJ Affiliates, DLJ
Associates, their spouses or their lineal descendants and (E) a voting
trustee for one or more DLJ Entities, DLJ Affiliates or DLJ Associates
under the terms of a voting trust desired to conform with the
requirements of the Insurance Law of the State of New York; and
(ii) in the case of any Other Securityholder, (A) the Issuer, (B)
(x) such Securityholder's spouse or (y) such Securityholder's siblings
or lineal descendants, so long as such Securityholder retains the right
to vote such Securities, (C) a Person who acquires Securities from any
such Securityholder pursuant to a will or the laws of descent and
distribution, and (D) any trust the beneficiaries of which consist only
of such Securityholders and/or such Securityholder's spouse, siblings
and lineal descendants and (E) any Securityholder other than any DLJ
Entity or its Permitted Transferees.
"Person" means an individual, corporation, partnership,
association, trust or other entity or organization, including a government or
political subdivision or an agency or instrumentality thereof.
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<PAGE> 7
"Registrable Stock" means any shares of Common Stock until (i) a
registration statement covering such shares of Common Stock has been declared
effective by the SEC and such shares have been disposed of pursuant to such
effective registration statement, (ii) such shares are sold under circumstances
in which all of the applicable conditions of Rule 144 (or any similar provisions
then in force) under the Securities Act are met or such shares may be sold
pursuant to Rule 144(k) or (iii) such shares are otherwise transferred, the
Issuer has delivered a new certificate or other evidence of ownership for such
shares not bearing the legend required pursuant to this Agreement and such
shares may be resold without subsequent registration under the Securities Act.
"Registration Expenses" means (i) all registration and filing
fees, (ii) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications of the Securities), (iii) printing expenses, (iv) internal
expenses of the Issuer (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), (v)
reasonable fees and disbursements of counsel for the Issuer and customary fees
and expenses for independent certified public accountants retained by the Issuer
(including expenses relating to any comfort letters or costs associated with the
delivery by independent certified public accountants of a comfort letter or
comfort letters requested pursuant to Section 5.4(h) hereof), (vi) the
reasonable fees and expenses of any special experts retained by the Issuer in
connection with such registration, (vii) reasonable fees and expenses of one
counsel for the Securityholders participating in the offering, selected by the
DLJ Entities, in the case of an offering in which any of the DLJ Entities
participate, or selected by Cormier and Schaefer in any other case involving
exercise of registration rights under Sections 5.1 or 5.2, (viii) fees and
expenses in connection with any review of underwriting arrangements by the
National Association of Securities Dealers, Inc. (the "NASD") including fees and
expenses of any "qualified independent underwriter" and (ix) fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but shall not include any underwriting fees, discounts or
commissions attributable to the sale of Registrable Stock, or any out-of-pocket
expenses (except as set forth in clause (vii) above) of the Securityholders or
any fees and expenses of underwriter's counsel.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities" means Notes, shares of Common Stock, Series A
Preferred Stock, Series B Preferred Stock, the Warrants, and other voting
securities of the Issuer held by the Securityholders.
"Securityholder" means each Person (other than the Issuer) who
shall be a party to this Agreement, whether in connection with the execution and
delivery hereof as of the date hereof, pursuant to Section 7.3 or otherwise, so
long as such Person shall "beneficially own" (as such term is defined in Rule
13d-3 under the Exchange Act) any Securities.
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<PAGE> 8
"Series A Preferred Stock" shall have the meaning set forth in
the Securities Purchase Agreement.
"Series B Preferred Stock" shall have the meaning set forth in
the Securities Purchase Agreement.
"Sprout Entities" means DLJ Capital Corporation, Sprout Growth
II, L.P. and Sprout Capital VI, L.P.
"Subsidiary" means, with respect to any Person, any entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Third Party" means a prospective purchaser of shares in an
arm's-length transaction from a Securityholder where such purchaser is not a
permitted Transferee of such Securityholder.
"Underwritten Public Offering" means an underwritten public
offering of Registrable Stock of the Issuer pursuant to an effective
registration statement under the Securities Act.
"Warrants" means the warrants exercisable to purchase Common
Stock issued to PM Funding, Inc. pursuant to the Bridge Securities Purchase
Agreement.
(b) The term "DLJ Entities", to the extent such entities shall
have transferred any of their Securities to "Permitted Transferees", shall mean
the DLJ Entities and the Permitted Transferees of the DLJ Entities, taken
together, and any right or action that may be taken at the election of the DLJ
Entities may be taken at the election of the DLJ Entities, and such Permitted
Transferees.
(c) The term "other Securityholders", to the extent such
shareholders shall have transferred any of their Securities to "Permitted
Transferees", shall mean the other Securityholders and the Permitted Transferees
of the other Securityholders, as the case may be, and any right or action that
may be taken at the election of the other Securityholders may be taken at the
election of the other Securityholders and the Permitted Transferees of the other
Securityholders, as the case may be.
(d) Each of the following terms is defined in the Section set
forth opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Aggregate Tag Amount 4.1(g)(i)
Associate 2.1(a)
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
beneficially own 1.1(a)
Cause 2.2
Confidential Information 6.1(b)
control 1.1(a)
Demand Registration 5.1(a)
DLJ Affiliate 1.1(a)
DLJ Associates 1.1(a)
DLJ Entity 1.1(b)
DLJ Non-Election 4.1(g)(v)
DLJ Partner 1.1(a)
DLJSC 7.5
Electing Individual 4.1(g)(v)
Fifth Director 2.1
First Request Date 5.1(a)
Holders 5.1(a)(ii)
Incidental Registration 5.2(a)
Indemnified Party 5.7
Indemnifying Party 5.7
Inspectors 5.4(g)
Maximum Offering Size 5.1(d)
NASD 1.1(a)
Nominee 2.3(a)
other Securityholder 1.1(c)
Private Transaction 3.1(b)
qualified independent underwriter 1.1(a)
Records 5.4(g)
Representatives 6.1(b)
Restriction Termination Date 3.1(a)
Section 3.1(c) Termination Date 3.1(c)
Section 4.1 Offer 4.1(a)
Section 4.1 Offer Notice 4.1(a)
Section 4.1 Offer Price 4.1(a)
Section 4.2 Notice 4.2
Section 4.3 Agreement 4.3(a)
Section 4.3 Notice 4.3(a)
Section 4.3 Notice Period 4.3(a)
Section 4.3 Sale 4.3(a)
Section 4.3 Sale Price 4.3(a)
Selling Party 4.1(a)
Selling Securityholder 5.1(a)
Tag along Notice Period 4.1(g)(i)
Tag along Right 4.1(g)(i)
Tag along Sale 4.1(g)(i)
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Tag along Seller 4.1(g)(i)
Tagging Person 4.1(g)(i)
transfer 3.1(a)
</TABLE>
(e) Capitalized terms used herein and not otherwise defined
herein shall have the meanings herein that are assigned to such terms in the
Securities Purchase Agreement.
ARTICLE 2
CORPORATE GOVERNANCE
2.1 Composition of the Board. The Board shall consist of five
members, of whom one shall be designated by DLJ Merchant Banking Partners, L.P.,
one shall be designated by Sprout Growth II, L.P., one shall be designated by
Schaefer, one shall be designated by Cormier, and one shall be an individual
(the "Fifth Director") designated by Cormier and Schaefer and acceptable to the
DLJ Entities, which individual is neither an "Affiliate" nor an "Associate" (as
those terms are used within the meaning of Rule 12b-2 of the General Rules and
Regulations under the Exchange Act) of the DLJ Entities, Schaefer or Cormier.
Each Securityholder entitled to vote for the election of directors to the Board
agrees that it will vote its Securities or execute consents, as the case may be,
and take all other necessary action (including causing the Issuer to call a
special meeting of shareholders) in order to ensure that the composition of the
Board is as set forth in this Section 2.1.
2.2 Removal. Each Securityholder agrees that if, at any time, it
is then entitled to vote for the removal of directors of the Issuer, it will not
vote any of its Securities in favor of the removal of any director who shall
have been designated or nominated pursuant to Section 2.1 unless such removal
shall be for Cause or the person entitled to designate or nominate such director
shall have consented to such removal in writing; that any of the DLJ Entities,
Cormier or Schaefer may remove, or vote its Securities in favor of the removal
of, the Fifth Director. Removal for "Cause" shall mean removal of a director
because of such director's (a) willful and continued failure to substantially
perform his duties with the Issuer in his established position, (b) willful
conduct which is significantly injurious to the Issuer, monetarily or otherwise,
or (c) conviction for, or guilty plea to, a felony. Subject to Section 2.3,
nothing contained in this Section 2.2 shall affect the right of any
Securityholder to designate members of the Board pursuant to Section 2.1.
2.3 Vacancies. If, as a result of death, disability, retirement,
resignation, removal (with or without Cause) or otherwise, there shall exist or
occur any vacancy on the Board:
(a) the Person entitled under Section 2.1 to designate or
nominate such director whose death, disability, retirement, resignation or
removal resulted in such vacancy, or its Permitted Transferees, may, subject to
the provisions of Sections 2.1 and 2.4, designate another individual (the
"Nominee") to fill such capacity and serve as a director of the Issuer; and
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<PAGE> 11
(b) each Securityholder then entitled to vote for the election of
the Nominee as a director of the Issuer agrees that it will vote its Securities,
or execute a written consent, as the case may be, in order to ensure that the
Nominee be elected to the Board.
2.4 Termination of Rights and Obligations. The right to designate
one or more members of the Board pursuant to this Article 2 shall terminate (i)
as to Cormier, at such time as Cormier and his Permitted Transferees in the
aggregate own and have the right to acquire less than 5% of the Fully Diluted
Common Stock then outstanding, (ii) as to Schaefer, at such time as Schaefer and
his Permitted Transferees in the aggregate own and have the right to acquire
less than 5% of the Fully Diluted Common Stock then outstanding, (iii) as to
Sprout Growth II, L.P., at such time as the DLJ Entities in the aggregate own
and have the right to acquire less than 5% of the Fully Diluted Common Stock
then outstanding, and (iv) as to DLJ Merchant Banking Partners, L.P., at such
time as the DLJ Entities (other than PM Funding, Inc.) in the aggregate own and
have the right to acquire less than 5% of the Fully Diluted Common Stock then
outstanding. The obligations imposed on Securityholders to give effect to the
rights to designate directors set forth in Section 2.1 shall terminate as to any
Person when such Person's right to designate a director is terminated.
2.5 Action by the Board. A quorum of the Board shall consist
initially of four directors. All actions of the Board shall require the
affirmative vote of at least a majority of the directors at a duly convened
meeting of the Board at which a quorum is present or the unanimous written
consent of the Board; provided that, in the event there is a vacancy on the
Board and an individual has been nominated to fill such vacancy, the first order
of business shall be to fill such vacancy.
2.6 Articles of Incorporation and Bylaws. (a) The Articles of
Incorporation and Bylaws of the Issuer, as in effect on the date hereof, are
attached as Exhibits B and A, respectively, to the Securities Purchase
Agreement.
(b) Each Securityholder shall vote its Securities, and shall take
all other actions necessary, to ensure that the Issuer's Articles of
Incorporation and Bylaws facilitate and do not at any time conflict with any
provision of this Agreement.
ARTICLE 3
RESTRICTIONS ON TRANSFER
3.1 General. (a) Until the earlier of (i) the third anniversary of the
Closing Date and (ii) the consummation of an Initial Public Offering (the
earlier of such dates, the "Restriction Termination Date"), no Securityholder
may, directly or indirectly, sell, assign, transfer, grant a participation in,
pledge or otherwise dispose of ("transfer") any Securities (or solicit any
offers to buy or otherwise acquire, or to take a pledge of, any of its
Securities) except transfers permitted by Section 3.3; provided that (x)
Schaefer may pledge his Securities pursuant to the terms of the Cormier-Schaefer
Agreement as in effect on the date hereof or as amended, supplemented or
modified with the prior consent of the DLJ
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<PAGE> 12
Entities and (y) subject to Section 4.1, transfers shall be permitted to a Third
Party in a Private Transaction (as defined below) as part of a foreclosure
proceeding pursuant to the Cormier-Schaefer Agreements (but only to the extent
that such transfer to a Third Party is required by California law or is effected
in order to maintain a claim for deficiency).
(b) From and after the Restriction Termination Date, no
Securityholder may transfer any Securities (or solicit any offers to buy or
otherwise acquire, or to take a pledge of, any Securities) except, subject to
Section 3.1(c), (i) transfers permitted by Section 3.3, (ii) transfers in a bona
fide Underwritten Public Offering upon exercise of registration rights pursuant
to Article 5, (iii) transfers pursuant to Rule 144 (or any successor provisions
under the Securities Act), (iv) pledges by Schaefer pursuant to the terms of the
Cormier-Schaefer Agreement as in effect on the date hereof or as amended,
supplemented or modified with the prior consent of the DLJ Entities, (v) in the
case of any DLJ Entity and subject to Section 4.1, transfers to any other Person
in any Private Transaction (as defined below); provided that no Securities may
be transferred pursuant to clause (v) to any Person unless such Person shall
have agreed in writing to be bound by the terms of this Agreement applicable to
such Securityholder; and provided further that no DLJ Entity may transfer any of
its Notes or shares of Series B Preferred Stock to a Person other than a
Permitted Transferee without the consent of Cormier and Schaefer, (vi) in the
case of Schaefer and Cormier, subject to Section 4.1, transfers of shares of
Common Stock to any other Person in any Private Transaction (excluding any
transaction covered by clause (iv) above), provided that no Securities may be
transferred to any Person pursuant to this clause (vi) unless such Person shall
have agreed in writing to be bound by the terms of this Agreement applicable to
such Securityholder, and (vii) in the case of any Other Securityholder,
transfers pursuant to Section 4.3 hereof. As used herein, "Private Transaction"
means any transfer not covered by clause (i), (ii), (iii) or (vii) above.
(c) Notwithstanding anything else contained herein, except
pursuant to Section 3.1(x) or (y), 3.3 or 4.3, no transfer of any shares of
Common Stock may be made by Cormier or Schaefer at any time to the extent that
the number of shares then sought to be transferred by Cormier or Schaefer, as
the case may be, would exceed the Allowable Transfer Amount applicable to such
individual at such time. From and after the Section 3.1(c) Termination Date (as
defined below), (x) the restriction contained in the preceding sentence shall
terminate as to transfers pursuant to Section 3.1(b)(ii) and 3.1(b)(iii), and
(y) transfers of shares of Common Stock may be made by Cormier or Schaefer
pursuant to Section 3.1(b)(ii) or 3.1(b)(iii) without regard to the Allowable
Transfer Amount but only to the extent such transfers are otherwise in
accordance with the provisions of Articles 3 and 4. The earlier of (i) the sixth
anniversary of the date hereof and (ii) such time as the aggregate number of
shares of Fully Diluted Common Stock held by the DLJ Entities is less than 25%
of the aggregate number of shares of Fully Diluted Common Stock held by the DLJ
Entities on the date hereof (determined taking into account any adjustments in
accordance with the terms of the applicable securities) is referred to as the
"Section 3.1(c) Termination Date."
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<PAGE> 13
(d) No Securityholder may transfer any Securities at any time
except in compliance with applicable federal or state securities laws.
3.2 Legend on Securities. (a) In addition to any other legend
that may be required, each certificate for Securities that is issued to any
Securityholder shall bear a legend in substantially the following form:
"THE ISSUER OF THIS SECURITY IS A STATUTORY CLOSE CORPORATION AS
DESCRIBED UNDER SECTION 158 CALIFORNIA CORPORATIONS CODE. THIS SECURITY
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN
COMPLIANCE THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE SECURITYHOLDERS AGREEMENT
DATED AS OF NOVEMBER 23, 1994, COPIES OF WHICH MAY BE OBTAINED UPON
REQUEST FROM PHASE METRICS, INC. AND ANY SUCCESSOR THERETO."
(b) If any shares of Common Stock shall cease to be Registrable
Stock, the Issuer shall, upon the written request of the holder thereof, issue
to such holder a new certificate evidencing such shares without the first
sentence of the legend required by Section 3.2(a) endorsed thereon. If any
Securities cease to be subject to any and all restrictions on transfer set forth
in this Agreement, the Issuer shall, upon the written request of the holder
thereof, issue to such holder a new certificate evidencing such Securities
without the second sentence of the legend required by Section 3.2(a) endorsed
thereon.
3.3 Permitted Transferees. Notwithstanding anything in this
Agreement to the contrary, any Securityholder may at any time transfer any or
all of its Securities to one or more of its Permitted Transferees without the
consent of the Board or any other Securityholder or group of Securityholders and
without compliance with Section 4.1 so long as (a) such Permitted Transferee
shall have agreed in writing to be bound by the terms of this Agreement and (b)
the transfer to such Permitted Transferee is not in violation of applicable
federal or state securities laws.
ARTICLE 4
RIGHTS OF FIRST REFUSAL; TAG ALONG RIGHTS;
PREEMPTIVE RIGHTS; DRAG ALONG RIGHTS; TERMINATION
AND INAPPLICABILITY OF PROVISIONS
4.1 Right of First Refusal; Tag along Rights. (a) Subject to the
provisions of Section 4.1(g), if any Securityholder receives from or otherwise
negotiates with a Third Party in a Private Transaction an offer to purchase for
cash (or, subject to clause (f), non-cash consideration) any or all of the
Securities owned or held by such Securityholder that
10
<PAGE> 14
is otherwise permitted under this Agreement (including, without limitation,
Section 3.1 hereof) (a "Section 4.1 Offer") and such Securityholder (a "Selling
Party") intends to pursue such sale of such Securities to such Third Party in
such Private Transaction, such Selling Party shall provide the Issuer and each
other Securityholder written notice of such Section 4.1 Offer (a "Section 4.1
Offer Notice"). The Section 4.1 Offer Notice shall identify the number and type
of Securities subject to the Section 4.1 Offer, the cash price at which a sale
is proposed to be made (the "Section 4.1 Offer Price") and all other material
terms and conditions of the Section 4.1 Offer.
(b) Subject to the provisions of Section 4.1(g), the receipt of a
Section 4.1 Offer Notice by the Issuer and each other Securityholder from any
Selling Party shall constitute an offer by such Selling Party to sell, to the
Issuer and each other Securityholder, for cash (or, subject to clause (f),
non-cash consideration) in whole and not in part, with the Issuer having
priority with respect to the acceptance of the Section 4.1 Offer. If the Issuer
does not accept the offer, in whole and not in part, in accordance herewith,
then such offer may be accepted, in whole and not in part, at the Section 4.1
Offer Price by the other Securityholders on a pro rata basis based on each other
Securityholder's Percentage Ownership (unless the other Securityholders shall
agree to another allocation resulting in acceptance of the Section 4.1 Offer
with respect to all Securities subject to the Section 4.1 Offer); provided that
in the event there is an undersubscription by the other Securityholders at the
end of the 45-day period referred to below, the unsubscribed Securities shall be
apportioned among those other Securityholders whose written notice of acceptance
referred to below specified a number of additional shares such Securityholder
would like to purchase pursuant to this Section 4.1, which apportionment shall
be on a pro rata basis among such Securityholders in accordance with such other
Securityholders' Percentage Ownership. Such offer shall be irrevocable for 45
days after receipt of such Section 4.1 Offer Notice by the Issuer and each other
Securityholder. During such 45-day period, subject to the Issuer's priority
right of exercise as set forth above, each other Securityholder shall have the
right to accept such offer (as provided above) within such 45-day period. The
Section 4.1 Offer may be accepted by giving a written irrevocable notice of
acceptance to such Selling Party prior to the expiration of such 45-day period.
(c) The Issuer or the Securityholders, as the case may be, shall
purchase for cash (or, subject to clause (f), non-cash consideration) at the
Section 4.1 Offer Price and pay for all Securities set forth in the Section 4.1
Offer Notice within a 20-day period following acceptance of the Section 4.1
Offer; provided that if the purchase and sale of such Securities is subject to
expiration of any applicable statutory waiting period, the time period during
which such purchase and sale may be consummated shall be extended until the
expiration of five Business Days after such waiting period shall have expired;
provided further that such time period shall not exceed 60 days without the
written consent of the Selling Party. If such purchase and sale are not
consummated by the Issuer and the Securityholders within such time period, such
Section 4.1 Offer shall be deemed to be rejected.
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<PAGE> 15
(d) Upon the rejection or deemed rejection of the Section 4.1
Offer by the Issuer and the Securityholders or the failure to obtain any
required consent for the purchase of the Securities subject thereto within 60
days, there shall commence a 90-day period during which the Selling Party shall
have the right, subject to Section 4.1(g), to consummate the sale to the Third
Party making the Section 4.1 Offer of all but not less than all of the
Securities subject to the Section 4.1 Offer at a price not less than the Section
4.1 Offer Price; provided that (i) such Third Party shall have agreed in writing
to be bound by the terms of this Agreement and (ii) the transfer to such Third
Party is not in violation of applicable federal or state or foreign securities
laws. Notwithstanding the foregoing, if the purchase and sale of such Securities
is subject to any prior regulatory approval, the time period during which such
purchase and sale may be consummated shall be extended until the expiration of
five Business Days after all such approvals shall have been received but in no
event shall such time period exceed 120 days without the consent of the Issuer.
If such Selling Party does not consummate the sale of any Securities subject to
the Section 4.1 Offer in accordance with the time limitations set forth above
and in Section 4.1(g), such Selling Party may not sell any Securities without
repeating the foregoing procedures.
(e) Notwithstanding anything in this Agreement to the contrary,
the provisions of this Section 4.1 will not be applicable to transfers made
pursuant to and in compliance with Section 3.3, Section 4.3 or Article 5.
(f) A Securityholder may transfer Securities in accordance with
the foregoing provisions of this Section 4.1 for consideration other than cash
only if such Securityholder has first obtained and delivered to each other
Securityholder and the Issuer an opinion of an investment banking firm of
national standing indicating that the fair market value of the non-cash
consideration that such Securityholder proposes to accept as consideration for
such Securities, together with any cash consideration, is at least equal to the
Section 4.1 Sale Price.
(g) (i) If any Section 4.1 Offer constitutes a proposed transfer
by Cormier or Schaefer (each a "Tag along Seller") in a private Transaction
permitted by Section 3.1(b)(vi) and 3.1(c) (a "Tag along Sale"), the DLJ
Entities may, at their option, elect to exercise their rights under this Section
4.1(g) in lieu of their rights under Section 4.1(b) (or, in the event of a DLJ
Non-Election (as defined below), the Electing Individual (as defined below) may
elect to exercise his rights under this Section 4.1(g) in lieu of his rights
under Section 4.1(b)). In the event that the DLJ Entities so elect to exercise
their rights under this Section 4.1(g) in lieu of their rights under Section
4.1(b) (or, in the case of a DLJ Non-Election, the Electing Individual elects to
exercise his rights under this Section 4.1(g) in lieu of his rights under
Section 4.1(b)), the DLJ Entities and such of Cormier and Schaefer as is not a
Tag along Seller in such Private Transaction (each of the DLJ Entities and such
individual, a "Tagging Person") shall have the right (a "Tag along Right"),
exercisable by written notice given to the Tag along Seller within 45 days after
receipt of the Section 4.1 Offer Notice (the "Tag along Notice Period"), to
request the Tag along Seller to include in the proposed transfer to the Third
Party the number of shares of Common Stock or Securities convertible into shares
of Common Stock held by such Tagging Person as is specified in such notice;
provided that
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<PAGE> 16
(x) the Tag along Seller shall be required only to include in the proposed
transfer a number (the "Aggregate Tag Amount") of shares of Common Stock or
Securities that are convertible into Common Stock held by such Tagging Persons
equal to not more than the number of shares of Common Stock proposed to be sold
by the Tag along Seller to such Third Party in such transaction multiplied by a
fraction, the numerator of which is the number of shares of Fully Diluted Common
Stock owned by all such Tagging Persons immediately prior to the Tag along Sale,
and the denominator of which is the total number of shares of Fully Diluted
Common Stock immediately prior to the Tag along Sale and (y) if the aggregate
number of shares of Common Stock proposed to be sold by all Tagging Persons in
such transaction exceeds the Aggregate Tag Amount, the Aggregate Tag Amount of
shares permitted to be sold shall be allocated among all Tagging Persons pro
rata based on Percentage Ownership. If the DLJ Entities exercise their Tag along
Right hereunder (or, in the case of a DLJ Non- Election, if the Electing
Individual exercises his Tag along Right hereunder), each Tagging Person shall
deliver to the Tag along Seller the certificate or certificates representing the
Securities of such Tagging Person to be included in the transfer, together with
a limited power-of-attorney authorizing the Tag along Seller to transfer such
Securities on the terms set forth in the Section 4.1 Offer Notice. Delivery of
such certificate or certificates representing the Securities to be transferred
and the limited power-of-attorney authorizing the Tag along Seller to transfer
such Securities shall constitute an irrevocable acceptance of the Tag along Sale
by such Tagging Persons. If, at the end of a 120-day period after such delivery,
the Tag along Seller has not completed the transfer of all such Securities, the
Tag along Seller shall return to each Tagging Person the limited
power-of-attorney (and all copies thereof) together with all certificates
representing the Securities which such Tagging Person delivered for transfer
pursuant to this Section 4.1(g), and Schaefer and Cormier may not effect another
Tag along Sale without repeating the foregoing procedures.
(ii) The per share consideration to be paid to the Tag along
Seller and the Tagging Persons in any Tag along Sale shall be the Section 4.1
Offer Price in the case of sales of Common Stock and in the case of Securities
convertible into Common Stock shall be the Section 4.1 Offer Price multiplied by
the number of shares of Common Stock into which the Securities in question are
convertible.
(iii) Concurrently with the consummation of the Tag along Sale,
the Tag along Seller shall notify the Tagging Persons thereof, shall remit to
the Tagging Persons the total consideration for the Securities of the Tagging
Persons transferred pursuant thereto (computed pursuant to Section 4.1(g)(ii)),
and shall, promptly after the consummation of such Tag along Sale furnish such
other evidence of the completion and time of completion of such transfer and the
terms thereof as may be reasonably requested by the Tagging Persons.
(iv) If at the termination of the Tag along Notice Period any
Tagging Person shall not have elected to participate in the Tag along Sale, such
Tagging Person will be deemed to have waived its rights under this Section
4.1(g) with respect to the transfer of its Securities pursuant to such Tag along
Sale.
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(v) In any Tag along Sale in which the DLJ Entities have
exercised their Tag along Right, the right of any party pursuant to Section
4.1(b) to accept the offer referred to therein shall be deemed to have
terminated. If the DLJ Entities elect not to exercise their Tag along Right in
any Tag along Sale and elect to accept the offer referred to in Section 4.1(b),
no other Person may exercise any Tag along Right under this Section 4.1(g). In
the event that the DLJ Entities elect neither to exercise their Tag along Right
in any Tag along Sale pursuant to Section 4.1(g) nor to accept the offer
referred to in Section 4.1(b) (a "DLJ Non-Election"), such of Cormier or
Schaefer as is not a Selling Party under Section 4.1(a) or a Tag along Seller
under Section 4.1(g) (the "Electing Individual") may elect, subject to the
provisions of this Section 4.1, either (i) to accept the offer referred to in
Section 4.1(b) or (ii) to exercise his Tag along Right in any Tag along Sale
pursuant to Section 4.1(g).
4.2 Preemptive Rights. For so long as any Notes or shares of
Series B Preferred Stock remain outstanding, the Issuer shall provide each
Securityholder with a written notice (a "Section 4.2 Notice") of any proposed
issuance by the Issuer of Equity Securities at least 60 days prior to the
proposed issuance date. Such notice shall specify the price at which the Equity
Securities are to be issued and the other material terms of the issuance. Each
Securityholder shall be entitled to purchase, at the price and on the terms
specified in such Section 4.2 Notice, the Equity Securities proposed to be
issued on a pro rata basis based upon such Securityholder's Percentage
Ownership. A Securityholder may exercise its rights under this Section 4.2 by
delivering written notice of its election to purchase Equity Securities to the
Issuer within 30 days of receipt of the Section 4.2 Notice. Each Securityholder
shall deliver a copy of any such written notice to the Issuer and each other
Securityholder at least five Business Days prior to the expiration of such
30-day period. A delivery of such a written notice (which notice shall specify
the number of shares (or amount) of Equity Securities to be purchased by the
Securityholder submitting such notice) by a Securityholder shall constitute a
binding agreement of such Securityholder to purchase, at the price and on the
terms specified in the Section 4.2 Notice, the number of shares (or amount) of
Equity Securities specified in such Securityholder's written notice. In the case
of any issuance of Equity Securities, the Issuer shall have 90 days from the
date of the Section 4.2 Notice to consummate the proposed issuance of any or all
of such Equity Securities which the Securityholders have not elected to purchase
at the price and upon terms that are not materially less favorable to the Issuer
than those specified in the Section 4.2 Notice. At the consummation of such
issuance, the Issuer shall issue certificates representing the Equity Securities
to be purchased by each Securityholder exercising preemptive rights pursuant to
this Section 4.2 registered in the name of such Securityholder, against payment
by such Securityholder of the purchase price for such Equity Securities. If the
Issuer proposes to issue Equity Securities after such 90-day period, it shall
again comply with the procedures set forth in this Section. Notwithstanding the
foregoing, no Securityholder shall be entitled to purchase Equity Securities as
contemplated by this Section 4.2 in connection with issuances of Equity
Securities (i) to employees of the Issuer or any Subsidiary of the Issuer
pursuant to employee benefit plans or arrangements approved by the Board
(including upon the exercise of employee stock options), (ii) in connection with
an Initial Public Offering, (iii) in connection with any bona fide, arm's-length
restructuring of outstanding
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debt of the Issuer or any Subsidiary of the Issuer, (iv) in connection with any
bona fide, arm's-length direct or indirect merger, acquisition or similar
transaction, or (v) upon the conversion of any shares of Series A Preferred
Stock or Series B Preferred Stock or Notes into Common Stock. The Issuer shall
not be under any obligation to consummate any proposed issuance of Equity
Securities, regardless of whether it shall have delivered a Section 4.2 Notice
in respect of such proposed issuance. Unless earlier terminated pursuant to the
terms of this Section 4.2, the provisions of this Section 4.2 shall terminate
upon the consummation of an Initial Public Offering.
4.3 Right to Compel Participation in Certain Transfers. (a) If
the DLJ Entities should, after November 23, 1998, propose to transfer for cash
consideration of no less than $124.44 per share (as adjusted to take into
account any subdivisions, combinations or reclassifications of the Common Stock
after the date hereof) of Common Stock all shares of Common Stock that they own
or have the right to acquire to any Third Party (a "Section 4.3 Sale"), the DLJ
Entities may, at their option, require all but not less than all the Other
Securityholders to participate in such transfer. The DLJ Entities shall provide
written notice of such Section 4.3 Sale to the Other Securityholders (a "Section
4.3 Notice") and a copy of the agreement pursuant to which such shares are
proposed to be transferred (the "Section 4.3 Agreement"). The Section 4.3 Notice
shall identify the transferee, the number of shares of Common Stock subject to
the Section 4.3 Sale, the consideration per share of Common Stock for which a
transfer is proposed to be made (the "Section 4.3 Sale Price") and all other
material terms and conditions of the Section 4.3 Sale. Each Other Securityholder
shall be required to participate in the Section 4.3 Sale on the terms and
conditions set forth in the Section 4.3 Notice and to tender all its shares of
Common Stock, and Securities convertible into Common Stock as set forth below.
The price of such transfer shall be the Section 4.3 Sale Price in the case of
shares of Common Stock, and in the case of Securities convertible into Common
Stock shall be the Section 4.3 Sale Price multiplied by the number of shares of
Common Stock into which such Securities are convertible. Within ten Business
Days following the date of the Section 4.3 Notice (the "Section 4.3 Notice
Period"), each of the Other Securityholders shall deliver to a representative of
the DLJ Entities designated in the Section 4.3 Notice certificates representing
all shares of Common Stock held by such Other Securityholder and all Securities
convertible into Common Stock held by such Other Shareholder, duly endorsed,
together with all other documents required to be executed in connection with
such Section 4.3 Sale or, if such delivery is not permitted by applicable law,
an unconditional agreement to deliver such Securities pursuant to this Section
4.3(a) at the closing for such Section 4.3 Sale against delivery to such Other
Securityholder of the consideration therefor. If an Other Securityholder should
fail to deliver such certificates to the DLJ Entities, the Issuer shall cause
the books and records of the Issuer to show that such Securities are bound by
the provisions of this Section 4.3(a) and that such Securities shall be
transferred to the Third Party immediately upon surrender for transfer by the
Other Securityholder thereof.
(b) If, within 120 days after the DLJ Entities give the Section
4.3 Notice, they have not completed the transfer of all the Securities subject
to the Section 4.3 Sale, the DLJ Entities shall return to each of the Other
Securityholders all certificates representing
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Securities that such Other Securityholder delivered for transfer pursuant
hereto, together with any documents in the possession of the DLJ Entities
executed by the Other Securityholder in connection with such proposed transfer,
and all the restrictions on transfer contained in this Agreement or otherwise
applicable at such time with respect to Securities owned by the Other
Securityholders shall again be in effect.
(c) Promptly after the consummation of the transfer of Securities
of the DLJ Entities and the Other Securityholders pursuant to this Section 4.3,
the DLJ Entities shall give notice thereof to the Other Securityholders, shall
remit to each of the Other Securityholders who have surrendered their
certificates the total consideration for the shares of Common Stock and
Securities convertible into Common Stock transferred pursuant hereto and shall
furnish such other evidence of the completion and time of completion of such
transfer and the terms thereof as may be reasonably requested by such Other
Securityholders.
4.4 Improper Transfer. Any attempt to transfer any Securities not
in compliance with this Agreement shall be null and void and neither the Issuer
nor any transfer agent shall give any effect in the Issuer's records to such
attempted transfer.
4.5 Termination of Agreement. This Agreement shall terminate upon
the earliest of
(i) the tenth anniversary of the date hereof;
(ii) such time as at least 50% of the shares of Fully Diluted
Common Stock are held by Persons (other than any Securityholder) who
acquired their shares in a sale pursuant to (x) Rule 144 under the
Securities Act or (y) a public offering registered under the Securities
Act; and
(iii) such time as the DLJ Entities own less than 5% of the
aggregate number of shares of Fully Diluted Common Stock.
4.6 Inapplicability of Transfer Restrictions and Corporate
Governance Provisions to PM Funding, Inc. Notwithstanding anything else
contained herein, PM Funding, Inc. shall not be bound by or subject to any of
(i) the restrictions on or obligations with respect to transfers of Securities
set forth in Article 3 or in Section 4.1(a) through (f) or (ii) the corporate
governance provisions set forth in Article 2.
ARTICLE 5
REGISTRATION RIGHTS
5.1 Demand Registration. (a) Commencing on the date which is six
months after the Initial Public Offering (the "First Request Date") Schaefer and
Cormier may make a written request, and commencing on the date which is the
earlier of (x) the First Request Date and (y) November 23, 1997, the DLJ
Entities may make a written request (any
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such requesting Person, a "Selling Securityholder") that the Issuer effect the
registration under the Securities Act of all or a portion of such Selling
Securityholder's Registrable Stock, and specifying the intended method of
disposition thereof. The Issuer will promptly give written notice of such
requested registration (a "Demand Registration") at least 30 days prior to the
anticipated filing date of the registration statement relating to such Demand
Registration to the other Securityholders and thereupon will use its best
efforts to effect, as expeditiously as possible, the registration under the
Securities Act of:
(i) the Registrable Stock which the Issuer has been so requested
to register by the Selling Securityholders, then held by the Selling
Securityholders; and
(ii) subject to Section 5.2, all other Registrable Stock which
any other Securityholder entitled to request the Issuer to effect an
Incidental Registration (as such term is defined in Section 5.2)
pursuant to Section 5.2 (all such Securityholders, together with the
Selling Securityholders, the "Holders") has requested the Issuer to
register by written request received by the Issuer within 15 days after
the receipt by such Holders of such written notice given by the Issuer,
all to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Stock so to be
registered; provided that, subject to Section 5.1(c) hereof, the Issuer shall
not be obligated to effect more than one Demand Registration for Schaefer and
Cormier collectively, on the one hand, and two Demand Registrations for the DLJ
Entities collectively, on the other hand, pursuant to this Section 5.1 other
than any such Demand Registrations effected on Form S-3; and provided further
that the Issuer shall not be obligated to effect a Demand Registration unless
the Registrable Stock requested to be included in such Demand Registration
constitutes at least 25% of the Common Stock then outstanding or to be issued
upon conversion of the Notes and/or Series B Preferred Stock. In no event will
the Issuer be required to effect more than two Demand Registrations on Form S-3
within any 12 month period.
Promptly after the expiration of the 15-day period referred to in
Section 5.1(a)(ii) hereof, the Issuer will notify all the Holders to be included
in the Demand Registration of the other Holders and the number of shares of
Registrable Stock requested to be included therein. The Selling Securityholders
requesting a registration under this Section 5.1(a) may, at any time prior to
the effective date of the registration statement relating to such registration,
revoke such request, without liability to any of the other Holders, by providing
a written notice to the Issuer revoking such request, in which case such
request, so revoked, shall be considered a Demand Registration unless such
revocation arose out of the fault of the Issuer, in which case such request
shall not be considered a Demand Registration. Notwithstanding anything
contained in this Agreement to the contrary, nothing herein shall be construed
as requiring the Issuer to register any of its securities other than Common
Stock.
(b) The Issuer will pay all Registration Expenses in connection
with any Demand Registration.
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(c) A registration requested pursuant to this Section 5.1 shall
not be deemed to have been effected unless the registration statement relating
thereto (i) has become effective under the Securities Act and (ii) has remained
effective for a period of at least 90 days (or such shorter period in which all
Registrable Stock of the Holders included in such registration has actually been
sold thereunder); provided that if after any registration statement requested
pursuant to this Section 5.1 becomes effective (i) such registration statement
is interfered with by any stop order, injunction or other order or requirement
of the SEC or other governmental agency or court and (ii) less than 75% of the
Registrable Stock included in such registration statement has been sold
thereunder, such registration statement shall be at the sole expense of the
Issuer and shall not be considered a Demand Registration, unless any such
interference referred to in clause (i) of this proviso arose out of the fault of
the Selling Securityholders, in which case such registration statement shall be
considered a Demand Registration.
(d) If a Demand Registration involves an Underwritten Public
Offering and the managing underwriter shall advise the Issuer and the Selling
Securityholders that, in its view, (i) the number of shares of Common Stock
requested to be included in such registration (including Common Stock which the
Issuer proposes to be included which is not Registrable Stock) or (ii) the
inclusion of some or all of the Securities owned by the Holders, in either case,
exceeds the largest number of Securities which can be sold without having an
adverse effect on such offering, including the price at which such Securities
can be sold (the "Maximum Offering Size"), the Issuer will include in such
registration, in the priority listed below, up to the Maximum Offering Size:
(A) first, all Benchmark Shares requested to be registered
by the DLJ Entities (allocated, if necessary for the offering not
to exceed the Maximum Offering Size, pro rata among the DLJ
Entities on the basis of the relative number of shares of
Registrable Stock requested to be included in such registration);
(B) second, all Registrable Stock requested to be
registered by any Selling Securityholders (allocated, if
necessary for the offering not to exceed the Maximum Offering
Size, pro rata among such Selling Securityholders on the basis of
the relative number of shares of Registrable Stock (excluding any
Benchmark Shares) so requested to be included in such
registration);
(C) third, all Registrable Stock requested to be included
in such registration by any other Holder (allocated, if necessary
for the offering not to exceed the Maximum Offering Size, pro
rata among such other Holders on the basis of the relative number
of shares of Registrable Stock (excluding any Benchmark Shares)
so requested to be included in such registration); and
(D) fourth, any Common Stock proposed to be registered by
the issuer.
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5.2 Incidental Registration. (a) If the Issuer proposes to
register any of its Common Stock under the Securities Act (other than a
registration (A) in connection with an Initial Public Offering, (B) on Form S-8
or S-4 or any successor or similar forms, (C) relating to Common Stock issuable
upon exercise of employee stock options or in connection with any employee
benefit or similar plan of the Issuer or (D) in connection with a direct or
indirect merger, acquisition or other similar transaction) whether or not for
sale for its own account, it will each such time, subject to the provisions of
Section 5.2(b) hereof, give prompt written notice at least 30 days prior to the
anticipated filing date of the registration statement relating to such
registration to each Securityholder, which notice shall set forth such
Securityholders' rights under this Section 5.2 and shall offer all
Securityholders the opportunity to include in such registration statement such
number of shares of Registrable Stock as each such Securityholder may request
(an "Incidental Registration"). Upon the written request of any such
Securityholder made within 15 days after the receipt of notice from the Issuer
(which request shall specify the number of shares of Registrable Stock intended
to be disposed of by such Securityholder), the Issuer will use its best efforts
to effect the registration under the Securities Act of all Registrable Stock
which the Issuer has been so requested to register by such Securityholders, to
the extent requisite to permit the disposition of the Registrable Stock so to be
registered; provided that (i) if such registration involves an Underwritten
Public Offering, all such Securityholders requesting to be included in the
Issuer's registration must sell their Registrable Stock to the underwriters
selected as provided in Section 5.4(f) on the same terms and conditions as apply
to the Issuer and the Selling Securityholders and (ii) if, at any time after
giving written notice of its intention to register any stock pursuant to this
Section 5.2(a) and prior to the effective date of the registration statement
filed in connection with such registration, the Issuer shall determine for any
reason not to register such stock, the Issuer shall give written notice to all
such Securityholders and, thereupon, shall be relieved of its obligation to
register any Registrable Stock in connection with such registration. No
registration effected under this Section 5.2 shall relieve the Issuer of its
obligations to effect a Demand Registration to the extent required by Section
5.1 hereof. The Issuer will pay all Registration Expenses in connection with
each registration of Registrable Stock requested pursuant to this Section 5.2.
(b) If a registration pursuant to this Section 5.2 involves an
Underwritten Public Offering (other than in the case of an Underwritten Public
Offering requested by any Securityholder in a Demand Registration, in which case
the provisions with respect to priority of inclusion in such offering set forth
in Section 5.1(d) shall apply) and the managing underwriter advises the Issuer
that, in its view, the number of shares of Common Stock which the Issuer and the
selling Securityholders intend to include in such registration exceeds the
Maximum Offering Size, the Issuer will include in such registration, in the
following priority, up to the Maximum Offering Size:
(i) first, so much of the Common Stock proposed to be registered
by the Issuer as would not cause the offering to exceed the Maximum
Offering Size;
(ii) second, all Benchmark Shares requested to be included in
such registration statement by any DLJ Entity pursuant to this Section
5.2 (allocated, if
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necessary for the offering not to exceed the Maximum Offering Size, pro
rata among such DLJ Entities on the basis of the relative number of
shares of Registrable Stock requested to be so included); and
(iii) third, all Registrable Stock other than Benchmark Shares
requested to be included in such registration by any Shareholder
pursuant to Section 5.2 (allocated, if necessary for the offering not to
exceed the Maximum Offering Size, pro rata among such Shareholders on
the basis of the relative number of shares of Registrable Stock
(excluding any Benchmark Shares) so requested to be included in such
registration).
5.3 Holdback Agreements. If any registration of Registrable Stock
shall be in connection with an Underwritten Public Offering, each Securityholder
agrees not to effect any public sale or distribution, including any sale
pursuant to Rule 144, or any successor provision, under the Securities Act, of
any Registrable Stock, and not to effect any such public sale or distribution of
any other Common Stock of the Issuer or of any stock convertible into or
exchangeable or exercisable for any Common Stock of the Issuer (in each case,
other than as part of such Underwritten Public Offering) during the 14 days
prior to the effective date of such registration statement (except as part of
such registration) or during the period after such effective date that such
managing underwriter and the Issuer shall agree (but not to exceed 90 days). Any
waiver of any restriction on sales or distributions referred to in this Section
5.3 shall be effective as to each of Cormier, Schaefer, and the DLJ Entities,
regardless whether the waiver has in fact requested by, or granted only certain
of such persons.
5.4 Registration Procedures. Whenever Securityholders request
that any Registrable Stock be registered pursuant to Section 5.1 or 5.2 hereof,
the Issuer will, subject to the provisions of such Sections, use its best
efforts to effect the registration and the sale of such Registrable Stock in
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(a) The Issuer will as expeditiously as possible prepare and file
with the SEC a registration statement on any form for which the Issuer then
qualifies or which counsel for the Issuer shall deem appropriate and which form
shall be available for the sale of the Registrable Stock to be registered
thereunder in accordance with the intended method of distribution thereof, and
use its best efforts to cause such filed registration statement to become and
remain effective for a period of not less than 90 days (or such shorter period
in which all of the Registrable Stock of the Holders included in such
registration statement shall have actually been sold thereunder).
(b) The Issuer will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
Securityholder and each underwriter, if any, of the Registrable Stock covered by
such registration statement copies of such registration statement as proposed to
be filed, and thereafter the Issuer will furnish to such Securityholder and
underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits
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thereto and documents incorporated by reference therein), the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such Securityholder or underwriter may reasonably
request in order to facilitate the disposition of the Registrable Stock owned by
such Securityholder.
(c) After the filing of the registration statement, the Issuer
will promptly notify each Securityholder holding Registrable Stock covered. by
such registration statement of any stop order issued or threatened by the SEC
and take all reasonable actions required to prevent the entry of such stop order
or to remove it if entered.
(d) The Issuer will use its best efforts to (i) register or
qualify the Registrable Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions in the United States as
any Securityholder holding such Registrable Stock reasonably (in light of such
Securityholder's intended plan of distribution) requests and (ii) cause such
Registrable Stock to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Issuer and do any and all other acts and things that may be
reasonably necessary or advisable to enable such Securityholder to consummate
the disposition of the Registrable Stock owned by such Securityholder; provided
that the Issuer will not be required to (A) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (B) subject itself to taxation in any such jurisdiction or
(C) consent to general service of process in any such jurisdiction.
(e) The Issuer will immediately notify each Securityholder
holding such Registrable Stock covered by such registration statement, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Stock, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and promptly prepare and make available to each such Securityholder and file
with the SEC any such supplement or amendment.
(f) Subject to Section 7.5, the Issuer may select, in its sole
discretion, the underwriter or underwriters in connection with any Underwritten
Public Offering as it may deem appropriate. Notwithstanding the foregoing, (i)
the DLJ Entities will have the right, in their sole discretion, to select the
underwriter or underwriters in connection with any underwritten Demand
Registration initiated by any of the DLJ Entities pursuant to Section 5.1, and
(ii) Cormier and Schaefer will have the right, in their sole discretion, to
select the underwriter or underwriters in connection with any underwritten
Demand Registration initiated by them only (and not also by any DLJ Entity)
pursuant to Section 5.1. Any Affiliate of any of the DLJ Entities may be
selected as underwriter for an Underwritten Public Offering. The Issuer will
enter into customary agreements (including an underwriting agreement in
customary form) and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of such Registrable Stock, including
the engagement
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of a "qualified independent underwriter" in connection with the qualification of
the underwriting arrangements with the NASD.
(g) The Issuer will make available for inspection by any
Securityholder and any underwriter participating in any disposition pursuant to
a registration statement being filed by the Issuer pursuant to this Section 5.4
and any attorney, accountant or other professional retained by any such
Securityholder or underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the Issuer
(collectively, the "Records") as shall be reasonably requested by any such
Person, and cause the Issuer's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with such
registration statement.
(h) The Issuer will furnish to each such Securityholder and to
each such underwriter, if any, a signed counterpart, addressed to such
underwriter, of (i) an opinion or opinions of counsel to the Issuer and (ii) a
comfort letter or comfort letters from the Issuer's independent public
accountants, each in customary form and covering opinions majority therefor such
matters of the type customarily covered by or comfort letters, as the case may
be, as a majority of such Securityholders or the managing underwriter reasonably
requests.
(i) The Issuer will otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
The Issuer may require each such Securityholder to promptly
furnish in writing to the Issuer such information regarding the distribution of
the Registrable Stock as the Issuer may from time to time reasonably request and
such other information as may be legally required in connection with such
registration.
Each such Securityholder agrees that, upon receipt of any notice
from the Issuer of the happening of any event of the kind described in Section
5.4(e) hereof, such Securityholder will forthwith discontinue disposition of
Registrable Stock pursuant to the registration statement covering such
Registrable Stock until such Securityholder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5.4(e) hereof, and,
if so directed by the Issuer, such Securityholder will deliver to the Issuer all
copies, other than any permanent file copies then in such Securityholder's
possession, of the most recent prospectus covering such Registrable Stock at the
time of receipt of such notice. In the event that the Issuer shall give such
notice, the Issuer shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 5.4(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 5.4(e) hereof to
the date when the Issuer shall make available to such Securityholder a
prospectus supplemented or amended to conform with the requirements of Section
5.4(e) hereof.
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5.5 Indemnification by the Issuer. The Issuer agrees to indemnify
and hold harmless each Securityholder holding Registrable Stock covered by a
registration statement, its officers, directors and agents, and each Person, if
any, who controls such Securityholder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus relating to the Registrable Stock (as amended or
supplemented if the Issuer shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission so made in strict conformity
with information furnished in writing to the Issuer by such Securityholder or on
such Securityholder's behalf expressly for use therein; provided that with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, or in any prospectus, as the case
may be, the indemnity agreement contained in this paragraph shall not apply to
the extent that any such loss, claim, damage, liability or expense results from
the fact that a current copy of the prospectus (or, in the case of a prospectus,
the prospectus as amended or supplemented) was not sent or given to the Person
asserting any such loss, claim, damage, liability or expense at or prior to the
written confirmation of the sale of the Registrable Stock concerned to such
Person if it is determined that the Issuer has provided such prospectus and it
was the responsibility of such Securityholder to provide such Person with a
current copy of the prospectus (or such amended or supplemented prospectus, as
the case may be) and such current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The Issuer also agrees
to indemnify any underwriters of the Registrable Stock, their officers and
directors and each person who controls such underwriters on substantially the
same basis as that of the indemnification of the Securityholders provided in
this Section 5.5.
5.6 Indemnification by Participating Securityholders. (a) Subject
to Section 5.6(b), each Securityholder holding Registrable Stock included in any
registration statement agrees, severally but not jointly, to indemnify and hold
harmless the Issuer, its officers, directors and agents and each Person, if any,
who controls the Issuer within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Issuer to such Securityholder, but only (i) with
respect to information furnished In writing by such Securityholder or on such
Securityholder's behalf expressly for use in any registration statement or
prospectus relating to the Registrable Stock, or any amendment or supplement
thereto, or any preliminary prospectus or (ii) to the extent that any loss,
claim, damage, liability or expense described in Section 5.5 results from the
fact that a current copy of the prospectus (or, in the case of a prospectus, the
prospectus as amended or supplemented) was not sent or given to the Person
asserting any such loss, claim, damage, liability or expense at or prior to the
written confirmation of the sale of the Registrable Stock concerned to such
Person if it is determined that it was the responsibility of such Securityholder
to provide such Person with a current
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<PAGE> 27
copy of the prospectus (or such amended or supplemented prospectus, as the case
may be) and such current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect giving rise to such
loss, claim, damage, liability or expense. Subject to Section 5.6(b), each such
Securityholder also agrees to indemnify and hold harmless underwriters of the
Registrable Stock, their officers and directors and each person who controls
such underwriters on substantially the same basis as that of the indemnification
of the Issuer provided in this Section 5.6. As a condition to including
Registrable Stock in any registration statement filed in accordance with Article
5 hereof, the Issuer may require that it shall have received an undertaking
reasonably satisfactory to it from any underwriter to indemnify and hold it
harmless to the extent customarily provided by underwriters with respect to
similar securities.
(b) No Securityholder shall be liable under Section 5.6(a) for
any damage thereunder in excess of the net proceeds realized by such
Securityholder in the sale of the Registrable Stock of such Securityholder.
5.7 Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person-in respect of which indemnity may be sought pursuant to
this Article 5, such Person (an "Indemnified Party") shall promptly notify the
Person against whom such indemnity may be sought (the "Indemnifying Party") in
writing and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses; provided that the failure of
any Indemnified Party so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent that the
Indemnifying Party is materially prejudiced by such failure to notify. In any
such proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of such Indemnified Party representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent, or if there be a final judgment for the plaintiff, the Indemnifying
Party shall indemnify and hold harmless such Indemnified Parties from and
against any and all losses, claims, damages, liabilities and expenses or
liability (to the extent stated above) by reason of such settlement or judgment.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such
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<PAGE> 28
settlement includes an unconditional release of such Indemnified Party from all
liability arising out of such proceeding.
5.8 Contribution. If the indemnification provided for in this
Article 5 is held by a court of competent jurisdiction to be unavailable to the
Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
as between the Issuer and the Securityholders holding Registrable Stock covered
by a registration statement on the one hand and the underwriters on the other,
in such proportion as is appropriate to reflect the relative benefits received
by the Issuer and such Securityholders on the one hand and the underwriters on
the other, from the offering of the Registrable Stock, or if such allocation is
not permitted by applicable law, in such proportion as s appropriate to reflect
not only the relative benefits but also the relative fault of the Issuer and
such Securityholders on the one hand and of such underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between the Issuer on the one hand and each such
Securityholder on the other, in such proportion as is appropriate to reflect the
relative fault of the Issuer and of each such Securityholder in connection with
such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Issuer and such
Securityholders on the one hand and such underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting expenses)
received by the Issuer and such Securityholders bear to the total underwriting
discounts and commissions received by such underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Issuer and such Securityholders on the one hand and of such underwriters on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Issuer
and such Securityholders or by such underwriters. The relative fault of the
Issuer on the one hand and of each such Securityholder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Issuer and the Securityholders agree that it would not be
just and equitable if contribution pursuant to this Section 5.8 were determined
by pro rata allocation (even if the underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with
25
<PAGE> 29
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5.8, no underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Stock underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages which such underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no Securityholder shall be
required to contribute any amount in excess of the amount by which the net
proceeds realized on the sale of the Registrable Stock of such Securityholder
exceeds the amount of any damages which such Securityholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Each Securityholder's obligation to contribute pursuant to
this Section 5.8 is several in the proportion that the proceeds of the offering
received by such Securityholder bears to the total proceeds of the offering
received by all such Securityholders and not joint.
5.9 Participation in Public Offering. No Person may participate
in any Underwritten Public Offering hereunder unless such Person (a) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and the provisions of
this Agreement in respect of registration rights.
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS
6.1 Confidentiality. (a) Each Securityholder hereby agrees that
Confidential Information (as defined below) furnished and to be furnished to it
was and will be made available in connection with such Securityholder's
investment in the Issuer. Each Securityholder agrees that it will not use the
Confidential Information in any way to the competitive disadvantage of the
Issuer. Each Securityholder further acknowledges and agrees that it will not
disclose any Confidential Information to any Person; provided that Confidential
Information may be disclosed (i) to such Securityholder's Representatives (as
defined below) in the normal course of the performance of their duties, (ii) to
the extent required by applicable law, rule or regulation (including complying
with any oral or written questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process to which a
Securityholder is subject), (iii) to any Person to whom such Securityholder is
contemplating a transfer of its Securities (provided that such transfer would
not be in violation of the provisions of this Agreement and as long as such
potential transferee is advised of the confidential nature of such information
and agrees to be bound by a confidentiality agreement in form and substance
satisfactory to the Issuer and consistent with the provisions hereof) or (iv) if
the prior written consent of the Board shall have been obtained. Nothing
contained herein shall prevent the use of
26
<PAGE> 30
Confidential Information in connection with the assertion or defense of any
claim by or against the Issuer or any Securityholder.
(b) "Confidential Information" means any information concerning
the Issuer, its financial condition, business, operations or prospects in the
possession of or to be furnished to any Securityholder in its capacity as a
shareholder of the Issuer or by virtue of its present or former right to
designate a director of the Issuer; provided that the term "Confidential
Information" does not include information which (i) becomes generally available
to the public other than as a result of a disclosure by a Securityholder or its
partners, directors, officers, employees, agents, counsel, investment advisers
or representatives (all such persons being collectively referred to as
"Representatives") in violation of any of the Transaction Documents (as such
term is defined in the Securities Purchase Agreement), (ii) is or was available
to such Securityholder on a nonconfidential basis prior to its disclosure to
such Securityholder or its Representatives by the Issuer or (iii) was or becomes
available to such Securityholder on a non-confidential basis from a source other
than the Issuer, provided that such source is or was (at the time of receipt of
the relevant information) not, to the best of such Securityholder's knowledge,
bound by a confidentiality agreement with (or other confidentiality obligation
to) the Issuer or another Person.
6.2 No Inconsistent Agreements. Neither the Issuer nor any
Securityholder is presently a party to or will hereafter enter into any
agreement with respect to any Securities which is inconsistent with the rights
granted to any Securityholder by this Agreement or any other agreements relating
to the Securities to which the Securityholders are parties or which otherwise
conflicts with the provisions hereof or thereof, or will in the future grant or
cause to be granted to any holder or prospective holder of any Securities, any
rights relating thereto, including, for example, registration rights, which are,
in the aggregate, made available on more favorable terms (including, without
limitation, terms which are more favorable than those set forth in Article 5) to
such holder than those granted to the Securityholders hereunder and thereunder,
unless the Securityholders are given all of the benefits of such favorable terms
and consent thereto.
6.3 Agreement as Between PM Funding, Inc. and the Other DLJ
Entities Regarding Conversion of the Notes. Each DLJ Entity (other than PM
Funding, Inc.) agrees that, immediately upon the request of PM Funding, Inc.
delivered by notice to such DLJ Entity, such DLJ Entity shall exercise its right
to convert (in whole and not in part) the Note (or Notes) held by such DLJ
Entity into Common Stock in accordance with the provisions of Sections 5.1 and
5.2 of the Note.
ARTICLE 7
MISCELLANEOUS
7.1 Entire Agreement. The Transaction Documents constitute the
entire agreement between the parties with respect to the subject matter of the
Transaction
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<PAGE> 31
Documents and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement and the other Transaction Documents.
7.2 Binding Effect; Benefit. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any Person other than
the parties hereto, and their respective heirs, successors, legal
representatives and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
7.3 Assignability. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Issuer or any Securityholder, except in connection with a
transfer of securities of the Issuer pursuant to the terms hereof; provided that
any Person acquiring Securities who is required by the terms of this Agreement
to become a party hereto shall execute and deliver to the Issuer an agreement to
be bound by this Agreement and shall thenceforth be a "Securityholder". Any
Securityholder who ceases to beneficially own any Securities shall cease to be
bound by the terms hereof (other than Sections 5.6, 5.7, 5.8 and 6.1).
7.4 Amendment; Waiver; Termination. (a) No provision of this
Agreement may be waived except by an instrument in writing executed by the party
against whom the waiver is to be effective. No provision of this Agreement may
be amended or otherwise modified except by an instrument in writing executed by
the Issuer with the approval of the Board and Securityholders holding or having
the right to acquire at least 85% of the Fully Diluted Common Stock held by
parties to this Agreement.
(b) In addition, any amendment, modification or termination of
any provision of this Agreement that would adversely affect a DLJ Entity may be
effected only with the consent of such DLJ Entity.
(c) In addition, any amendment, modification or termination of
any provision of this Agreement that would adversely affect Cormier or Schaefer
may be effected only with the consent of Cormier or Schaefer, respectively.
7.5 Exclusive Financial Advisor and Investment Banking Advisor.
During the period from and including the date hereof through and including the
fourth anniversary hereof, Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC"), or any Affiliate of DLJSC that the DLJ Entities may choose in their
sole discretion, shall be engaged as the exclusive financial advisor and
investment banker for the Issuer for an annual retainer fee (i) which shall be
$200,000 effective for each of the first four one-year periods ending on an
anniversary of the date hereof and (ii) which thereafter shall be on
commercially reasonable terms to be agreed between the Issuer and DLJSC.
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<PAGE> 32
7.6 Certain Requirements In Connection with Conversion of Shares
of Series B Preferred Stock. Notwithstanding anything herein to the contrary, no
shares of Common Stock shall be issued upon conversion of any shares of Series B
Preferred Stock to (i) DLJ Merchant Banking Funding, Inc. or (ii) any other
affiliate of Donaldson, Lufkin & Jenrette, Inc. ("DLJ") designated in writing to
the Issuer from time to time by DLJ Merchant Banking Funding, Inc., unless in
connection with such conversion the Issuer shall have received a certificate
from DLJ Merchant Banking Funding, Inc. to the effect that (A) immediately upon
such conversion, DLJ will not directly or indirectly own, control or hold 5% or
more of the voting securities of the Issuer, within the meaning of the New York
insurance law or (B) it and The Equitable Life Assurance Society of the United
States ("The Equitable") have been advised by counsel satisfactory to The
Equitable that immediately upon such conversion DLJ will not be in control of
the Issuer, within the meaning of the New York insurance law. The Issuer and the
holders of shares of Series B Preferred Stock will use reasonable efforts to
enter into mutually agreed upon arrangements to facilitate conversion of the
shares of Series B Preferred Stock into Common Stock in accordance with the
provisions of the first sentence of this Section 7.6.
7.7 Notices. All notices and other communications given or made
pursuant hereto or pursuant to any other agreement among the parties, unless
otherwise specified, shall be in writing and shall be deemed to have been duly
given or made if sent by fax (with confirmation in writing), delivered
personally or sent by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the fax number or address set forth below
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made upon
receipt:
if to the DLJ Entities, to:
DLJ Merchant Banking Funding, Inc.
DLJ Merchant Banking partners, L.P.
140 Broadway
New York, New York 10005-1285
Attention: Thompson Dean
Fax: (212) 504-4991
and to:
DLJ International Partners, C.V.
DLJ Offshore Partners, C.V.
c/o DLJ Offshore Management N.V.
John B. Gorsiraweg
6 Willemstad, Curacao
Netherlands Antilles
Attention: Germaine Sprock
MeesPierson Trust (Curacao) N.V.
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<PAGE> 33
DLJ Capital Corporation
Sprout Growth II, L.P.
Sprout Capital VI, L.P.
3000 Sand Hill Road
Suite 270
Menlo Park, California 94025
Attention: Paul Bartlett
Fax: (415) 854-8779
DLJ Bridge Finance, Inc.
140 Broadway
New York, NY
Attention: Robert Grien
Fax: (212) 504-4991
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: George R. Bason, Jr.
Fax: (212) 450-4800
if to Cormier or the Issuer, to:
Phase Metrics, Inc.
3978 Sorrento Valley Blvd.
San Diego, CA 92121
Attention: Arthur J. Cormier
Fax: (619) 552-1132
with a copy to:
Paul, Hastings, Janofsky & Walker
695 Town Center Drive, 17th Floor
Costa Mesa, CA 92626
Attention: Robert R. Burge
Fax: (714) 979-1921
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<PAGE> 34
if to Schaefer, to:
Phase Metrics, Inc.
3978 Sorrento Valley Blvd.
San Diego, CA 92121
Attention: John F. Schaefer
Fax: (619) 552-1132
with a copy to:
Brobeck, Phleger & Harrison
4675 MacArthur Court, Suite 1000
Newport Beach, CA 92660
Attention: Richard A. Fink
Fax: (714) 752-7522
Any Person who becomes a Securityholder shall provide its address and fax number
to the Issuer, which shall promptly provide such information to each other
Securityholder.
7.8 Headings. The headings contained in this Agreement are for
convenience only and shall not affect the meaning or interpretation of this
Agreement.
7.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
7.10 Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, without
regard to the conflicts of law rules of such state.
7.11 Specific Enforcement. Each party hereto acknowledges that
the remedies at law of the other parties for a breach or threatened breach of
this Agreement would be inadequate and, in recognition of this fact, any party
to this Agreement, without posting any bond, and in addition to all other
remedies which may be available, shall be entitled to obtain equitable relief in
the form of specific performance, a temporary restraining order, a temporary or
permanent injunction or any other equitable remedy which may then be available.
7.12 Consent to Jurisdiction. Any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby be
brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York City, and each of the
parties hereby consents to the non-exclusive jurisdiction of such courts (and of
the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection
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<PAGE> 35
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient form. Process in any such suit, action or proceeding may be served
any party anywhere in the world, whether within or without the jurisdiction of
any such court. Without limiting the foregoing, each party agrees that service
of process on such party as provided in Section 7.6 shall be deemed effective
service of process on such party.
[Remainder of this page intentionally left blank.]
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
BY DLJ MERCHANT BANKING, INC.
Managing General Partner
By: /s/ DLJ MERCHANT BANKING PARTNERS, L.P.
-------------------------------------------------
Title: Managing Director
DLJ INTERNATIONAL PARTNERS, C.V.
BY DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/ DLJ INTERNATIONAL PARTNERS, C.V.
-------------------------------------------------
Title: Managing Director
DLJ OFFSHORE PARTNERS, C.V.
BY DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/ DLJ OFFSHORE PARTNERS, C.V.
-------------------------------------------------
Title: Managing Director
DLJ MERCHANT BANKING FUNDING, INC.
By: /s/ DLJ MERCHANT BANKING FUNDING, INC.
-------------------------------------------------
Title:
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<PAGE> 37
DLJ CAPITAL CORPORATION
By: /s/ Robert Finzi
-------------------------------------------------
Robert Finzi
Attorney-In-Fact
SPROUT GROWTH II, L.P.
By: DLJ Capital Corporation
Managing General Partner
By: /s/ Robert Finzi
-------------------------------------------------
Robert Finzi
Attorney-In-Fact
SPROUT CAPITAL VI, L.P.
By: DLJ Capital Corporation
Managing General Partner
By: /s/ Robert Finzi
-------------------------------------------------
Robert Finzi
Attorney-In-Fact
PM FUNDING, INC.
By: /s/
-------------------------------------------------
Name:
Title: Vice President
/s/ Arthur Cormier
-------------------------------------------------
Arthur J. Cormier
/s/ John Schaefer
-------------------------------------------------
John F. Schaefer
34
<PAGE> 38
PHASE METRICS, INC.
By: /s/ Arthur Cormier
-------------------------------------------------
Name: Arthur J. Cormier
Title: President
35
<PAGE> 39
FIRST AMENDMENT TO
SECURITYHOLDERS AGREEMENT
THIS FIRST AMENDMENT TO SECURITYHOLDERS AGREEMENT dated as of June 30,
1995 (the "Amendment") amends that certain Securityholders' Agreement (as
hereinafter defined) and is made among DLJ Merchant Banking Partners, L.P., a
Delaware limited partnership, DLJ International Partners, C.V., a Netherlands
Antilles limited partnership, DLJ Offshore Partners, C.V., a Netherlands
Antilles limited partnership, DLJ Merchant Banking Funding, Inc., a Delaware
corporation, DLJ Capital Corporation, a Delaware corporation, Sprout Growth II,
L.P., a Delaware limited partnership, Sprout Capital VI, L.P., a Delaware
limited partnership, DLJ First ESC L.L.C., a Delaware limited liability company,
PM Funding, Inc., a Delaware corporation (each of the foregoing, a "DLJ Entity",
and collectively, the "DLJ Entities"), Phase Metrics, Inc., a California
corporation (the "Issuer"), Arthur J. Cormier, an individual ("Cormier"), John
F. Schaefer, an individual ("Schaefer"), Richard J. Freedland and Nanette A.
Freedland as Trustees of the Freedland 1994 Unitrust, Alex Moraru and Liliana
Moraru as Trustees of the Moraru 1994 Unitrust, Hung Ba Le and Anh Le as
Trustees of the Le 1994 Unitrust, and Loai Najjar and Mickie Najjar as Trustees
of the Najjar 1994 Unitrust (the "Shareholder Trusts").
WHEREAS, the Issuer desires to enter into that certain Stock Purchase
and Exchange Agreement dated as of June 30, 1995 among the Issuer, Helios
Incorporated ("Helios"), the Shareholder Trusts and each of the other parties
thereto, pursuant to which the Issuer will acquire all of the issued and
outstanding capital stock of Helios (the "Stock Purchase Agreement");
WHEREAS, in connection with the Stock Purchase Agreement, the Issuer
will issue shares of its Common Stock (the "PM Shares") to the current
shareholders of Helios (each a "Helios Shareholder" and, collectively, the
"Helios Shareholders");
WHEREAS, in connection with the issuance of the PM Shares, each Helios
Shareholder will become a party to the Securityholders Agreement dated as of
November 23, 1994 (the "Securityholders Agreement") among the DLJ Entities, the
Issuer, Schaefer and Cormier;
WHEREAS, in order for the Helios Shareholders to become parties to the
Security- holders Agreement, certain terms of the Securityholders Agreement must
be amended.
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein
have the respective meanings assigned to them in the Securityholders Agreement.
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<PAGE> 40
2. References to the Securityholders Agreement. All references in
the Securityholders Agreement to "this Agreement", and to all other words
referring to the Securityholders Agreement (such as "herein", "hereto",
"herewith" and "hereunder"), shall be deemed to mean and refer to the
Securityholders Agreement, as amended by this Amendment (the "Securityholders
Agreement"). All references in the Securityholders Agreement to "Securityholder"
shall be deemed to include the Helios Shareholders.
3. Addition of Helios Shareholders to Securityholders Agreement.
The parties hereto acknowledge and agree that each Helios Shareholder shall be
deemed a "Securityholder" under the Securityholders Agreement and the PM Shares
held by each Helios Shareholder shall be treated as "Securities" and "Common
Stock" under the Securityholders Agreement.
4. Amendments to Securityholders Agreement.
a. In Section 1.1 of the Securityholders Agreement, the
following definition is hereby added:
"`Helios Shareholders' means each Person who
received shares of Common Stock of the Issuer pursuant to that
certain Stock Purchase and Exchange Agreement dated as of June
30, 1995, among the Issuer, Helios Incorporated and each of the
other parties signatory thereto."
b. In Section 1.1 of the Securityholders Agreement, the
following clause is hereby added to the definition of "Permitted Transferee":
(iii) in the case of the Helios Shareholders, in
addition to the Permitted Transferees enumerated in paragraph
(ii) above, any beneficiary and/or trustee of any Helios
Shareholder that is a trust; provided, that such transferee shall
have agreed in writing to be bound by the terms of this
Agreement;
c. Section 3.1(b) of the Securityholders Agreement is
hereby amended by inserting the words "the Helios Shareholders," before the word
"Schaefer" in clause (vi).
d. Section 4.1(g) is hereby amended as follows:
(1) In the first sentence of clause (i), the word
"or" between the words "Cormier" and "Schaefer" is deleted and
replaced with a comma, and the words "or the Helios Shareholders"
are inserted after the word "Schaefer";
(2) In the second sentence of clause (i), the word
"and" between the words "Cormier" and "Schaefer" is deleted and
replaced with a comma, and the words "and the Helios
Shareholders" are inserted after the word "Schaefer";
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<PAGE> 41
(3) In the last sentence of clause (i), the words
"and Schaefer and Cormier may not effect another Tag along Sale
without repeating the foregoing procedures" are deleted and
replaced by "then Schaefer, Cormier and the Helios Shareholders
may not effect another Tag along Sale without repeating the
foregoing procedures"; and
(4) In the third sentence of clause (v), the word
"or" between the words "Cormier" and "Schaefer" is deleted and
replaced with a comma, and the words "or the Helios Shareholders"
are inserted after the word "Schaefer".
e. Section 4.3(a) is hereby amended by deleting the words
"Other Shareholder" in the sixth sentence and replacing them with the words
"Other Securityholder".
f. Section 5.2(b)(iii) of the Securityholders Agreement is
hereby amended and restated in its entirety as follows:
"(iii) third, all Registrable Stock other than
Benchmark Shares requested to be included in such registration by
any Securityholder pursuant to this Section 5.2 (allocated, if
necessary for the offering not to exceed the Maximum Offering
Size, pro rata among such Securityholders on the basis of the
relative number of shares of Registrable Stock (excluding any
Benchmark Shares) so requested to be included in such
registration)."
g. Section 5.3 of the Securityholders Agreement is hereby
amended by inserting the words "the Helios Shareholders," after the word
"Schaefer," in the last sentence.
h. Section 7.7 of the Securityholders Agreement is hereby
amended by inserting the following new paragraph immediately prior to the last
sentence of Sec- tion 7.7:
"if to the Helios Shareholders to:
Richard J. Freedland and Nanette A. Freedland as
Trustees of the Freedland 1994 Unitrust
1010 Madison Drive
Mountain View, CA 94040
Hung Ba Le and Anh Le as Trustees of the Le 1994
Unitrust
2051 Edgegate
San Jose, CA 95122
3
<PAGE> 42
Alex Moraru and Liliana Moraru as Trustees of the
Moraru 1994 Unitrust
4349 Nicolet
Fremont, CA 94536
Loai Najjar and Mickie Najjar as Trustees of
the Najjar 1994 Unitrust
P.O. Box 3307
Santa Clara, CA 94087
with a copy to:
Fenwick & West
Two Palo Alto Square, Suite 800
Palo Alto, CA 94306
Attention: Dennis Debroeck
Fax: (415) 857-0361"
5. Effect of Amendment. The Securityholders Agreement, as amended
hereby, shall remain in full force and effect.
6. Effectiveness. This Amendment shall be effective only upon the
Closing of the Stock Purchase Agreement.
7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law provisions thereof.
[Signature Pages to Follow]
4
<PAGE> 43
COUNTERPART SIGNATURE PAGE TO
FIRST AMENDMENT TO SECURITYHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to Securityholders Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------
Name:
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------
Name:
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------
Name:
Title:
5
<PAGE> 44
DLJ MERCHANT BANKING FUNDING, INC.
By: /s/DLJ Merchant Banking Funding, Inc.
-------------------------------
Name:
Title:
DLJ CAPITAL CORPORATION
By: /s/DLJ Capital Corporation
-------------------------------
Name:
Title:
DLJ FIRST ESC L.L.C.
By: /s/DLJ First ESC L.L.C.
-------------------------------
Name:
Title:
SPROUT GROWTH II, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-------------------------------
Robert Finzi
Attorney-In-Fact
SPROUT CAPITAL VI, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-------------------------------
Robert Finzi
Attorney-In-Fact
6
<PAGE> 45
/s/Arthur J. Cormier
-------------------------------
Arthur J. Cormier
/s/John F. Schaefer
-------------------------------
John F. Schaefer
[Signatures Continued on Next Page]
7
<PAGE> 46
COUNTERPART SIGNATURE PAGE TO
FIRST AMENDMENT TO SECURITYHOLDERS AGREEMENT
PHASE METRICS, INC.
By: /s/John F. Schaefer
-------------------------------
Name: John F. Schaefer
Title: Chief Executive Officer
ACKNOWLEDGED AND AGREED TO:
The undersigned parties hereby agree to be bound by the terms and conditions of
this Amendment and the Securityholders Agreement dated as of November 23, 1994
among the DLJ Merchant Banking Partners, L.P., DLJ International Partners, C.V.,
DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc., DLJ Capital
Corporation, Sprout Growth II, L.P., Sprout Capital VI, L.P., DLJ First ESC
L.L.C., PM Funding, Inc., Arthur J. Cormier, John F. Schaefer and Phase Metrics,
Inc., as amended hereby.
/s/Richard J. Freedland
- ------------------------------------------------
Richard J. Freedland as Trustee of the
Freedland 1994 Unitrust
/s/Nanette A. Freedland
- ------------------------------------------------
Nanette A. Freedland as Trustee of the
Freedland 1994 Unitrust
/s/Alex Moraru
- ------------------------------------------------
Alex Moraru as Trustee of the
Moraru 1994 Unitrust
/s/Liliana Moraru
- ------------------------------------------------
Liliana Moraru as Trustee of the
Moraru 1994 Unitrust
/s/Hung Ba Le
- ------------------------------------------------
Hung Ba Le as Trustee of the
Le 1994 Unitrust
8
<PAGE> 47
/s/Anh Le
- ------------------------------------------------
Anh Le as Trustee of the
Le 1994 Unitrust
/s/Loai Najjar
- ------------------------------------------------
Loai Najjar as Trustee of the
Najjar 1994 Unitrust
/s/Mickie Najjar
- ------------------------------------------------
Mickie Najjar as Trustee of the
Najjar 1994 Unitrust
9
<PAGE> 48
SECOND AMENDMENT TO
SECURITYHOLDERS AGREEMENT
THIS SECOND AMENDMENT TO SECURITYHOLDERS AGREEMENT dated
as of July 18, 1995 (the "Amendment") amends that certain Securityholders'
Agreement (as hereinafter defined) and is made among DLJ Merchant Banking
Partners, L.P., a Delaware limited partnership, DLJ International Partners,
C.V., a Netherlands Antilles limited partnership, DLJ Offshore Partners, C.V., a
Netherlands Antilles limited partnership, DLJ Merchant Banking Funding, Inc., a
Delaware corporation, DLJ Capital Corporation, a Delaware corporation, Sprout
Growth II, L.P., a Delaware limited partnership, Sprout Capital VI, L.P., a
Delaware limited partnership, DLJ First ESC L.L.C., a Delaware limited liability
company, PM Funding, Inc., a Delaware corporation (each of the foregoing, a "DLJ
Entity", and collectively, the "DLJ Entities"), Phase Metrics, Inc., a
California corporation (the "Issuer"), Arthur J. Cormier, an individual
("Cormier"), John F. Schaefer, an individual ("Schaefer"), Richard J. Freedland
and Nanette A. Freedland as Trustees of the Freedland 1994 Unitrust, Alex Moraru
and Liliana Moraru as Trustees of the Moraru 1994 Unitrust, Hung Ba Le and Anh
Le as Trustees of the Le 1994 Unitrust, and Loai Najjar and Mickie Najjar as
Trustees of the Najjar 1994 Unitrust (the "Shareholder Trusts").
WHEREAS, the Issuer desires to enter into that certain Stock Purchase
and Exchange Agreement dated as of July 18, 1995 among the Issuer, Applied
Robotic Technologies, Inc. ("ART"), Neil A. Brumberger and Hart H. Brumberger
(collectively, "Brumberger") , pursuant to which the Issuer will acquire all of
the issued and outstanding capital stock of ART (the "Stock Purchase
Agreement");
WHEREAS, in connection with the Stock Purchase Agreement, the Issuer
will issue shares of its Common Stock (the "PM Shares") to Brumberger;
WHEREAS, in connection with the issuance of the PM Shares, Brumberger
will become a party to the Securityholders Agreement dated as of November 23,
1994, as amended by the First Amendment to Securityholders Agreement dated June
30, 1995 (the "Securityholders Agreement") among the DLJ Entities, the Issuer,
Schaefer and Cormier;
WHEREAS, in order for Brumberger to become parties to the
Securityholders Agreement, certain terms of the Securityholders Agreement must
be amended.
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein
have the respective meanings assigned to them in the Securityholders Agreement.
1
<PAGE> 49
2. References to the Securityholders Agreement. All references in
the Securityholders Agreement to "this Agreement", and to all other words
referring to the Securityholders Agreement (such as "herein", "hereto",
"herewith" and "hereunder"), shall be deemed to mean and refer to the
Securityholders Agreement, as amended by this Amendment. All references in the
Securityholders Agreement to "Securityholder" shall be deemed to include
Brumberger.
3. Addition of Brumberger to Securityholders Agreement. The
parties hereto acknowledge and agree that Brumberger shall be deemed a
"Securityholder" under the Securityholders Agreement and the PM Shares held by
Brumberger shall be treated as "Securities" and "Common Stock" under the
Securityholders Agreement.
4. Amendments to Securityholders Agreement.
(a) In Section 1.1 of the Securityholders Agreement, the
following definition is hereby added:
"`Brumberger' shall mean Neil A. Brumberger and
Hart H. Brumberger."
(b) Section 3.1(b) of the Securityholders Agreement is
hereby amended by inserting the words ", Brumberger" after the word "Schaefer"
in clause (vi).
(c) Section 4.1(g) is hereby amended as follows:
(i) In the first sentence of clause (i), the word
"Brumberger," is inserted before the word "Cormier";
(ii) In the second sentence of clause (i), the word
"Brumberger," is inserted before the word "Cormier";
(iii) In the last sentence of clause (i), the word
"Brumberger," is inserted before the word "Schaefer"; and
(iv) In the third sentence of clause (v), the word
"Brumberger," is inserted before the word "Cormier."
(d) Section 5.3 of the Securityholders Agreement is hereby
amended by inserting the word "Brumberger," before the word "Cormier" in the
last sentence.
(e) Section 7.7 of the Securityholders Agreement is hereby
amended by inserting the following new paragraph immediately prior to the last
sentence of Section 7.7:
2
<PAGE> 50
"if to Brumberger to:
Neil A. Brumberger
121 Fiesta Circle
Orinda, CA 94563
Fax: (510) 376-4609
with a copy to:
Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, CA 94111
Attn: Christopher L. Kaufman, Esq.
Fax: (415) 395-8095"
5. Effect of Amendment. The Securityholders Agreement, as amended
hereby, shall remain in full force and effect.
6. Effectiveness. This Amendment shall be effective only upon the
Closing of the Stock Purchase Agreement.
7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law provisions thereof.
[Signature Page to Follow]
3
<PAGE> 51
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to Securityholders Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------------------
Name:
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------------------
Name:
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------------------
Name:
Title:
4
<PAGE> 52
DLJ MERCHANT BANKING FUNDING, INC.
By: /s/DLJ Merchant Banking Funding, Inc.
-------------------------------------------
Name:
Title:
DLJ CAPITAL CORPORATION
By: /s/DLJ Capital Corporation
-------------------------------------------
Name:
Title:
DLJ FIRST ESC L.L.C.
By: /s/DLJ First ESC L.L.C.
-------------------------------------------
Name:
Title:
SPROUT GROWTH II, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-------------------------------------------
Robert Finzi
Attorney-In-Fact
SPROUT CAPITAL VI, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-------------------------------------------
Robert Finzi
Attorney-In-Fact
5
<PAGE> 53
/s/Arthur J. Cormier
-------------------------------------------
Arthur J. Cormier
/s/John F. Schaefer
-------------------------------------------
John F. Schaefer
[Signatures Continued on Next Page]
6
<PAGE> 54
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
PHASE METRICS, INC.
By: /s/John F. Schaefer
-------------------------------------------
Name: John F. Schaefer
Title: Chief Executive Officer
ACKNOWLEDGED AND AGREED TO:
The undersigned party hereby agrees to be bound by the terms and conditions of
this Amendment and the Securityholders Agreement.
/s/Neil A. Brumberger
-------------------------------------------
Neil A. Brumberger
/s/Hart H. Brumberger
-------------------------------------------
Hart H. Brumberger
7
<PAGE> 55
THIRD AMENDMENT TO
SECURITYHOLDERS AGREEMENT
THIS THIRD AMENDMENT TO SECURITYHOLDERS AGREEMENT dated as
of January 18, 1996 (the "Amendment") amends that certain Securityholders'
Agreement (as hereinafter defined) and is made among DLJ Merchant Banking
Partners, L.P., a Delaware limited partnership; DLJ International Partners,
C.V., a Netherlands Antilles limited partnership; DLJ Offshore Partners, C.V., a
Netherlands Antilles limited partnership; DLJ Merchant Banking Funding, Inc., a
Delaware corporation; DLJ Capital Corporation, a Delaware corporation; Sprout
Growth II, L.P., a Delaware limited partnership; Sprout Capital VI, L.P., a
Delaware limited partnership; DLJ First ESC L.L.C., a Delaware limited liability
company; PM Funding, Inc., a Delaware corporation (each of the foregoing, a "DLJ
Entity", and collectively, the "DLJ Entities"); Phase Metrics, Inc., a
California corporation (the "Issuer"); Arthur J. Cormier, an individual
("Cormier"); John F. Schaefer, an individual ("Schaefer"); Richard J. Freedland
and Nanette A. Freedland as Trustees of the Freedland 1994 Unitrust, Alex Moraru
and Liliana Moraru as Trustees of the Moraru 1994 Unitrust, Hung Ba Le and Anh
Le as Trustees of the Le 1994 Unitrust, and Loai Najjar and Mickie Najjar as
Trustees of the Najjar 1994 Unitrust (collectively, the "Shareholder Trusts");
and Neil A. Brumberger and Hart H. Brumberger (collectively, "Brumberger")
WHEREAS, the Issuer desires to enter into that certain Stock Purchase
and Exchange Agreement dated as of even date herewith by and among the Issuer,
Air Bearings, Incorporated ("ABI"), Roger D. and Mary Anne Christine Peters and
Roger D. Peters and Mary Anne Christine Peters, as trustees for the Roger D.
Peters and Mary Anne Christine Peters Living Trust (collectively, "Peters"); and
Jeffrey K. and Yvonne H. Rhoton and Jeffrey K. Rhoton and Yvonne H. Rhoton, as
trustees for the Jeffrey K. Rhoton and Yvonne H. Rhoton Living Trust
(collectively, "Rhotons"), pursuant to which the Issuer will acquire all of the
issued and outstanding capital stock of ABI (the "Stock Purchase Agreement");
WHEREAS, in connection with the Stock Purchase Agreement, the Issuer
will issue shares of its Common Stock (the "PM Shares") to Peters and to
Rhotons.
WHEREAS, in connection with the issuance of the PM Shares, each of the
Peters and each of the Rhotons will become a party to the Securityholders
Agreement dated as of November 23, 1994, as amended by the First Amendment to
Securityholders Agreement dated as of June 30, 1995 and the Second Amendment to
the Securityholders Agreement dated as of July 18, 1995 (the "Securityholders
Agreement"), by and among the DLJ Entities, Issuer, Schaefer, Cormier, the
Shareholder Trusts, and Brumberger;
WHEREAS, in order for the Peters and the Rhotons to each become a party
to the Securityholders Agreement, certain terms of the Securityholders Agreement
must be amended.
1
<PAGE> 56
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein
shall have the respective meanings assigned to them in the Securityholders
Agreement.
2. References to the Securityholders Agreement. All references in
the Securityholders Agreement to "this Agreement", and to all other words
referring to the Securityholders Agreement (such as "herein", "hereto",
"herewith" and "hereunder"), shall be deemed to mean and refer to the
Securityholders Agreement, as amended by this Amendment. All references in the
Securityholders Agreement to "Securityholder" shall be deemed to include each of
Peters and Rhotons.
3. Addition of Peters and Rhotons to Securityholders Agreement.
The parties hereto acknowledge and agree that each of the Peters and each of the
Rhotons shall each be deemed a "Securityholder" under the Securityholders
Agreement and the PM Shares held by Peters and Rhotons shall be treated as
"Securities" and "Common Stock" under the Securityholders Agreement.
4. Amendments to Securityholders Agreement.
(a) In Section 1.1 of the Securityholders Agreement, the
following definitions are hereby added:
"`Peters' shall mean Roger D. Peters and Mary Anne
Christine Peters, as trustees for the Roger D. Peters and Mary
Anne Christine Peters Living Trust."
"`Rhotons' shall mean Jeffrey K. Rhoton and Yvonne
H. Rhoton, as trustees for the Jeffrey K. Rhoton and Yvonne H.
Rhoton Living Trust."
(b) Section 3.1(b) of the Securityholders Agreement is
hereby amended by inserting the words ", Peters, Rhotons" before the word
"Schaefer" in clause (vi).
(c) Section 4.1(g) is hereby amended as follows:
(i) In the first sentence of clause (i), the words
", Peters, Rhotons" are inserted after the word "Schaefer";
(ii) In the second sentence of clause (i), the
words ", Peters, Rhotons" are inserted after the word "Schaefer";
2
<PAGE> 57
(iii) In the last sentence of clause (i), the words
". Peters, Rhotons" are inserted after the word "Schaefer"; and
(iv) In the third sentence of clause (v), the words
", Peters, Rhotons" are inserted after the word "Schaefer."
(d) Section 5.3 of the Securityholders Agreement is hereby
amended by inserting the words ", Peters, Rhotons" after the word "Schaefer" in
the last sentence.
(e) Section 7.7 of the Securityholders Agreement is hereby
amended by inserting the following new paragraph immediately prior to the last
sentence of Sec- tion 7.7:
"if to Peters to:
Roger D. Peters
Mary Anne Christine Peters
152 Chicago Way
San Francisco, CA 94112
with a copy to:
Bronson, Bronson & McKinnon
505 Montgomery Street
San Francisco, California 94111-2514
Attn: William T. Manierre, Esq.
Fax: (415) 982-1394
if to Rhotons to:
Jeffrey K. Rhoton
Yvonne H. Rhoton
30 Woodland Court
San Ramon, CA 94583
with a copy to:
Bronson, Bronson & McKinnon
505 Montgomery Street
San Francisco, California 94111-2514
Attn: William T. Manierre, Esq.
Fax: (415) 982-1394"
3
<PAGE> 58
5. Effect of Amendment. The Securityholders Agreement, as amended
hereby, shall remain in full force and effect.
6. Effectiveness. This Amendment shall be effective only upon the
Closing of the Stock Purchase Agreement.
7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law provisions thereof.
[Signature Page to Follow]
4
<PAGE> 59
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to Securityholders Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------------------
Name:
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------------------
Name:
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------------------
Name:
Title:
DLJ MERCHANT BANKING FUNDING, INC.
By: /s/DLJ Merchant Banking Funding, Inc.
-------------------------------------------
Name:
5
<PAGE> 60
Title:
DLJ CAPITAL CORPORATION
By: /s/DLJ Capital Corporation
-------------------------------------------
Name:
Title:
DLJ FIRST ESC L.L.C.
By: /s/DLJ First ESC L.L.C.
-------------------------------------------
Name:
Title:
SPROUT GROWTH II, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-------------------------------------------
Robert Finzi
Attorney-In-Fact
SPROUT CAPITAL VI, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-------------------------------------------
Robert Finzi
Attorney-In-Fact
THE FREEDLAND 1994 UNITRUST
By: /s/Richard J. Freedland
-------------------------------------------
Richard J. Freedland, Trustee
6
<PAGE> 61
By: /s/Nanette A. Freedland
-----------------------------------------
Nanette A. Freedland, Trustee
THE MORARU 1994 UNITRUST
By: /s/Alex Moraru
-----------------------------------------
Alex Moraru, Trustee
By: /s/Liliana Moraru
-----------------------------------------
Liliana Moraru, Trustee
THE LE 1994 UNITRUST
By: /s/Hung Ba Le
-----------------------------------------
Hung Ba Le, Trustee
By: /s/Anh Le
-----------------------------------------
Anh Le, Trustee
THE NAJJAR 1994 UNITRUST
By: /s/Loai Najjar
-----------------------------------------
Loai Najjar, Trustee
By: /s/Mickie Najjar
-----------------------------------------
Mickie Najjar, Trustee
/s/Arthur J. Cormier
-----------------------------------------
Arthur J. Cormier
/s/John F. Schaefer
-----------------------------------------
John F. Schaefer
[Signatures Continued on Next Page]
7
<PAGE> 62
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
PHASE METRICS, INC.
By: /s/John F. Schaefer
---------------------------------------
Name: John F. Schaefer
Title: Chief Executive Officer
/s/Neil A. Brumberger
---------------------------------------
Neil A. Brumberger
/s/Hart H. Brumberger
---------------------------------------
Hart H. Brumberger
8
<PAGE> 63
ACKNOWLEDGED AND AGREED TO:
The undersigned parties hereby agree to be bound by the terms and conditions of
this Amendment and the Securityholders Agreement.
/s/Roger D. Peters
---------------------------------------------
Roger D. Peters, individually and as Co-
Trustee with Mary Anne Christine Peters
for the Roger D. Peters and Mary Anne
Christine Peters Living Trust
/s/Mary Anne Christine Peters
---------------------------------------------
Mary Anne Christine Peters, individually
and as Co-Trustee with Roger D. Peters for
the Roger D. Peters and Mary Anne
Christine Peters Living Trust
/s/Jeffrey K. Rhoton
---------------------------------------------
Jeffrey K. Rhoton, individually and as Co-
Trustee with Yvonne H. Rhoton for the
Jeffrey K. Rhoton and Yvonne H. Rhoton
Living Trust
/s/Yvonne H. Rhoton
---------------------------------------------
Yvonne H. Rhoton, individually and as Co-
Trustee with Jeffrey K. Rhoton as Co-
Trustee for the Jeffrey K. Rhoton and
Yvonne H. Rhoton Living Trust
9
<PAGE> 64
FOURTH AMENDMENT TO
SECURITYHOLDERS AGREEMENT
THIS FOURTH AMENDMENT TO SECURITYHOLDERS AGREEMENT dated
as of August 23, 1996 (the "Amendment") amends that certain Securityholders'
Agreement (as hereinafter defined) and is made among DLJ Merchant Banking
Partners, L.P., a Delaware limited partnership; DLJ International Partners,
C.V., a Netherlands Antilles limited partnership; DLJ Offshore Partners, C.V., a
Netherlands Antilles limited partnership; DLJ Merchant Banking Funding, Inc., a
Delaware corporation; DLJ Capital Corporation, a Delaware corporation; Sprout
Growth II, L.P., a Delaware limited partnership; Sprout Capital VI, L.P., a
Delaware limited partnership; DLJ First ESC L.L.C., a Delaware limited liability
company; PM Funding, Inc., a Delaware corporation (collectively, the "DLJ
Entities"); Phase Metrics, Inc., a California corporation (the "Issuer"); Arthur
J. Cormier, an individual ("Cormier"); John F. Schaefer, an individual
("Schaefer"); Richard J. Freedland and Nanette A. Freedland as Trustees of the
Freedland 1994 Unitrust, Alex Moraru and Liliana Moraru as Trustees of the
Moraru 1994 Unitrust, Hung Ba Le and Anh Le as Trustees of the Le 1994 Unitrust,
and Loai Najjar and Mickie Najjar as Trustees of the Najjar 1994 Unitrust; Neil
A. Brumberger and Hart H. Brumberger; Roger D. and Mary Anne Christine Peters
and Roger D. Peters and Mary Anne Christine Peters, as trustees for the Roger D.
Peters and Mary Anne Christine Peters Living Trust; and Jeffrey K. and Yvonne H.
Rhoton and Jeffrey K. Rhoton and Yvonne H. Rhoton, as trustees for the Jeffrey
K. Rhoton and Yvonne H. Rhoton Living Trust.
WHEREAS, on the date hereof, the DLJ Entities, Schaefer and Cormier are
entering into a Securities Purchase Agreement and in connection with the
purchase of certain Securities of Schaefer and Cormier thereunder by the DLJ
Entities to be effected on the date hereof, the parties agree to amend the
Securityholders Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined in this
Amendment shall have the respective meanings assigned to them in the
Securityholders Agreement.
2. References to the Securityholders Agreement. All references in
the Securityholders Agreement to "this Agreement", and to all other words
referring to the Securityholders Agreement (such as "herein", "hereto",
"herewith" and "hereunder"), shall be deemed to mean and refer to the
Securityholders Agreement, as amended by this Amendment.
<PAGE> 65
3. Amendments to Securityholders Agreement.
(a) The definition of "Permitted Transferee" set forth in
Section 1.1 shall be amended as follows:
A new subsection (iii) shall be added to the definition of
Permitted Transferee following subsection (ii) thereof and shall
read in full as follows:
"(iv) in the case of Schaefer and Cormier, not withstanding
clause (E) of subsection (ii) above, the DLJ Entities;
provided that in no event shall Schaefer or Cormier
transfer to the DLJ Entities in excess of 50,000 shares
each of the Series A Preferred Stock in reliance on this
subsection (iv)."
(b) The word "and" shall be deleted from the end of
subsection (i) the period at the end of subsection (ii) shall be deleted and
replaced with ";", and "; and" shall be inserted at the end of subsection (iii)
in place of the period.
4. Effect of Amendment. The Securityholders Agreement, as amended
hereby, shall remain in full force and effect.
5. Effectiveness. This Amendment shall be effective only upon the
Closing of the Stock Purchase Agreement.
6. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law provisions thereof.
[Signature Page to Follow]
2
<PAGE> 66
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to Securityholders Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: /s/DLJ Merchant Banking, Inc.
-----------------------------------------------
Name:
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
-----------------------------------------------
Name:
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
-----------------------------------------------
Name:
Title:
DLJ MERCHANT BANKING FUNDING, INC.
By: /s/DLJ Merchant Banking Funding, Inc.
-----------------------------------------------
Name:
3
<PAGE> 67
Title:
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
DLJ CAPITAL CORPORATION
By: /s/DLJ Capital Corporation
-----------------------------------------------
Name:
Title:
DLJ FIRST ESC L.L.C.
By: /s/DLJ First ESC L.L.C.
-----------------------------------------------
Name:
Title:
SPROUT GROWTH II, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-----------------------------------------------
Robert Finzi
Attorney-In-Fact
SPROUT CAPITAL VI, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-----------------------------------------------
Robert Finzi
Attorney-In-Fact
/s/Arthur J. Cormier
-----------------------------------------------
Arthur J. Cormier
4
<PAGE> 68
/s/John F. Schaefer
-----------------------------------------------
John F. Schaefer
5
<PAGE> 69
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
PHASE METRICS, INC.
By: /s/John F. Schaefer
--------------------------------------------
Name: John F. Schaefer
Title: Chief Executive Officer
6
<PAGE> 70
FIFTH AMENDMENT TO
SECURITYHOLDERS AGREEMENT
THIS FIFTH AMENDMENT TO SECURITYHOLDERS AGREEMENT dated as of December
31, 1996 (the "Amendment") amends that certain Securityholders' Agreement (as
hereinafter defined) and is made among DLJ Merchant Banking Partners, L.P., a
Delaware limited partnership; DLJ International Partners, C.V., a Netherlands
Antilles limited partnership; DLJ Offshore Partners, C.V., a Netherlands
Antilles limited partnership; DLJ Merchant Banking Funding, Inc., a Delaware
corporation; DLJ Capital Corporation, a Delaware corporation; Sprout Growth II,
L.P., a Delaware limited partnership; Sprout Capital VI, L.P., a Delaware
limited partnership; DLJ First ESC L.L.C., a Delaware limited liability company;
(collectively, the "DLJ Entities"); Phase Metrics, Inc., a California
corporation (the "Issuer"); Arthur J. Cormier, an individual ("Cormier"); John
F. Schaefer, an individual ("Schaefer"); Richard J. Freedland and Nanette A.
Freedland as Trustees of the Freedland 1994 Unitrust, Alex Moraru and Liliana
Moraru as Trustees of the Moraru 1994 Unitrust, Hung Ba Le and Anh Le as
Trustees of the Le 1994 Unitrust, and Loai Najjar and Mickie Najjar as Trustees
of the Najjar 1994 Unitrust (collectively, the "Shareholder Trusts"); Neil A.
Brumberger and Hart H. Brumberger (collectively "Brumberger"); Roger D. and Mary
Anne Christine Peters and Roger D. Peters and Mary Anne Christine Peters, as
trustees for the Roger D. Peters and Mary Anne Christine Peters Living Trust
(collectively, "Peters"); and Jeffrey K. and Yvonne H. Rhoton and Jeffrey K.
Rhoton and Yvonne H. Rhoton, as trustees for the Jeffrey K. Rhoton and Yvonne H.
Rhoton Living Trust (collectively, "Rhotons").
WHEREAS, the Issuer has entered into that certain Agreement and Plan of
Reorganization Agreement dated as of December 6, 1996, by and among the Issuer,
PM Acquisition Corporation, a California corporation and wholly-owned subsidiary
of Issuer ("Merger Sub"), Santa Barbara Metric, Inc., a California corporation
("SBM"), Raymond M. Karam ("Karam"), Randall E. Bye ("Bye") and Pedro A. Aylwin
("Aylwin"), pursuant to which Merger Sub will be combined with and into SBM, the
surviving corporation in the merger (the "Reorganization Agreement").
WHEREAS, in connection with the Reorganization Agreement, the Issuer
will issue shares of its Common Stock (the "PM Shares") to Karam, Bye and
Aylwin.
WHEREAS, in connection with the issuance of the PM Shares, each of
Karam, Bye and Aylwin have agreed to become parties to the Securityholders
Agreement dated as of November 23, 1994, as amended by the First Amendment to
Securityholders Agreement dated as of June 30, 1995, the Second Amendment to the
Securityholders Agreement dated as of July 18, 1995, the Third Amendment to
Securityholders Agreement dated as of January 18, 1996 and the Fourth Amendment
to Securityholders Agreement dated as of August 23, 1996 (the "Securityholders
Agreement"), by and among the DLJ Entities, Issuer, Schaefer, Cormier, the
Shareholder Trusts, Brumberger, Peters and Rhotons.
<PAGE> 71
WHEREAS, in order for Karam, Bye and Aylwin to each become a party to
the Securityholders Agreement, certain terms of the Securityholders Agreement
must be amended.
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein
shall have the respective meanings assigned to them in the Securityholders
Agreement.
2. References to the Securityholders Agreement. All references in
the Securityholders Agreement to "this Agreement", and to all other words
referring to the Securityholders Agreement (such as "herein", "hereto",
"herewith" and "hereunder"), shall be deemed to mean and refer to the
Securityholders Agreement, as amended by this Amendment. All references in the
Securityholders Agreement to "Securityholder" shall be deemed to include each of
Karam, Bye and Aylwin.
3. Addition of Karam, Bye and Aylwin to Securityholders
Agreement. The parties hereto acknowledge and agree that each of Karam, Bye and
Aylwin shall each be deemed a "Securityholder" under the Securityholders
Agreement and the PM Shares held by Karam, Bye and Aylwin shall be treated as
"Securities" and "Common Stock" under the Securityholders Agreement.
4. Amendments to Securityholders Agreement.
a. In Section 1.1 of the Securityholders Agreement, the
following definitions are hereby added:
"`Aylwin' shall mean Pedro A. Aylwin."
"`Bye' shall mean Randall E. Bye."
"`Karam' shall mean Raymond M. Karam."
b. Section 3.1(b) of the Securityholders Agreement is
hereby amended by inserting the words "Karam, Bye, Aylwin" before the words
"Peters, Rhotons" in clause (vi).
c. Section 4.1(g) is hereby amended as follows:
(1) In the first sentence of clause (i), the words,
", Karam, Bye and Aylwin" are inserted after the words "Peters,
Rhotons";
2
<PAGE> 72
(2) In the second sentence of clause (i), the
words, ", Karam, Bye and Aylwin" are inserted after the words
"Peters, Rhotons";
(3) In the last sentence of clause (i), the words,
", Karam, Bye and Aylwin" are inserted after the words "Peters,
Rhotons"; and
(4) In the third sentence of clause (v), the words,
", Karam, Bye and Aylwin," are inserted after the words "Peters,
Rhotons."
d. Section 5.3 of the Securityholders Agreement is hereby
amended by inserting the words, ", Karam, Bye and Aylwin," after the words
"Peters, Rhotons" in the last sentence.
e. Section 7.7 of the Securityholders Agreement is hereby
amended by inserting the following new paragraph immediately prior to the last
sentence of Sec- tion 7.7:
"if to Karam to:
Raymond M. Karam
226 East Junipero
Santa Barbara, CA 93105
with a copy to:
Price, Postel & Parma LLP
200 East Carrillo Street
Suite 400
Santa Barbara, CA 93101
Attn: Raymond P. Le Blanc
Fax: (805) 965-3978
if to Bye to:
Randall E. Bye
535 Chalkhill Road
Solvang, CA 93463
with a copy to:
Price, Postel & Parma LLP
200 East Carrillo Street
Suite 400
Santa Barbara, CA 93101
Attn: Raymond P. Le Blanc
3
<PAGE> 73
Fax: (805) 965-3978
if to Aylwin to:
Pedro A. Aylwin
1054 Miramonte Drive, #3
Santa Barbara, CA 93107
with a copy to:
Price, Postel & Parma LLP
200 East Carrillo Street
Suite 400
Santa Barbara, CA 93101
Attn: Raymond P. Le Blanc
Fax: (805) 965-3978"
5. Effect of Amendment. The Securityholders Agreement, as amended
hereby, shall remain in full force and effect.
6. Effectiveness. This Amendment shall be effective only at the
Effective Time (as defined in the Reorganization Agreement).
7. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law provisions thereof.
[Signature Page to Follow]
4
<PAGE> 74
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment
to Securityholders Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: /s/DLJ Merchant Banking, Inc.
--------------------------------------------
Name:
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
--------------------------------------------
Name:
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Merchant Banking, Inc.
--------------------------------------------
Name:
Title:
DLJ MERCHANT BANKING FUNDING, INC.
By: /s/DLJ Merchant Banking Funding, Inc.
--------------------------------------------
Name:
5
<PAGE> 75
Title:
DLJ CAPITAL CORPORATION
By: /s/DLJ Capital Corporation
--------------------------------------------
Name:
Title:
DLJ FIRST ESC L.L.C.
By: /s/DLJ First ESC L.L.C.
--------------------------------------------
Name:
Title:
SPROUT GROWTH II, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
--------------------------------------------
Robert Finzi
Attorney-In-Fact
SPROUT CAPITAL VI, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
--------------------------------------------
Robert Finzi
Attorney-In-Fact
/s/Arthur J. Cormier
--------------------------------------------
Arthur J. Cormier
/s/John F. Schaefer
--------------------------------------------
John F. Schaefer
6
<PAGE> 76
[Signatures Continued on Next Page]
7
<PAGE> 77
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
PHASE METRICS, INC.
By: /s/John F. Schaefer
-----------------------------------------
Name: John F. Schaefer
Title: Chief Executive Officer
ACKNOWLEDGED AND AGREED TO:
The undersigned parties hereby agree to be bound by the terms and conditions of
this Amendment and the Securityholders Agreement.
/s/Raymond M. Karam
-----------------------------------------
Raymond M. Karam
/s/Randall E. Bye
-----------------------------------------
Randall E. Bye
/s/Pedro A. Aylwin
-----------------------------------------
Pedro A. Aylwin
ACKNOWLEDGEMENT OF SPOUSES:
The undersigned spouses of the foregoing partner acknowledge and agree to be
bound by the terms and conditions of this Amendment and the Securityholders
Agreement.
________________________________________
________________________________________
________________________________________
8
<PAGE> 78
SIXTH AMENDMENT TO
SECURITYHOLDERS AGREEMENT
THIS SIXTH AMENDMENT TO SECURITYHOLDERS AGREEMENT dated as of August 1,
1997 (the "Amendment") amends that certain Securityholders' Agreement (as
hereinafter defined) and is made among DLJ Merchant Banking Partners, L.P., a
Delaware limited partnership; DLJ International Partners, C.V., a Netherlands
Antilles limited partnership; DLJ Offshore Partners, C.V., a Netherlands
Antilles limited partnership; DLJ Merchant Banking Funding, Inc., a Delaware
corporation; DLJ Capital Corporation, a Delaware corporation; Sprout Growth II,
L.P., a Delaware limited partnership; Sprout Capital VI, L.P., a Delaware
limited partnership; DLJ First ESC L.L.C., a Delaware limited liability company;
(collectively, the "DLJ Entities"); Phase Metrics, Inc., a California
corporation (the "Issuer"); Arthur J. Cormier, an individual ("Cormier"); John
F. Schaefer, an individual ("Schaefer"); Richard J. Freedland and Nanette A.
Freedland as Trustees of the Freedland 1994 Unitrust, Alex Moraru and Liliana
Moraru as Trustees of the Moraru 1994 Unitrust, Hung Ba Le and Anh Le as
Trustees of the Le 1994 Unitrust, and Loai Najjar and Mickie Najjar as Trustees
of the Najjar 1994 Unitrust (collectively, the "Shareholder Trusts"); Neil A.
Brumberger and Hart H. Brumberger (collectively "Brumberger"); Roger D. and Mary
Anne Christine Peters and Roger D. Peters and Mary Anne Christine Peters, as
trustees for the Roger D. Peters and Mary Anne Christine Peters Living Trust
(collectively, "Peters"); Jeffrey K. and Yvonne H. Rhoton and Jeffrey K. Rhoton
and Yvonne H. Rhoton, as trustees for the Jeffrey K. Rhoton and Yvonne H. Rhoton
Living Trust (collectively, "Rhotons"); Pedro A. Aylwin, an individual
("Aylwin"); Randall E. Bye, an individual ("Bye"); and Raymond M. Karam, an
individual ("Karam").
WHEREAS,the Issuer desires to increase the number of members of its
Board of Directors from five (5) to six (6);
NOW, THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein
shall have the respective meanings assigned to them in the Securityholders
Agreement.
2. References to the Securityholders Agreement. All references in
the Securityholders Agreement to "this Agreement," and to all other words
referring to the Securityholders Agreement (such as "herein," "hereto,"
"herewith" and "hereunder"), shall be deemed to mean and refer to the
Securityholders Agreement, as amended by this Amendment.
<PAGE> 79
3. Amendments to Securityholders Agreement.
Article 2, Section 2.1 shall be amended as follows:
2.1 Composition of the Board. The Board shall consist of
six members, of whom one shall be designated by DLJ Merchant
Banking Partners, L.P., one shall be designated by Sprout Growth
II, L.P., one shall be designated by Schaefer, one shall be
designated by Cormier, one shall be an individual (the "Fifth
Director") designated by Cormier and Schaefer and acceptable to
the DLJ Entities, which individual is neither an "Affiliate" nor
an "Associate" (as those terms are used within the meaning of
Rule 12b-2 of the General Rules and Regulations under the
Exchange Act) of the DLJ Entities, Schaefer or Cormier, and one
shall be an individual (the "Sixth Director") designated by a
majority of the other five directors, which individual is neither
an "Affiliate" nor an "Associate" (as those terms are used within
the meaning of Rule 12b-2 of the General Rules and Regulations
under the Exchange Act) of the DLJ Entities, Schaefer or Cormier.
Each Securityholder entitled to vote for the election of
directors to the Board agrees that it will vote its Securities or
execute consents, as the case may be, and take all other
necessary action (including causing the Issuer to call a special
meeting of shareholders) in order to ensure that the composition
of the Board is as set forth in this Section 2.1.
4. Effect of Amendment. The Securityholders Agreement, as amended
hereby, shall remain in full force and effect.
5. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California without regard
to the conflicts of law provisions thereof.
[Signature Page to Follow]
2
<PAGE> 80
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment
to Securityholders Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
DLJ MERCHANT BANKING PARTNERS, L.P.
By DLJ MERCHANT BANKING, INC.
Managing General Partner
By: /s/DLJ Merchant Banking, Inc.
-------------------------------------------
Name:
Title:
DLJ INTERNATIONAL PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ International Partners, C.V.
-------------------------------------------
Name:
Title:
DLJ OFFSHORE PARTNERS, C.V.
By DLJ MERCHANT BANKING, INC.
Advisory General Partner
By: /s/DLJ Offshore Partners, C.V.
-------------------------------------------
Name:
Title:
DLJ MERCHANT BANKING FUNDING, INC.
By: /s/DLJ Merchant Banking Funding, Inc.
-------------------------------------------
Name:
Title:
3
<PAGE> 81
DLJ CAPITAL CORPORATION
By: /s/DLJ Capital Corporation
-------------------------------------------
Name:
Title:
DLJ FIRST ESC L.L.C.
By: /s/DLJ First ESC L.L.C.
-------------------------------------------
Name:
Title:
SPROUT GROWTH II, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-------------------------------------------
Robert Finzi
Attorney-In-Fact
SPROUT CAPITAL VI, L.P.
By DLJ Capital Corporation
Managing General Partner
By: /s/Robert Finzi
-------------------------------------------
Robert Finzi
Attorney-In-Fact
/s/Arthur J. Cormier
-------------------------------------------
Arthur J. Cormier
/s/John F. Schaefer
-------------------------------------------
John F. Schaefer
[Signatures Continued on Next Page]
4
<PAGE> 82
COUNTERPART SIGNATURE PAGE TO
AMENDMENT TO SECURITYHOLDERS AGREEMENT
PHASE METRICS, INC.
By: /s/John F. Schaefer
-------------------------------------------
Name: John F. Schaefer
Title: Chief Executive Officer
5
<PAGE> 1
Exhibit 10.12
- -------------------------------------------------------------------------------
Lessor NTFC CAPITAL CORPORATION MASTER CAPITAL LEASE AGREEMENT
- -------------------------------------------------------------------------------
LESSEE INFORMATION
- -------------------------------------------------------------------------------
Lessee Person to Contact/Title
PHASE METRICS, INC. R. Joseph Saunders
- --------------------------------------------------------------------------------
Address Master Capital
Lease Agreement No. [X]Corporation
[ ]Proprietorship
[ ]Partnership
10260 Sorrento Valley Road 53440
- --------------------------------------------------------------------------------
City County State Zip Code Telephone Number
San Diego San Diego CA 92121 (619)597-7978
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS (Reverse side contains Terms and Conditions which are
also a part of this Agreement)
1. LEASE: Subject to Lessee's compliance with its obligations herein, Lessor
shall purchase and lease to Lessee, and Lessee shall lease from Lessor, the
equipment and associated items ("Equipment") that shall be described on or
referred to in any Equipment Schedule ("Schedule") to this Master Capital Lease
Agreement ("Agreement") which is executed from time to time by Lessor and Lessee
and which makes reference to this Agreement. Each Schedule shall be subject to
the terms and conditions set forth in this Agreement. To the extent certain
computer programs and documentation used to describe, maintain and use the
programs ("Software") are furnished with the Equipment, and a non-exclusive
license and/or sublicense is granted in Lessee's agreement with a supplier
("Supplier") to purchase the Equipment ("Supplier Agreement"), Lessor grants to
Lessee a similar non-exclusive sublicense to use the Software only in
conjunction with the Equipment for so long as the Equipment is leased hereunder.
The Equipment and Software (collectively, the "System") include all parts,
repairs, additions, accessories, attachments and a substitutions thereto. Any
reference to "Lease" shall mean with respect to each System described in any
particular Schedule, this Agreement, the Schedule, the Consent of Supplier, the
Delivery and Acceptance Certificate, any riders, amendments and addenda thereto,
and other documents as may from time to time be made a part hereof. As
conditions precedent to Lessor's obligation to purchase and lease any Equipment
and sublicense the Software to Lessee, not later than the Scheduled Commencement
Date as set forth on the applicable Schedule, (a) Lessee and Lessor shall have
both executed this Agreement, a Schedule and other documentation as contemplated
herein in Lessor's form thereof, and (b) Lessor, in its reasonable opinion,
shall not determine that there has been a material adverse change in Lessee's
condition. Upon Lessor's execution and acceptance of the Schedule, Lessee hereby
assigns to Lessor its rights to receive title to the Equipment and any
non-exclusive sublicense to use the Software as of the date the System is
delivered to the location shown on the applicable Schedule ("Installation Site")
and delegates to Lessor its duty to pay to the Supplier the Price (as defined in
Section 5 below) for the System under the Supplier Agreement, but no other
right, interest or obligation thereunder. Effective upon the termination of the
Term (as defined below and as shown in the applicable Schedule), for any reason
after the commencement of the Lease, other than Lessee's election to purchase
the Equipment, Lessee hereby assigns to Lessor and Lessor hereby accepts from
Lessee, all of Lessee's then remaining rights pursuant to the applicable
Supplier Agreement.
2. TERM; RENEWAL AND EXTENSIONS: This Agreement will become effective upon
execution by both Lessee and Lessor and shall continue in effect thereafter so
long as any Lease remains in effect and may be terminated thereafter upon the
mutual agreement of the parties. Provided all other conditions precedent to a
Lease have been met, the lease term for the System described on each Schedule
shall commence on the earlier of the date of execution by the Lessee of Lessor's
form of Delivery and Acceptance Certificate or the date Lessor deems the System
accepted pursuant to Section 6 herein ("Commencement Date"), and continue and be
non-cancellable for the full number of months or other periods as set forth in
such Schedule ("Initial Term"), plus any mutually agreed extension thereto, if
any, (collectively, the "Term"), the first such full month commencing on the
first day of the month following the Commencement Date (or commencing on the
Commencement Date if such date is the first day of the month).
3. RENT AND PAYMENT: Lessee shall pay to Lessor all the rental payments as shown
in the applicable Schedule ("Rent") during the entire Term of the Lease, except
as such Rent may be adjusted pursuant to this Section, plus such additional
amounts as are due Lessor under the Lease. Rent shall be paid monthly (or other
Payment Frequency designated in the applicable Schedule) in advance on the first
day of each calendar month (or other such Payment Frequency period) (each such
date being hereinafter called a "Rent Payment Date"). If the Commencement Date
for a Lease is other than the first day of a calendar month (or other payment
period), Lessee shall pay to Lessor on the Commencement Date an amount equal to
the Rent set forth in the Schedule prorated daily based on a 360-day year for
each day from and including the Commencement Date to and including the last day
of such month or other payment period. The Rent is based upon the Supplier's
estimated total price of the System and the acceptance of the System by Lessee
on or before the Scheduled Commencement Date (as set forth in the Schedule). If
the Price (as defined below and as set forth in the Schedule) of the installed
System exceeds or is less than the estimate as a result of a job change order
("JCO"), the Lessee authorizes Lessor to adjust the Rent accordingly. If the
Commencement Date occurs after the Scheduled Commencement Date and Lessor waives
the condition precedent that the Commencement Date occur on or before the
Scheduled Commencement Date, Lessor's then current Lease Rate Factor for similar
transactions shall apply and the Lessee authorizes Lessor to adjust the Rent, if
required. Rent may also be adjusted as a result of any Modifications or
Additions (as defined in Section 1 of the Schedule) made pursuant to Section 2
of the Schedule. Lessor shall inform Lessee in writing of any such adjustment.
Whenever any payment of Rent or otherwise is not made within ten days of when
due, to the extent permitted by applicable law, Lessee agrees to pay on demand
(as a fee to offset Lessor's collection and administrative expenses), the
greater of twenty-five dollars per month or one and one-half percent per month
of all overdue amounts but not exceeding the lawful maximum, if any. All
payments provided for herein shall be payable to Lessor in U.S. dollars at
Lessor's address set forth in Section 22 hereof or such other place as Lessor
directs, in writing.
4. ADVANCE PAYMENT: Lessee shall pay to Lessor, upon the execution and delivery
of a Schedule, the advance payment set forth in that Schedule ("Advance
Payment") in consideration for the Lessor's holding funds available to purchase
the Equipment and sublicense the Software and as compensation for Lessor's
review of Lessee's credit. Upon Lessor's acceptance of the Lease, the Advance
Payment shall be applied to the payment(s) of Rent as set forth in the Schedule.
Any Advance Payment shall be non-refundable if Lessee fails to timely provide
all documentation and satisfy all conditions required by the Lease.
5. INTERIM FUNDING: Lessee hereby elects interim funding ("Interim Funding") and
Lessee delegates and Lessor hereby assumes, subject to this Section, the
obligation to pay the Price to Supplier pursuant to the applicable Supplier
Agreement, notwithstanding the fact that such payments may be due prior to the
Commencement Date ("Interim Funding Advances"). The term "Price" shall mean an
amount equal to the actual purchase price of the System as set forth in the
Supplier Agreement, and shall exclude all other costs, fees, damages, charges or
sales or other taxes, whether imposed by Supplier or any other party and whether
included in the Supplier Agreement as part of the purchase price of the System.
All Interim Funding Advances shall bear interest (calculated daily based upon a
360-day year) at an annual rate equal to the "Base Lending Rate" designated by
Citibank N.A., New York, New York adjusted as of the effective date of any
change in such designation, plus two and one-half percent, or such lesser rate
as shall be the maximum rate permitted by applicable law ("Interim Rate"). The
periodic Rent shall be increased as a result of adding to the Price of the
System an amount equal to the interest accrued on all Interim Funding Advances
from the date of each advance until the Commencement Date.
6. DELIVERY AND ACCEPTANCE: All transportation, delivery and installation
arrangements and costs (except to the extent any such costs are included in the
Price of the System upon which the Rent is computed) are the sole responsibility
of Lessee. Lessee assumes all risk of loss and the risk of any damages if the
Supplier fails to deliver or delays in the delivery of any System, or if any
System is unsatisfactory for any reason. Lessee agrees to accept the System, for
purposes of any Lease, by signing the Delivery and Acceptance Certificate within
thirty days after the date such System is connected to a public telephone
network in a manner permitting calls to be made through such System to or from
the Installation Site ("Cut-Over Date"). If Lessee fails or refuses to sign the
Delivery and Acceptance Certificate within thirty days after the Cut-Over Date,
(a) Lessor may declare Lessee's assignments and the delegation set forth in
Section 1 hereof to be null and void ab initio and thereupon the Lease shall
terminate; Lessor shall have no obligations under the Lease; and Lessee shall,
on demand, immediately pay to Lessor all amounts previously paid by Lessor to
Supplier, as Interim Funding Advances, plus Lessor's out-of-pocket expenses and
all accrued interest on such Interim Funding Advances at the Interim Rate from
the date of Lessor's payment to the Supplier to the date all sums due from
Lessee to Lessor under the Lease are paid in full; or (b) unless Lessee gives
Lessor written notice to the contrary within thirty days after the Cut-Over
Date, Lessor may conclusively assume that the System is in good operation order
and accepted by Lessee and Lessor may purchase the Equipment and obtain a
sublicense to use the Software, with the Initial Term to commence as of the
thirtieth day after the Cut-Over Date, as determined by the Supplier.
7. NET LEASE: THIS LEASE IS A NET LEASE AND LESSOR SHALL NOT BE RESPONSIBLE FOR
THE DELIVERY, INSTALLATION, MAINTENANCE, USE, OPERATION, PERFORMANCE, SERVICE OR
CONDITION OF ANY SYSTEM OR ANY DELAY IN, OR INADEQUACY OF, ANY OR
ALL OF THE FOREGOING: Lessee agrees that all of Lessee's obligations under the
Lease, specifically including its non-cancellable obligation to pay all Rent and
other amounts due, are and shall be absolute and unconditional, and shall not be
subject to any delay, reduction, setoff, defense, counterclaim or recoupment for
any reason whatsoever including any failure of the System, or any part thereof,
or any misrepresentations of any supplier, manufacturer, installer, vendor or
distributor. Lessor and Lessee acknowledge that any manufacturer's warranties
inure to the benefit of Lessee, to the extent such warranties are given, for so
long as the System is leased, and Lessee agrees to pursue any claim it has
directly against any supplier, manufacturer, installer, vendor or distributor
and agrees that it shall not pursue any such claim against Lessor. Lessee shall
continue to pay Lessor all amounts payable under the Lease under any and all
circumstances. Except as specifically set forth in the Lease, nothing contained
herein, in any Schedule, or elsewhere shall be deemed to modify, limit or expand
the rights, warranties, remedies, liabilities contained in the Supplier
Agreement, and neither Lessee nor Lessor shall have any greater rights,
warranties, or remedies than are provided to Lessee pursuant to the Supplier
Agreement.
8. QUIET ENJOYMENT: Lessor warrants that neither Lessor, nor any assignee or
anyone acting or claiming through Lessor will interfere with Lessee's quiet
enjoyment and use of the System so long as no Event of Default shall have
occurred under the Lease and be continuing.
9. TAXES AND FEES: Lessee shall promptly reimburse Lessor, upon demand, as
additional Rent(s), or shall pay directly, if so requested by Lessor, all
license and registration fees, sales, use, personal property taxes and all other
taxes and charges imposed by any federal, state, or local governmental or taxing
authority, relating to the purchase, ownership, leasing, subleasing, possession,
use, operation, or relocation of the System or upon the Rent or receipts with
respect to the Lease, excluding, however, all taxes computed upon the net income
of Lessor.
10. DISCLAIMER OF WARRANTIES AND DAMAGES: LESSEE ACKNOWLEDGES THAT (I) THE SIZE,
DESIGN, CAPACITY OF THE SYSTEM AND THE MANUFACTURER AND SUPPLIER HAVE BEEN
SELECTED BY LESSEE; (II) LESSOR IS NOT A MANUFACTURER, SUPPLIER, DEALER
DISTRIBUTOR OR INSTALLER OF PROPERTY OF SUCH KIND; (III) NO MANUFACTURER OR
EXCEPT AS OTHERWISE PROVIDED IN SECTIONS 3, 5 AND 6 OF THIS
AGREEMENT OR SECTION 2 OF A SCHEDULE, ANY MODIFICATIONS,
AMENDMENTS OR WAIVERS TO THE LEASE SHALL BE EFFECTIVE ONLY IF
MUTUALLY AGREED UPON IN A WRITING, DULY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF THE PARTIES.
<TABLE>
<S> <C>
NTFC CAPITAL CORPORATION PHASE METRICS, INC.
BY /s/ MARY M. JONES BY /s/ R. J. SAUNDERS
------------------------------------- -------------------------------------
Authorized Representative Authorized Representative
PRINT NAME MARY M. JONES PRINT NAME R. J. SAUNDERS
----------------------------- -----------------------------
TITLE MGR., CONTRACT ADM. DATE 1/13/96
--------------------- -------- TITLE V.P. DATE 1/1/96
--------------------- --------
</TABLE>
<PAGE> 2
MASTER CAPITAL LEASE AGREEMENT
TERMS AND CONDITIONS (CONTINUED)
SUPPLIER OR ANY OF THEIR REPRESENTATIVES IS AN AGENT OF LESSOR OR AUTHORIZED TO
WAIVE OR ALTER ANY TERM OR CONDITION OF THE LEASE; AND (IV) EXCEPT FOR LESSOR'S
WARRANTY OF QUIET ENJOYMENT, LESSOR HAS NOT MADE AND DOES NOT HEREBY MAKE ANY
REPRESENTATION, WARRANTY OR COVENANT, WRITTEN OR ORAL, STATUTORY, EXPRESS OR
IMPLIED AS TO ANY MATTER WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE DESIGN,
QUALITY, CAPACITY, MATERIAL, WORKMANSHIP, OPERATION, CONDITION, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR HIDDEN OR LATENT DEFECT OF THE SYSTEM OR
ANY PORTION THEREOF, OR AS TO ANY PATENT, COPYRIGHT OR TRADEMARK INFRINGEMENT.
LESSEE LEASES THE SYSTEM "AS IS", "WHERE IS." IN NO EVENT SHALL LESSOR BE LIABLE
TO LESSEE OR ANY OTHER PERSON OR ENTITY FOR SPECIAL, DIRECT, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION, ANY PERSONAL
INJURY DAMAGES, LOSS OF PROFITS OR SAVINGS, OR LOSS OF USE, OR FOR ANY DAMAGES
BASED ON STRICT OR ABSOLUTE TORT LIABILITY OR LESSOR'S NEGLIGENCE (OTHER THAN
PERSONAL INJURY OR PROPERTY DAMAGE CAUSED BY LESSOR'S SOLE ACTIVE NEGLIGENCE),
OR CONSEQUENTIAL DAMAGES OF ANY NATURE WHATSOEVER RESULTING FROM ANY BREACH OF
THE LEASE, USE OF THE SYSTEM OR OTHERWISE.
11. MAINTENANCE, USE, AND OPERATION: At all times during the Term, Lessee, at
its sole cost and expense, shall maintain the System in good repair, condition
and working order, ordinary wear and tear excepted; shall use the System and all
parts thereof for its designated purpose and in compliance with all applicable
laws; and shall at all times keep the System in its possession and control and
not permit such System to be moved from the Installation Site without Lessor's
prior written consent.
12. TITLE; SECURITY INTEREST; PERSONAL PROPERTY: Title to the Equipment is
vested in Lessor subject to Lessee's rights under the Lease. In order to secure
all of its obligations hereunder, Lessee hereby (i) grants to Lessor a first and
prior security interest in any and all right, title and interest of Lessee in
the Equipment Software and in all additions, attachments, accessions,
replacements and leased Modifications and Additions (as defined in Section 1 of
the Schedule) thereto and substitutions therefor, and proceeds thereof and (ii)
agrees that the Lease may be filed as a financing statement evidencing such
security interest. The System is, and shall at all times remain, the personal
property of Lessor even if the Equipment is affixed or attached to real property
or any improvements thereon. At Lessor's request, Lessee shall at no charge
promptly affix to the System any tags, decals, or plates furnished by Lessor
indicating Lessor's ownership of the Equipment and Lessee shall not permit their
removal or concealment. Lessee shall at all times keep the System free and clear
of all liens, and encumbrances, except those arising through the actions of
Lessor. Lessee, at its expense, shall otherwise cooperate to defend the title of
Lessor and to maintain the status of the System and all parts thereof as
personal property. If requested by Lessor, Lessee will, at Lessee's expense,
furnish a waiver of any interest in the Equipment from any party having an
interest in any such real estate or building in which the System, or any part
thereof, is located. Lessor may inspect the System at anytime during normal
business hours of Lessee.
13. RETURN OF SYSTEM: Unless the Lessee has exercised its option to purchase as
set forth in Section 3 of the Schedule at the end of the Initial Term, or any
extension thereof, or upon any prior termination of a Lease pursuant to the
terms of that Lease, Lessee shall, at its own risk and sole expense, immediately
return the System to Lessor, by properly removing, disassembling and packing it
for shipment, loading it on board a carrier acceptable to Lessor, and shipping
the same to a destination specified by Lessor, freight and insurance prepaid, in
the same condition and operating order as existed when received, ordinary wear
and tear excepted. Lessee shall pay to Lessor any amount necessary to place the
System in good repair condition and working order, ordinary wear and tear
excepted.
14. INSURANCE: Lessee shall, at its expense, upon delivery of each System to its
Installation Site and at all times thereafter, keep the System insured against
all risks of loss or damage for an amount equal to the installed replacement
cost for such System. Lessee shall also, at its expense, provide and maintain
comprehensive general liability insurance. All insurance policies shall name
Lessor as an additional insured and loss payee, as applicable, and shall be with
an insurer, having a "Best Policy Holders" rating of "A" or better, and in such
form, amount and deductibles as are satisfactory to Lessor. Each such policy
must state by endorsement that the insurer shall give Lessor not less than
thirty days prior written notice of any amendment, renewal or cancellation.
Lessee shall, upon request, furnish to Lessor satisfactory evidence that such
insurance coverage is in effect. Lessee may self insure with respect to the
above coverages, with Lessor's prior written consent.
15. CASUALTY: If any System, in whole or in part, shall be lost or stolen or
destroyed, or damaged from any cause whatsoever, or is taken in any condemnation
or similar proceeding by a governmental authority (any such event is hereafter
called an "Event of Loss"), Lessee shall promptly and fully notify Lessor
thereof. Lessee shall, at its option (i) immediately place the affected
Equipment and Software in good condition and working order, or (ii) replace the
affected item with like equipment or software in good repair, condition and
working order and transfer clear title or the sublicense thereto to Lessor, or
(iii) pay to Lessor, within ten days of the Event of Loss, an amount equal to
the Stipulated Loss Value ("SLV") (as hereinafter defined) for such affected
Equipment or Software plus any other amounts then due and unpaid with respect to
such Equipment and Software. If an Event of Loss occurs as to part of a System
for which the SLV is paid, such event shall be treated as applicable only to the
affected Equipment or Software, whereupon the Lease with respect thereto shall
terminate and a prorata amount of all future rentals therefor shall abate from
the date the SLV payment is actually received by Lessor. Upon the making of all
required payments by Lessee pursuant to (iii) above, title to the applicable
Equipment or the sublicense to the applicable Software shall pass to Lessee,
(with no warranties) subject to the rights, if any, of the insurer. The SLV
shall be an amount calculated by Lessor which is the present value at the higher
of six percent (6%) simple interest rate or the lowest rate allowed by law of
all Rent and other amounts payable by Lessee with respect to a System, or
affected part thereof, from the date of the Event of Loss to the expiration date
of the applicable Term. If Lessor shall receive any insurance proceeds or net
awards, Lessor may, at its option, apply all or any part of such proceeds and
awards to any obligations of Lessee to Lessor.
16. DEFAULT: Lessee shall be in default under the Lease upon the occurrence of
any of the following events ("Event of Default" or "default"): (a) failure by
Lessee to pay any installment of Rent or other amounts payable under the Lease
for a period of ten days or more after receipt by Lessee of written notice
thereof from Lessor of such default; or (b) failure by Lessee to perform any
other material term, covenant or condition contained in any Lease or any other
agreement of Lessee given in connection with the Lease, and such failure or
breach shall continue uncured for twenty days after receipt by Lessee of written
notice thereof; (c) the inaccuracy of any material representation or warranty
made by the Lessee in connection with any Lease which failure or inaccuracy
shall continue for a period of thirty (30) days or more; or (d) Lessee's ceasing
to do business as a going concern or making a bulk sale; (e) except to the
extent prohibited by applicable law, the Lessee becoming insolvent, making an
assignment for the benefit of creditors, filling a voluntary petition or having
an involuntary petition filed or action commenced against it under the United
States Bankruptcy Code or any similar federal or state law; or (f) failure by
Lessee to perform any of its obligations under any other agreement or lease with
Lessor.
17. REMEDIES: If an Event of Default has occurred, Lessor shall have the right,
in its sole discretion, to exercise any one or more of the following remedies:
(a) declare any Lease entered into pursuant to this Agreement and/or any other
lease between Lessor and Lessee to be in default; (b) terminate any Lease; (c)
recover from Lessee all Rent and any and all amounts then due and unpaid; and
(d) recover from Lessee all Rent and other amounts to become due, by
acceleration or otherwise, on or before the expiration date of the applicable
Term (plus the estimated fair market value of the System at the end of the
applicable Term, if the System is not returned in accordance with Section 13
hereof), such amounts described insubsection (d) being discounted to the present
value at the higher of six percent (6%) simple interest rate or the lowest rate
allowed by law; such amounts described in (c) and (d) being the agreed upon
damages ("Liquidated Damages"); (e) charge Lessee interest on all the Liquidated
Damages due Lessor at the rate of one and one-half percent per month from the
date of default until paid, but in no event more than the maximum rate permitted
by law; (f) demand the Lessee return any System to Lessor in accordance with
Section 13; and (g) take possession of any System wherever located, with or
without demand or notice, or any court order or any process by law. Upon
repossession or return of a System, Lessor may at its sole option, sell, lease
or otherwise dispose of the System in a commercially reasonable manner, with or
without notice and on public or private bid, and apply the net proceeds thereof,
if any, toward the Liquidated Damages but only after deducting all expenses
including, without limitation, reasonable attorneys' fees incurred in
enforcement of any remedy of Lessor. Lessee shall be liable for any deficiency
if the net proceeds available after the permitted deductions are less than
Liquidated Damages. No right or remedy is exclusive of any other provided herein
or permitted by law or equity. All rights and remedies shall be cumulative and
may be enforced concurrently or individually from time to time.
18. INDEMNITY: Each Lease is a net lease. Therefore, Lessee shall indemnify
Lessor against, and hold Lessor harmless from, and covenants to defend Lessor
against, any and all losses, claims, liens, encumbrances, actions, suits,
damages, obligations, liabilities and liens (and all costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred by Lessor in
connection therewith) arising out of or in any way related to the Lease
including, without limitation, the selection, purchase, delivery, ownership,
lease, licensing, possession, maintenance, condition, use, operation, rejection
or return of the System, the recovery of claims under insurance policies
thereon, from Lessee's failure to commence the Lease of a System, or from any
misuse, breach or violation of the Software sublicense, including, without
limitation, unauthorized duplication of or modification to the Software, or
arising by operation of law, excluding, however, any of the foregoing which
result from the sole negligence or willful misconduct of Lessor. Lessee agrees
that upon written notice by Lessor of the assertion of any claims, liens,
encumbrances, actions, damages, obligations or liabilities, Lessee shall assume
full responsibility for, or at Lessor's sole option, reimburse Lessor for, the
defense thereof. The provisions of this Section shall continue in full force and
effect notwithstanding full payment of the obligations under the Lease and
survive the termination of the Lease for any reason, provided, however, the
provisions hereof shall not survive longer than the applicable statute of
limitations.
19. ASSIGNMENT: Lessor may, in whole or in part, without notice to or the
consent of Lessee, sell, assign, grant a security interest in, or pledge its
interest in the System and/or the Lease and any amounts due or to become due
hereunder to any third party ("Assignee"). Upon receiving written notice from
Lessor, Lessee shall, if so directed, pay all Rent and other amounts due
directly to Assignee without abatement, deduction or setoff and free from any
deduction for any claim or counterclaim, defense or other right which Lessee may
have against Lessor or any other person or entity. Any Assignee shall be
entitled to rely on Lessee's agreements as stated in the Lease, as applicable,
and shall be considered a third-party beneficiary thereof. Lessee shall also
execute and deliver to Lessor or any Assignee any additional documentation as
Lessor or Assignee may reasonably request. Lessor shall be relieved of its
future obligations under the Lease as a result of such assignment if Lessor
assigns to Assignee ownership of the Equipment and Assignee assumes Lessor's
future obligations. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT
ASSIGN, SUBLEASE, TRANSFER, PLEDGE, MORTGAGE OR OTHERWISE ENCUMBER
(COLLECTIVELY, A "TRANSFER") THE SYSTEM OR THE LEASE OR ANY OF ITS RIGHTS
THEREIN OR PERMIT ANY LEVY, LIEN OR ENCUMBRANCE THEREON. Any attempted
nonconsensual Transfer by Lessee shall be void ab initio. No Transfer shall
relieve Lessee of any of its obligations under the Lease.
20. MISCELLANEOUS: (a) Any failure of Lessor to require strict performance by
Lessee or any waiver by Lessor of any provision of the Lease shall not be
construed as a consent to or waiver of any other breach of the same or of any
other provision. (b) No obligation of the Lessor hereunder shall survive the
expiration or other termination of the Lease. (c) All of the Lessee's
indemnities, waivers, assumptions of liability and duties contained in the Lease
and all Lessor's disclaimers shall continue in full force and effect and survive
the expiration or other termination of the Lease. (d) If there is more than one
Lessee, the obligations of each Lessee are joint and several. (e) The Lessee
agrees to execute and deliver to Lessor, upon demand, in a form satisfactory to
Lessor, any and all other documents and assurances reasonably requested from
time to time by Lessor, to evidence the intent of the Lease, or to protect
Lessor's interest in a System, including any UCC financing statements or any
waivers of interest or liens. To this end, Lessee appoints Lessor as its
attorney-in-fact to execute, deliver and file or record such financing
statements. Lessee agrees to pay the costs of filing or recording such
documentation. (f) Lessee shall deliver to Lessor such additional financial
information as Lessor may reasonably request. (g) THE LEASE SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TENNESSEE and the Lessee consents and agrees that
personal jurisdiction and subject matter jurisdiction shall be with the courts
of the State of Tennessee, or the Federal District Court for the Middle District
of Tennessee, solely at Lessor's option, with respect to any provision of the
Lease. (h) If any provision shall be held to be invalid or unenforceable, the
validity and enforceability of the remaining provisions shall not in any way be
affected or impaired. (i) In the event Lessee fails to pay or perform any
obligations under the Lease, Lessor may, at its option, pay or perform said
obligation, and any payment made or expense incurred by Lessor in connection
therewith shall be due and payable by Lessee upon demand by Lessor with interest
thereon accruing at the maximum rate permitted by law until paid. (j) No lease
charge, late charge, fee or interest, if applicable, is intended to exceed the
maximum amount permitted to be charged or collected by applicable law. If one or
more of such charges exceed such maximum, then such charges will be reduced to
the legally permitted maximum charge and any excess charge will be used to
reduce the Price of the System or refunded. (k) Time is of the essence in the
Lease and in each of the Lease provisions. (l) Lessee shall pay Lessor on demand
all costs and expenses, including reasonable attorneys' and collection fees
incurred by Lessor in enforcing the terms and conditions of the Lease or in
protecting Lessor's rights and interests in the Lease or the System.
21. TAX MATTERS: As between Lessor and Lessee, the Lease of any System hereunder
shall be a financing transaction and Lessee shall be entitled to claim any
available cost recovery deductions with respect to the Equipment.
22. NOTICES: Notices, demands and other communications to be effective shall be
transmitted in writing by telex, telecopy, or facsimile transmission and
confirmed by a similar mailed writing, by hand delivery, by first class,
Registered or Certified Mail, return receipt requested, or an overnight courier
service, addressed to Lessor at 220 Athens Way, Nashville, Tennessee 37228-1314
(Attention: Treasurer) or to Lessee as the case may be, at the billing address
set forth on the applicable Schedule or at such other address as the parties may
hereinafter substitute by written notice. Notice shall be effective four (4)
days after the date it was mailed or upon receipt, whichever is earlier.
23. ORGANIZATION; AUTHORITY: The Lessee is duly organized and validly existing
and in good standing under the laws of its State of formation and has the power
and authority to execute and deliver this Agreement and any Schedules and riders
thereto. The person executing this Agreement and any Schedules has been given
authority to bind the Lessee and the Lease constitutes a legally binding and
enforceable obligation of the Lessee.
24. COUNTERPARTS: The Lease, including the Delivery and Acceptance Certificate
and any Schedules and riders thereto, may be executed by one or more of the
parties on any number of separate counterparts (which may be originals or copies
sent by facsimile transmission) each of which counterparts shall be an original,
but all of which taken together shall be deemed to constitute one and the same
instrument.
25. ENTIRE AGREEMENT: The Lease constitutes the entire agreement between Lessor
and Lessee with respect to the subject matter hereof and supersede all previous
negotiations, proposals, commitments, writings, and understandings of any nature
whatsoever. No agent, employee, or representative of Lessor has any authority to
bind Lessor to any representation or warranty concerning the System and, unless
such representation or warranty is specifically included in the Lease, it shall
not be enforceable by Lessee against Lessor.
26. BINDING NATURE: This Agreement and each Lease shall be binding upon and
inure to the benefit of Lessor and Lessee and their respective successors and
permitted assigns.
<PAGE> 3
- --------------------------------------------------------------------------------
Lessor
NTFC CAPITAL CORPORATION AGREEMENT ADDENDUM
- --------------------------------------------------------------------------------
Lessee Agreement No.
PHASE METRICS, INC. 53440
- --------------------------------------------------------------------------------
Contemporaneously with entering into the Agreement referenced above, Lessee and
Lessor agree to the following amendments to the Agreement:
27. SECTION 16. DEFAULT. The following words are added after subsection (d) of
Section 16 prior to the semicolon:
; provided however, Lessees' entering into a merger transaction that
is accounted for as a pooling of interests as permitted pursuant to
Section 19 shall not be considered an Event of Default.
28. SECTION 18. INDEMNITY. The words "which result from the sole" are deleted
from the tenth line of Section 18 and the words "to the extent they result from
the " substituted in lieu thereof.
29. SECTION 19. ASSIGNMENT. The following is added as the sixth and seventh
sentences of Section 19:
Notwithstanding the foregoing, Lessee is not required to obtain
Lessor's written consent prior to entering into a merger transaction
that is accounted for as a pooling of interests. However, Lessee shall
provide Lessor within 10 days after the consummation of such a
transaction all relevant information concerning the transaction as
well as execute and deliver to Lessor such documents as Lessor may
reasonably request including, without limitation, an assignment and
appropriate financing statements.
<TABLE>
<S> <C>
NTFC CAPITAL CORPORATION PHASE METRICS, INC.
BY /s/ MARY M. JONES BY /s/ R. J. SAUNDERS
------------------------------------------ ------------------------------------------
Authorized Representative Authorized Representative
PRINT NAME MARY M. JONES PRINT NAME R. J. SAUNDERS
--------------------------------- ---------------------------------
TITLE MGR. CONTRACT ADM. DATE 1/13/96
-------------------- ------------- TITLE V.P. DATE 1/1/96
-------------------- -------------
</TABLE>
<PAGE> 4
- --------------------------------------------------------------------------------
Lessor
NTFC CAPITAL CORPORATION CERTIFICATE OF SECRETARY
- --------------------------------------------------------------------------------
Lessee Agreement No.
PHASE METRICS, INC. 53440
- --------------------------------------------------------------------------------
I, Richard A. Fink , the secretary of Phase Metrics, Inc. , a California
corporation (hereinafter "Corporation"), hereby certify as follows:
1. I am the duly elected, qualified and acting ____________________ Secretary
of the Corporation, and I am charged with maintaining the records, minutes, and
seal of the Corporation.
2. The leasing of telecommunications equipment and the sublicensing of
associated software by the Corporation from Lessor, the execution and delivery
of a Master Capital Lease Agreement and Equipment Schedules thereto, whether
executed now or in the future, together with all related instruments and
documents (collectively "Leases") have been duly authorized by appropriate
corporate action.
3. Pursuant to the Corporation's By-laws, Certificate of Incorporation, and any
other appropriate documents of the Corporation as may be applicable, the
following named person has been properly designated and appointed to the office
indicated below, and that person continues to hold the office at this time.
NAME OF OFFICER TITLE SIGNATURE OF OFFICER
R. J. Saunders Vice President /s/ R. J. SAUNDERS
- ------------------ ----------------- --------------------------
4. Pursuant to the Corporation's By-laws, Certificate of Incorporation, and any
other appropriate documents of the Corporation as may be applicable, the person
designated to serve in the above-entitled capacity has been given sufficient
authority to act on behalf of, and to bind the Corporation with respect to the
execution and delivery of the Leases.
5. The Leases will constitute valid, legal, binding and enforceable obligations
of the Corporation upon execution by the person whose name is set forth above
and by an authorized representative of NTFC Capital Corporation.
6. Pursuant to the Corporation's By-laws, Certificate of Incorporation, and any
other appropriate documents of the Corporation as may be applicable, I have the
power and authority to execute this Certificate on behalf of the Corporation,
and I have so executed this Certificate and set the seal of the Corporation on
the 1st day of January, 1996.
(SEAL)
By: /s/ RICHARD A. FINK
------------------------------------
Secretary
Note: The officer designated in paragraph 3
above must be other than the Secretary or
Assistant Secretary executing this
Certificate.
<PAGE> 1
EXHIBIT 10.14
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of
January 30, 1998
Among
PHASE METRICS, INC.,
as Borrower
FLEET NATIONAL BANK,
as Agent for the Lenders,
and
the Lenders now or hereafter party hereto
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS.....................................................................1
ARTICLE I DEFINITIONS.......................................................2
Section 1.1 Defined Terms.................................................2
Section 1.2 Other Definitional Provisions................................17
ARTICLE II THE LOANS.......................................................17
Section 2.1 The Revolving Loans..........................................17
Section 2.2 [Intentionally Deleted]......................................20
Section 2.3 Fees.........................................................20
Section 2.4 Repayment....................................................20
Section 2.5 Interest Rate and Payment Dates..............................21
Section 2.6 Continuation and Conversion Options..........................22
ARTICLE III GENERAL PROVISIONS CONCERNING THE LOANS........................22
Section 3.1 Use of Proceeds..............................................22
Section 3.2 Post Default Interest........................................23
Section 3.3 Computation of Interest and Fees.............................23
Section 3.4 Payments.....................................................23
Section 3.5 Payment on Non-Business Days.................................23
Section 3.6 Reduced Return...............................................24
Section 3.7 Indemnities..................................................24
Section 3.8 Funding Sources..............................................25
Section 3.9 Sharing of Payments, Etc.....................................25
Section 3.10 Inability to Determine Interest Rate........................26
Section 3.11 Requirements of Law.........................................26
Section 3.12 Illegality..................................................27
Section 3.13 Obligation to Mitigate......................................27
Section 3.14 Taxes.......................................................28
ARTICLE IV CONDITIONS OF EFFECTIVENESS AND LENDING.........................30
Section 4.1 Conditions Precedent to Effectiveness........................30
Section 4.2 Conditions Precedent to Each Borrowing.......................31
ARTICLE V REPRESENTATIONS AND WARRANTIES...................................32
Section 5.1 Representations and Warranties...............................32
ARTICLE VI COVENANTS.......................................................35
Section 6.1 Affirmative Covenants........................................35
Section 6.2 Negative Covenants...........................................38
ARTICLE VII EVENTS OF DEFAULT..............................................46
Section 7.1 Events of Default............................................46
ARTICLE VIII THE AGENT.....................................................49
Section 8.1 Authorization and Action.....................................49
Section 8.2 Agent's Reliance, etc........................................49
Section 8.3 The Agent and Affiliates.....................................50
Section 8.4 Lender Credit Decision.......................................50
Section 8.5 Indemnification..............................................50
Section 8.6 Successor Agent..............................................50
ARTICLE IX MISCELLANEOUS...................................................51
Section 9.1 Amendments, etc..............................................51
Section 9.2 Notices, etc.................................................51
Section 9.3 Right of Setoff; Deposit Accounts............................52
Section 9.4 No Waiver; Remedies..........................................52
Section 9.5 Costs and Expenses...........................................52
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 9.6 Additional Lenders; Assignments; Participations..............52
Section 9.7 Effectiveness; Binding Effect; Governing Law.................55
Section 9.8 Forum Selection and Consent to Jurisdiction..................55
Section 9.9 Waiver of Jury Trial.........................................56
Section 9.10 Entire Agreement............................................56
Section 9.11 Separability of Provisions..................................56
Section 9.12 Obligations Several.........................................56
Section 9.13 Survival of Certain Agreements..............................56
Section 9.14 Execution in Counterparts...................................57
Section 9.15 Intercreditor Agreements with Customers.....................57
</TABLE>
ANNEX I Revolving Commitments
ii
<PAGE> 4
SCHEDULES
5.1(f) Litigation
5.1(j) Environmental Matters
6.2(f) Permitted Liens
6.2(g) Existing Debt
6.2(k) Existing Investments
6.2(l) Existing Contingent Obligations
iii
<PAGE> 5
EXHIBITS
Exhibit A Form of Revolving Promissory Note
Exhibit B [Intentionally Omitted]
Exhibit C Form of Notice of Borrowing
Exhibit D Form of Notice of Conversion/Continuation
Exhibit E Form of Borrower's Opinion
Exhibit F Form of Compliance Certificate
Exhibit G Form of Guaranty
Exhibit H Form of Security Agreement
Exhibit I Form of Assignment Agreement
Exhibit J Form of Borrowing Base Certificate
iv
<PAGE> 6
AMENDED AND RESTATED
CREDIT AGREEMENT
This Amended and Restated Credit Agreement dated as of January 30, 1998 is
entered into among PHASE METRICS, INC., as the borrower (the "Borrower"), the
financial institutions named on the signature pages hereof and each other Person
that becomes a Lender hereunder as described in Section 9.6 hereof (each a
"Lender" and collectively the "Lenders"), and FLEET NATIONAL BANK, as agent (the
" Agent") for the Lenders. The parties hereto agree as follows:
RECITALS
WHEREAS, on or about December 4, 1996 the Borrower obtained from Lenders
and certain other financial institutions a term commitment of up to $80,000,000
and a revolving loan commitment of up to $40,000,000 all on the terms and
conditions contained in that certain Credit Agreement by and between the parties
hereto, certain other financial institutions and DLJ Capital Funding, Inc., as
syndication agent (the "Existing Credit Agreement"); and
WHEREAS, the Borrower has requested the Agent and the Lenders amend and
restate said credit facility by replacing same with the Revolving Commitment in
a maximum principal amount not to exceed $25,000,000 (which, subject to the
complete discretion of the Lenders may be increased to up to $40,000,000 in the
future) to repay certain outstanding indebtedness under the Existing Credit
Agreement and to permit the Borrower to issue up to $110,000,000 of senior
unsecured notes due 2005 and the Agent and the Lenders are willing to amend and
restate the Existing Credit Agreement to permit certain indebtedness outstanding
thereunder to remain outstanding on the terms and conditions set forth in this
Amended and Restated Credit Agreement and to provide for the Revolving
Commitment.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Borrower, the Lenders and the
Agent agree that the Existing Credit Agreement is hereby amended and restated
and shall remain in effect as amended and restated hereby on the terms and
conditions contained herein, each of which are agreed to by the Borrower, the
Lenders and the Agent as follows:
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article IV), to extend the
Commitment and make the Revolving Loans to the Borrower;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Borrower, the Lenders and the
Agents agree as follows:
<PAGE> 7
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms have
the following meanings:
"Accounts": All rights of a Person to payment for goods sold or
leased or for services rendered, no matter how evidenced, including accounts
receivable, contract rights, notes, drafts, chattel paper, acceptances and other
forms of obligations and receivables so long as the right to such payment has
been earned (entitlement to recognize revenue under GAAP) but regardless of
whether an invoice for such amount has been rendered so long as the failure to
render such invoice is in accordance with the payment schedule set forth in the
underlying contract.
"Account Debtor": The party who is obligated on or under an
Account.
"Acquisition": As defined in Section 6.2(j).
"Affiliate": As applied to any Person, any Person directly or
indirectly controlling, controlled by or under common control with, that Person.
For the purposes of this definition, "control" (including with the correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that Person, whether through the ownership of voting securities or by contract
or otherwise.
"Agent": As defined in the introductory paragraph of this
Agreement and sometimes referred to as the Administrative Agent in certain of
the Loan Documents.
"Agreement": This Amended and Restated Credit Agreement, as
amended, supplemented, restated or modified from time to time.
"Applicable Margin": Initially, with respect to the unpaid
principal amount of each Revolving Loan maintained as a
(i) Prime Rate Loan, 1.00% per annum; and
(ii) LIBO Rate Loan, 3.00% per annum;
"Assignment Agreement": An Assignment Agreement in substantially
the form of Exhibit I attached hereto.
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<PAGE> 8
"Borrower": Phase Metrics, Inc., a Delaware corporation and the
successor by merger to Phase Metrics, Inc., a California corporation.
"Borrower's Account": That certain deposit account established
and maintained by the Borrower at the Domestic Lending Office of the Agent
pursuant to Section 6.1(h).
"Borrowing": As defined in Section 2.1.
"Borrowing Base": An amount equal to seventy-five percent (75%) of
Eligible Accounts; provided that if and so long as Borrower maintains a ratio of
Consolidated Total Debt to EBITDA of less than 3.5:1.0 as of Fiscal Quarter
endings of the Borrower, in each case determined on the basis of the
Consolidated Total Debt and EBITDA for the Fiscal Quarter of the Borrower in
question and for the immediately preceding three consecutive Fiscal Quarters of
the Borrower, an amount equal to the sum of eighty percent (80%) of Eligible
Accounts and the lesser of (i) twenty-five percent (25%) of Eligible Inventory
and (ii) $10,000,000.
"Borrowing Base Certificate": A certificate of the Borrower in
substantially the form of Exhibit J attached hereto, delivered pursuant to
Section 6.1(a)(vi).
"Breakage Costs": All costs and losses which a Lender may incur as a
result of any repayment of principal on LIBO Rate Loans borrowed hereunder on a
date other than a scheduled maturity date for the applicable Borrowing and all
costs and losses which a Lender may incur as a result of any failure of the
Borrower to borrow hereunder after giving written Notice of Borrowing hereunder
to the Agent pursuant to Section 2.1(b) or 2.2(b), such Lender's good faith
computation of such costs and losses to be in reasonable detail setting forth
the basis of the calculation thereof and to be conclusive and binding in the
absence of manifest error, and the amount thereof to be paid in same day funds
upon demand by such Lender or the Agent.
"Business Day": A day other than a Saturday, Sunday or day on
which commercial banks in California, Massachusetts or New York are
authorized or required by law to close.
"Capital Lease": As applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of that Person.
"Change in Control" means
(a) the failure of the Borrower at any time to own, directly or
indirectly, free and clear of all Liens and encumbrances, all right, title
and interest in 100% of the shares of capital stock of each Guarantor
having ordinary voting power; or
(b) the failure of the Borrower at any time to have the right to
elect a majority of the Board of Directors of each Guarantor; or
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<PAGE> 9
(c) 30% or more of the shares of capital stock of the Borrower
having ordinary voting power on a fully diluted basis shall cease to be
owned by the holders of such shares on the date of this Agreement; or
(d) a "Change of Control" as defined in the Indenture shall occur.
"Collateral": As defined in Section 1 of the Security Agreement,
in Section 1 of each Subsidiary Security Agreement in the Pledge Agreement
and in the Collateral Agreement.
"Collateral Assignment": The Collateral Assignment, Patent
Mortgage and Security Agreement dated as of December 4, 1996 between the
Borrower and the Agent and the Affirmation and Amendment of Collateral
Assignment, Patent Mortgage and Security Agreement between the Borrower and
the Agent of even date herewith.
"Commitment": The obligation of each Lender to make Loans to the
Borrower pursuant to Article II in the amount or amounts referred to
therein. The term "Commitments" means all such obligations of the Lenders.
"Compliance Certificate": A certificate of the Borrower in
substantially the form of Exhibit F attached hereto, delivered pursuant to
Section 6.1(a)(iv)(B).
"Consolidated Capital Expenditures": For any period, the Dollar
amount of gross expenditures incurred by the Borrower and its consolidated
Subsidiaries during such period for fixed assets, real property, plant and
equipment, and renewals, improvements and replacements thereto required to be
included in 'capital expenditures', 'additions to property, plant or equipment'
or comparable items in the consolidated statement of changes in financial
position of the Borrower and its consolidated Subsidiaries in conformity with
GAAP, including insurance proceeds received as the result of damage or
destruction of the property being replaced.
"Consolidated Current Assets": At any date of determination, all
amounts that should, in accordance with GAAP, be included as current assets
on the consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at such date.
"Consolidated Current Liabilities": At any date of
determination, all amounts that should, in accordance with GAAP, be included
as current liabilities on the consolidated balance sheet of the Borrower and
its consolidated Subsidiaries as at such date.
"Consolidated Net Income": For any period, the net income (or loss)
after income taxes plus to the extent deducted in determining net income (or
loss) purchased in-process research and development costs net of tax benefits,
all for such period of the Borrower and its Subsidiaries on a consolidated basis
determined in accordance with GAAP.
"Consolidated Net Worth": At any date of determination, the sum of
the capital stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) plus
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<PAGE> 10
purchased in-process research and development costs (net of tax benefits) of the
Borrower and its consolidated Subsidiaries on a consolidated basis determined in
accordance with GAAP. Consolidated Net Worth shall be calculated without giving
effect to any foreign currency translation adjustments.
"Consolidated Total Debt": At any date of determination, any Debt of
the Borrower and its consolidated Subsidiaries; provided however, that,
notwithstanding the foregoing, Consolidated Total Debt includes all Debt (w)
under the Senior Unsecured Notes, (x) under Capital Leases, (y) under this
Agreement and (z) that is scheduled to be amortized during the term of this
Agreement, but excludes, for purposes of Section 6.2 Subordinated Debt.
"Contingent Obligation": As applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Debt, lease, dividend or other obligation of another if the primary purpose
or intent thereof by the Person incurring the Contingent Obligation is to
provide assurance that such obligation of another will be paid or discharged, or
that any agreements relating thereto will be complied with, or that the holders
of such obligation will be protected (in whole or in part) against loss in
respect thereof, (ii) with respect to any letter of credit issued for the
account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings, or (iii) with respect to any Interest Rate Agreement
or Currency Agreement. Contingent Obligations shall include (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make
take-or-pay or similar payment if required regardless of non-performance by any
other party or parties to an agreement, and (c) any liability of that Person for
the obligation of another through any agreement (contingent or otherwise) (x) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (y) to maintain the solvency or any balance sheet item, level
of income or financial condition of another if, in the case of any agreement
described under subclauses (x) or (y) of this sentence, the primary purpose or
intent thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
"Currency Agreement": As applied to any Person, any foreign exchange
contract, currency swap agreement, futures contract, option contract, synthetic
cap or other similar agreement or arrangement designed to protect that Person
against fluctuations in currency values.
"Debt": As applied to any Person, (i) all indebtedness for borrowed
money, (ii) all Capital Leases whether or not properly classified as a liability
on a balance sheet in accordance with GAAP, (iii) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money, (iv) any obligation owed for all or any part of
the deferred purchase price of property or services, (v) all indebtedness
secured by any Lien on any property or asset owned or held or to be purchased by
that Person regardless of whether the indebtedness secured thereby shall have
been assumed by that Person or is
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<PAGE> 11
nonrecourse to the credit of that person (excluding customer deposits held by
the Borrower), and (vi) any Contingent Obligation (excluding obligations under
Interest Rate Agreements and Currency Agreements).
"Dollars and $": Dollars in lawful currency of the United States
of America.
"EBITDA": For any applicable period, the sum (without
duplication) for the Borrower and its Subsidiaries on a consolidated basis of
(i) Consolidated Net Income,
plus
(ii) the amount deducted, in determining Consolidated Net Income,
representing depreciation and amortization,
plus
(iii) the amount deducted, in determining Consolidated Net Income,
representing income taxes (whether paid or deferred),
plus
(iv) the amount deducted, in determining Consolidated Net Income,
representing Interest Expense,
plus
(v) the amount deducted, in determining Consolidated Net Income,
representing charges from acquisitions which are allocated to in process
research and development,
plus
(vi) the amount deducted in determining Consolidated Net Income,
representing write-off of deferred initial public offering fees of
approximately $400,000 for the Fiscal Year of the Borrower ending December
31, 1997,
plus
(vii) the non-cash compensation expensed by the Borrower of
approximately $400,000 annually or $100,000 quarterly in connection with
the issuance of securities under stock option, stock purchase and other
equity based incentive plans.
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<PAGE> 12
"Eligible Accounts": Accounts that arise in the ordinary course
of business of the Borrower that comply with the representations and
warranties contained in the Security Agreement, excluding Accounts as to
which any of the following apply:
(i) Accounts with respect to which more than ninety (90) days
have elapsed since the original invoice or payment schedule due date;
(ii) Accounts with respect to which the Account Debtor is a
director, officer, shareholder, employee, Subsidiary or Affiliate of the payee
of the obligation;
(iii) Accounts with respect to which the Account Debtor is the
subject of bankruptcy, receivership or a similar insolvency proceeding, or has
made an assignment for the benefit of creditors, or has failed or suspended or
gone out of business;
(iv) Accounts with respect to which the Account Debtor's
obligation to pay the Account is conditional upon the Account Debtor's approval,
or otherwise subject to return rights (without the consent of the account
holder), with respect to the goods purchased giving rise to any such Account,
but only to the extent of the portion thereof subject to approval or return;
(v) any Account not payable in Dollars;
(vi) Accounts against which the Account Debtor or any Person
obligated to make payment thereon asserts in writing any defense, offset,
counterclaim or other right to avoid or reduce the liability represented by such
Accounts, but only to the extent of the disputed portion thereof;
(vii) Accounts that are an obligation of any Person whose
billing address is located outside of the United States of America or Canada,
other than Accounts supported by one or more letters of credit in an amount, and
of a tenor, and used by a financial institution reasonably acceptable to the
Agent and other than Accounts of a subsidiary of a United States parent company
approved in advance by the Agent;
(viii) Accounts with respect to which the Account Debtor is
the United States of America or any department, agency or instrumentality
thereof, except for those Accounts as to which the payee has assigned its rights
of payment thereof to the Agent for the benefit of the Agent and the Lenders,
and the assignment has been acknowledged pursuant to the Assignment of Claims
Act of 1940, as amended (31 U.S.C. 3727);
(ix) Accounts owed by an Account Debtor where more than fifty
percent (50%) of the aggregate Accounts owed to the Borrower by such Account
Debtor do not constitute Eligible Accounts by reason of clause (i) above; or
(x) Accounts the collection of which the Agent has, after
consultation with a responsible officer of the Borrower, determined in the
exercise of its reasonable judgment
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<PAGE> 13
and consistent with banking industry practices reasonably applied that (A) the
creditworthiness or financial condition of the Account Debtor is unsatisfactory
or (B) payment by the Account Debtor is impaired or doubtful.
Any Account which is at any time an Eligible Account, but which
subsequently meets any of the foregoing requirements, shall forthwith cease to
be an Eligible Account until such time as such Account shall meet all the
foregoing requirements.
"Eligible Inventory": Any inventory of the Borrower located in the
United States and as to which each of the following requirements has been
fulfilled to the reasonable satisfaction of the Agent:
(i) the Borrower has full and unqualified right to assign and
grant, and has assigned and granted, a perfected Lien in such inventory to the
Agent, for its benefit and that of the Lenders, as security for the Obligations;
(ii) the Borrower owns such inventory free and clear of all
Liens in favor of any Person other than the Lien in favor of the Agent and the
Lenders granted pursuant to this Agreement or another Loan Document;
(iii) none of such inventory is obsolete, unsalable, damaged
or otherwise unfit for sale or consumption or further processing; and
(iv) none of such inventory is stored by a warehouseman which
has issued a negotiable warehouse receipt that is not held by the Agent.
"Employee Benefit Plan": Any Pension Plan, any employee welfare
benefit plan, or any other employee benefit plan which is described in Section
3(3) of ERISA and which is maintained for employees of the Borrower or any ERISA
Affiliate of the Borrower.
"Equity Issuance": As applied to any Person, the sale or issuance by
such Person of (i) any capital stock of such Person, (ii) any options, warrants
or other similar rights exercisable in respect of such capital stock, or (iii)
any other security or instrument representing an equity interest (or the right
to obtain an equity interest) in such Person.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA Affiliate": As applied to any Person, any trade or business
(whether or not incorporated) which is a member of a group of which that Person
is a member and which is under common control within the meaning of Section
414(b) and (c) of the Internal Revenue Code.
"Eurocurrency Liabilities": Has the meaning specified in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
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<PAGE> 14
"Existing Credit Agreement": As defined in the first WHEREAS
clause of the Recitals of this Agreement.
"Federal Funds Rate": On any day, a fluctuating interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Agent from three Federal funds brokers of recognized standing selected by it.
"Fiscal Quarter": Any calendar quarter.
"Fiscal Year": Any calendar year.
"Foreign Subsidiaries": Any direct or indirect Subsidiary of the
Borrower organized outside of the United States.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession.
"Guarantors": Any direct or indirect Subsidiaries of the
Borrower which are organized in the United States and which have become
Guarantors in accordance with Section 6.2(v).
"Indenture": That certain indenture dated on or about the date of
this Agreement by and between the Borrower, each Guarantor under a Subsidiary
Guaranty and State Street Bank and Trust Company of California, N.A. pursuant to
which the Senior Unsecured Notes were issued and are outstanding as same may be
amended, restated or modified in compliance with this Agreement.
"Interest Coverage Ratio": At the end of any applicable period,
the ratio of
(a) EBITDA for the period of four consecutive Fiscal Quarters
then ended,
to
(b) Interest Expense for the period then ended.
"Interest Expense": For any applicable period, the aggregate
consolidated interest expense of the Borrower and its Subsidiaries for such
applicable period, as determined in
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accordance with GAAP, including the portion of any payments made in respect of
Capital Leases allocable to interest expense, but excluding for purposes of
Section 6.2 interest expense on the Subordinated Debt.
"Interest Payment Date": As to any Prime Rate Loan, until payment in
full, (i) the last Business Day of each month commencing on the first of such
days to occur after such Prime Rate Loan is made and, (ii) the Revolving
Maturity Date. As to any LIBO Rate Loan, until payment in full, (x) the last day
of the Interest Period relating to such LIBO Rate Loan (or, if earlier, the
third month following the commencement of such Interest Period) and (y) the
Revolving Maturity Date.
"Interest Period": With respect to any LIBO Rate Loan:
(i) initially, the period commencing on, as the case may be,
the Borrowing or conversion date with respect to such LIBO Rate Loan and ending
one, three or six months thereafter as selected by the Borrower in its Notice of
Borrowing as provided in Section 2.1(b) or Section 2.2(b) or its notice of
conversion as provided in Section 2.6; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such LIBO Rate Loan and ending one,
three or six months thereafter as selected by the Borrower in its notice of
continuation as provided in Section 2.6; provided, that all of the foregoing
provisions relating to Interest Periods are subject to the following:
(a) if any Interest Period for a LIBO Rate Loan would otherwise end
on a day which is not a LIBO Business Day, that Interest Period shall be
extended to the next succeeding LIBO Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding LIBO
Business Day;
(b) the Borrower may not select an Interest Period with respect to
any portion of principal of a LIBO Rate Loan which extends beyond a date on
which the Borrower is required to make a payment of that portion of principal;
and
(c) there shall be no more than three Interest Periods outstanding
at any time with respect to LIBO Rate Loans that constitute part of the
Revolving Loans.
"Interest Rate Agreement": As applied to any Person, an interest
rate swap, cap or collar agreement or similar arrangement designed to protect
that Person against fluctuations in interest rates.
"Internal Revenue Code": The Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
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<PAGE> 16
"Investment": As applied to any Person, (i) any direct or indirect
purchase or other acquisition of, or of a beneficial interest in, capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of, another Person, or (ii) any direct or indirect loan, extension of
credit, advance (other than advances to employees for moving, entertainment and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution to any other Person, including all
indebtedness and accounts receivable from the other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustment for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Lender": As defined in the introductory paragraph of this
Agreement.
"Lending Office": As to any Lender, the office or offices of such
Lender specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office," as the case may be, on Annex II or in the applicable
Assignment Agreement, or such other office or offices as such Lender may from
time to time notify the Borrower and the Agent.
"Leverage Ratio": At the end of any applicable period, the ratio of
(a) Consolidated Total Debt outstanding at the end of such period,
to
(b) EBITDA for the period of four consecutive Fiscal Quarters then
ended.
"LIBO Business Day": A day which is a Business Day and a day on
which dealings in Dollar deposits may be carried out in the London interbank
market.
"LIBO Rate": For any Interest Period for all LIBO Rate Loans
comprising part of the same Borrowing, an interest rate per annum equal to the
rate per annum obtained by dividing (a) the interest rate per annum for deposits
in Dollars for a period equal to the relevant Interest Period which appears on
Telerate Page 3750 at or about 11:00 a.m. (London time) on the second Business
Day before and for value on the first day of the relevant Interest Period or
such other page as may replace such page on such service for the purpose of
displaying the London interbank offered rate of major banks for deposits in
Dollars at or about 11:00 a.m. (London time) on the second Business Day before
and for value on the first day of the relevant Interest Period for deposits in
amounts and durations comparable to such Borrowing and such Interest Period (and
rounded upward to the next whole multiple of 1/16 of 1%) by (b) a percentage
equal to 100% minus the LIBO Rate Reserve Percentage for such Interest Period.
"LIBO Rate Loans": Loans hereunder at such time as they accrue
interest at a rate based upon the LIBO Rate.
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<PAGE> 17
"LIBO Rate Reserve Percentage": For any Interest Period for all LIBO
Rate Loans comprising part of the same Borrowing, the reserve percentage
applicable two Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities (or with respect to any other category of liabilities
that includes deposits by reference to which the interest rate on LIBO Rate
Loans is determined) having a term equal to such Interest Period.
"Lien": Any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest).
"Loans": The Revolving Loans made to the Borrower pursuant to
Section 2.1.
"Loan Documents": This Agreement, the Notes, the Security Agreement,
the Subsidiary Guarantees, the Subsidiary Security Agreements, the Pledge
Agreement, the Collateral Assignment and each other document required by the
Agent or any Lender in connection with this Agreement and/or the credit extended
hereunder.
"Multiemployer Plan": A "multiemployer plan" as defined in Section
4001(a) (3) of ERISA which is maintained for employees of the Borrower or any
ERISA Affiliate of the Borrower.
"Net Proceeds": With respect to any insurance settlement, Equity
Issuance or the sale of any assets (to the extent permitted by this Agreement)
or subordinated Debt instruments, the gross cash proceeds received by the issuer
or seller from such settlement, issuance or sale (including any cash payments
subsequently received in respect of promissory notes or other non-cash
consideration delivered to the seller), less the sum of (i) all reasonable and
customary legal and accounting expenses, commissions and other fees and expenses
incurred or to be incurred, and all federal, state, local and foreign taxes
actually paid or estimated by the Borrower (in good faith) to be payable, in
connection therewith and (ii) all payments made by the seller to retire Debt
where such payments are required in connection with such sale; provided,
however, that each of the following shall be excluded in determining the amount
of Net Proceeds hereunder: (A) in the case of any Equity Issuance, the cash
proceeds from (1) any issuance or sale by any Subsidiary to the Borrower or any
Subsidiary, and (2) any issuance or sale to any officer, director, employee or
consultant pursuant to any stock option or other employee benefit plan or other
employee benefit plan or compensation plan in an aggregate amount up to
$3,000,000; (B) in the case of any sale of assets, (1) sales of readily
marketable investment securities investments in which are permitted under
Section 6.2(k), (2) leases and subleases (including any sale/lease backs and
synthetic lease transactions) permitted under Section 6.2(h), (3) sales and
other transfers between or among the Borrower and its Subsidiaries permitted
under Section 6.2(s), (4) cash payments required to be made in respect of any
accrued employee benefits in connection with any asset sale, (5) the amount of
any reasonable reserve established in accordance with
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<PAGE> 18
GAAP against any liabilities associated with assets sold (provided that the
amount of any subsequent reduction of such reserve, other than in connection
with a payment in respect of such liability, shall be deemed to be Net Proceeds
received as of the date of such reduction), and (6) the amount of any such cash
proceeds that the Borrower or any Subsidiary has used (or intends to use within
6 months of the date of receipt of such cash proceeds) to pay the purchase price
in connection with any acquisition permitted hereunder; (C) in the case of any
Debt issuance, any Debt secured by Liens permitted under Section 6.2(f), any
Debt described in Section 6.2(g)(iv) or any Debt permitted under Section
6.2(g)(vi); and (D) in the case of any insurance settlement, the amount of any
reasonable reserve established in accordance with GAAP against any liabilities
associated with the receipt of such insurance settlement (provided the amount of
any subsequent reduction of such reserve, other than in connection with a
payment with respect to any such liability, shall be deemed to be Net Proceeds
received as of the date of such reduction).
"NonCash Working Capital": At any time of determination, the excess
of Consolidated Current Assets (other than cash) over Consolidated Current
Liabilities.
"Note" and "Notes": The Revolving Notes as such Notes may be
amended, endorsed or otherwise modified from time to time, including all Notes
issued from time to time in substitution therefor.
"Notice of Borrowing": The Notice of Borrowing required under
Section 2.1(b) and Section 2.2(b) in substantially the form of Exhibit C annexed
hereto.
"Obligations": All amounts owing by the Borrower and each Subsidiary
under this Agreement, the Notes or any other Loan Document.
"Other Taxes": Any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery,
performance, enforcement or registration of, or otherwise with respect to, this
Agreement or any other Loan Document.
"Pension Plan": Any employee plan which is subject to Section 412 of
the Internal Revenue Code and which is maintained for employees of the Borrower
or any ERISA Affiliate of the Borrower, other than a Multiemployer Plan.
"Permitted Liens": The following types of Liens (other than any such
Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue
Code or by ERISA):
(i) Liens existing on the date hereof and listed on Schedule 6.2(f);
(ii) Liens for taxes, assessments or governmental charges or claims
to the extent not yet delinquent or being contested in good faith and for which
appropriate reserves have been made in accordance with GAAP;
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(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen and other Liens imposed by law incurred
in the ordinary course of business securing obligations that are not yet
delinquent or are being contested in good faith and for which appropriate
reserves have been made in accordance with GAAP;
(iv) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(v) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not interfering in any material respect with the use or
value of such property;
(vi) any attachment or judgment Lien not constituting an Event of
Default under Section 7.1(h);
(vii) Liens which constitute rights of set-off of a customary nature
or bankers' Lien with respect to amounts on deposit, arising by operation of
law; and
(viii) Liens on inventory or cash to secure cash advances made by
customers for the purchase price of inventory.
"Person": An individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority or other entity of whatever nature.
"Pledge Agreement": The Pledge Agreement dated as of December 4,
1996 between the Borrower and the Agent and the affirmation and amendment of
pledge agreement between the Borrower and the Agent of even date herewith.
"Potential Event of Default": Either (i) a condition or event which,
after notice or lapse of time or both, would constitute an Event of Default if
that condition or event were not cured or removed within any applicable grace or
cure period, or (ii) a condition or event which would constitute an Event of
Default on a future date if such condition or event is based on the Borrower's
own estimate of its financial performance for a fiscal period ending on a future
date.
"Prime Rate": The higher of (i) the rate of interest announced from
time to time by the Agent in Boston, Massachusetts as its Prime Commercial
Lending Rate and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate on the
day prior to the date on which the Prime Rate is to be determined. The Prime
Commercial Lending Rate is a reference rate; the Agent may make loans at, above
or below the Prime Commercial Lending Rate.
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"Prime Rate Loans": Loans hereunder at such time as they accrue
interest at a rate based upon the Prime Rate.
"Regulations G, T, U and X": Regulations G, T, U and X,
respectively, promulgated by the Board of Governors of the Federal Reserve
System, as amended from time to time, and any successors thereto.
"Related Transactions": Issuance by the Borrower of the Senior
Unsecured Notes, execution and delivery of the Indenture, Borrower's receipt of
the Net Proceeds thereof and repayment by the Borrower of fees and costs of such
issuance and of outstanding Debt of the Borrower under the Existing Credit
Agreement.
"Requisite Lenders": As of any date of determination, Lenders owed
at least 51% of the then aggregate unpaid principal amount of the Notes, or, if
no principal amount of the Notes is outstanding, then Lenders having at least
51% of the Commitments.
"Revolving Commitment": The amount of $25,000,000 as such amount may
be reduced pursuant to Section 2.1(c) or may be increased up to $40,000,000 in
the complete discretion of the Lenders pursuant to Section 2.1(e).
"Revolving Loans": As defined in Section 2.1(a).
"Revolving Maturity Date": January __, 2001.
"Revolving Note": As defined in Section 2.1(d).
"S.E.C.": The United States Securities and Exchange Commission and
any successor institution or body which performs the functions or substantially
all of the functions thereof.
"Security Agreement": The Security Agreement dated as of December 4,
1996 between the Borrower and the Agent in substantially the form of Exhibit H
attached hereto and the affirmation and amendment of security agreement by the
Borrower and the Agent dated on or about the date hereof.
"Senior Unsecured Notes": Those certain 10.75% senior unsecured
notes due February 1, 2005, issued by the Borrower on or about the date hereof
and outstanding pursuant to the Indenture as same may be amended, restated or
modified in compliance with this Agreement and senior unsecured notes having the
same substantive terms and conditions which may be exchanged therefor pursuant
to the contemplated exchange offer for the notes issued on or about the date
hereof.
"Subordinated Debt": (i) that certain subordinated indebtedness
issued by the Borrower pursuant to a Securities Purchase Agreement dated as of
November 23, 1994, as amended prior to the date hereof (and as it may be
subsequently amended with the consent of the
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Requisite Lenders as provided herein), among the Borrower and the investors
named therein and (ii) any other indebtedness of the Borrower or its
Subsidiaries that is subordinated to the Obligations on terms acceptable to the
Requisite Lenders.
"Subsidiary": A corporation, partnership, association, joint venture
or other business entity of which more than 50% of the total voting power of
shares of stock or other ownership interests entitled (without regard to the
occurrence of any contingency) to vote in the election of Person or Persons
(whether directors, managers, trustees or other Persons performing similar
functions) having the power to direct or cause the direction of the management
and policies thereof are at the time owned, directly, or indirectly through one
or more intermediaries, or both, by the Borrower.
"Subsidiary Guaranty": Each guaranty dated as of December 4, 1996 by
a Guarantor in favor of the Agent, and each consent, amendment and ratification
of guaranty executed and delivered by each Guarantor on or about the date hereof
and any Subsidiary Guaranty entered into by a Guarantor in favor of the Agent
subsequent to the date hereof in substantially the form of Exhibit G annexed
hereto.
"Subsidiary Security Agreement": Each Security Agreement dated as of
December 4, 1996 between a Guarantor and the Agent and each affirmation and
amendment of security agreement between each Guarantor and the Agent dated on or
about the date hereof, and any Subsidiary Security Agreement entered into
between a Guarantor and the Agent subsequent to the date hereof in substantially
the form of Exhibit H annexed hereto.
"Taxes": Any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each Lender and the
Agent, respectively, taxes imposed on any Lender or the Agent as a result of a
present or former connection between such Lender or the Agent and the
jurisdiction of the governmental authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from such Lender or the Agent having executed,
delivered or performed its obligations or received a payment under, or enforced,
this Agreement).
"Termination Event": (i) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder (other than a "Reportable
Event" not subject to the provision for 30 day notice to the Pension Benefit
Guaranty Corporation under such regulations), or (ii) the withdrawal of the
Borrower or any of its ERISA Affiliates from a Pension Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(l) (2) or
4068(f) of ERISA, or (iii) the filing of a notice of intent to terminate a
Pension Plan or the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a
Pension Plan by the Pension Benefit Guaranty Corporation, (v) any other event or
condition which might constitute grounds under ERISA for the termination of, or
the appointment of a trustee to administer, any Pension Plan, or (vi) the
imposition of a lien pursuant to Section 412(n) of the Internal Revenue Code.
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1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms not defined in
Section 1.1, and accounting terms partly defined in Section 1.1 to the extent
not defined, shall have the respective meanings given to them under GAAP. In the
event that GAAP changes during the term of this Agreement such that the
financial covenants contained in Sections 6.2(a) through (d) would then be
calculated in a different manner or with different components, (i) the Borrower,
the Agent and the Lenders agree to negotiate to amend this Agreement in such
respects as are necessary to conform those covenants as criteria for evaluating
the Borrower's financial condition to substantially the same criteria as were
effective prior to such change in GAAP and (ii) the Borrower shall be deemed to
be in compliance with the financial covenants contained in such Sections,
pending reaching agreement on such amendment, following any such change in GAAP
if and to the extent that the Borrower would have been in compliance therewith
under GAAP as in effect immediately prior to such change.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.
(d) The terms defined in Section 1.1 include the plural as well as
the singular. Pronouns of either gender or neuter shall include, as appropriate,
the other pronoun forms. The terms "includes" and "including" shall not be
construed to imply any limitation.
(e) Each reference in the Loan Documents to the last day of a Fiscal
Quarter of the Borrower, or to the last Business Day of a Fiscal Quarter of the
Borrower, or to a Fiscal Quarter of the Borrower ending on a specified date,
shall be deemed to refer to the last day of the Fiscal Quarter of the Borrower
ending on or about such date.
ARTICLE II
THE LOANS
2.1 The Revolving Loans.
(a) The Revolving Commitment. Each Lender agrees, severally and not
jointly, on the terms and conditions hereinafter set forth, to make loans
("Revolving Loans") to the Borrower from time to time during the period from the
date hereof to but excluding the
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Revolving Maturity Date in an aggregate amount not to exceed the lesser of (x)
the amount set forth opposite such Lender's name on Annex I hereto, as such
amount may be reduced pursuant to Section 2.1(c) or (y) such Lender's pro rata
share of the Borrowing Base. Each borrowing under this Section (a "Borrowing")
shall be in a minimum amount of $300,000 and in an integral multiple of $100,000
in excess thereof; provided that a Revolving Loan consisting of a LIBO Rate Loan
shall be in a minimum amount of $1,000,000 or an integral multiple of $250,000
in excess thereof. Each Borrowing shall be made on the same day by the Lenders
ratably according to their respective Commitments. Within the limits of the
Revolving Commitment and prior to the Revolving Maturity Date, the Borrower may
borrow, repay pursuant to Section 2.4(b) and reborrow under this Section;
provided that at no time shall the aggregate principal amount of outstanding
Revolving Loans exceed the least of (x) the Revolving Commitment then in effect
or (y) the Borrowing Base.
(b) Making the Revolving Loans.
(i) The Borrower may borrow under the Revolving Commitment on
any Business Day if the Borrowing is to consist of a Prime Rate Loan and on any
LIBO Business Day if the Borrowing is to consist of a LIBO Rate Loan, provided
that the Borrower shall give the Agent irrevocable notice (which notice must be
received by the Agent prior to 9:00 A.M., San Francisco time) in the form of
Exhibit C (i) three (3) LIBO Business Days prior to the requested Borrowing date
in the case of a LIBO Rate Loan, and (ii) on or before the requested Borrowing
date in the case of a Prime Rate Loan, specifying (A) the amount of the proposed
Borrowing, (B) the requested date of the Borrowing, (C) whether the Borrowing is
to consist of a LIBO Rate Loan or a Prime Rate Loan, and (D) if the Loan is to
be a LIBO Rate Loan, the length of the Interest Period therefor. Promptly
following receipt of such notice, the Agent shall notify each Lender of the date
of the Loan, whether the Loan will be a Prime Rate Loan or a LIBO Rate Loan, the
amount of that Lender's pro rata share of the Loan and, if the Loan is a LIBO
Rate Loan, of the applicable Interest Period. Not later than 11:00 a.m., San
Francisco time, on the date specified for any Loan, each Lender shall deposit
immediately available funds in the amount of its pro rata share of the Loan to
the account of the Agent set forth on the signature pages hereof. Upon
satisfaction of the applicable conditions set forth in Article IV, the Agent
will make available the proceeds of all such Loans to the Borrower by depositing
the amount of such Loans in the Borrower's Account.
(ii) The notice of Borrowing may be given orally (including
telephonically), and shall be promptly confirmed by a notice of Borrowing in
writing, or in writing (including telex or facsimile transmission), and any
conflict regarding a notice or between an oral notice and a written notice
applicable to the same Borrowing shall be conclusively determined in the absence
of manifest error by the Agent's books and records. The Agent's failure to
receive any written notice of a particular Borrowing shall not relieve the
Borrower of its obligations to repay the Borrowing made and to pay interest
thereon. The Agent shall not incur any liability to the Borrower in acting upon
any notice of Borrowing which the Agent believes in good faith to have been
given by a Person duly authorized to borrow on behalf of the Borrower.
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(iii) Unless the Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Agent such Lender's ratable portion of such Borrowing, the
Agent may assume that such Lender has made such portion available to the Agent
on the date of such Borrowing in accordance with subsection (i) of this Section
2.1(b) and the Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the Agent, such
Lender and the Borrower severally agree to repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, the interest
rate applicable at the time to such Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Lender's pro
rata share of such Borrowing for purposes of this Agreement. The failure of any
Lender to make available its pro rata share of any Borrowing shall not relieve
any other Lender of its obligation, if any, hereunder, to make available its pro
rata share of such Borrowing on the date of such Borrowing, but no Lender shall
be responsible for the failure of any other Lender to make available its pro
rata share of any Borrowing on the date of any Borrowing. The Borrower reserves
all of its rights against any defaulting Lender.
(c) Reduction of the Revolving Commitment. The Borrower shall have
the right, upon at least two (2) Business Days' notice to the Agent, to
terminate in whole or reduce in part the unused portion of the Revolving
Commitment, without premium or penalty, provided that each partial reduction
shall be in the aggregate amount of $1,000,000 or an integral multiple of
$100,000 in excess thereof and that such reduction shall not reduce the
Revolving Commitment to an amount less than the amount of Revolving Loans
outstanding hereunder on the effective date of the reduction.
(d) Revolving Notes. The Revolving Loans made by the Lenders
pursuant hereto shall be evidenced by promissory notes of the Borrower,
substantially in the form of Exhibit A, with any appropriate insertions (the
"Revolving Notes"), payable to the order of each Lender and representing the
obligation of the Borrower to pay the aggregate unpaid principal amount of all
Revolving Loans made by that Lender, with interest thereon as prescribed in
Section 2.5. Each Lender is hereby authorized to record in its books and records
and on any schedule annexed to its Revolving Note, the date and amount of each
Revolving Loan made by that Lender, and the date and amount of each payment of
principal thereof, and in the case of LIBO Rate Loans, the Interest Period and
interest rate with respect thereto and any such recordation shall constitute
prima facie evidence of the accuracy of the information so recorded; provided
that failure by any Lender to effect such recordation shall not affect the
Borrower's obligations hereunder. Prior to the transfer of a Revolving Note, the
transferring Lender shall record such information on any schedule annexed to and
forming a part of such Revolving Note.
(e) Increase of the Revolving Commitment. From time to time upon
written request from the Borrower delivered to the Agent, the Lenders will
consider an increase in the Revolving Commitment up to a maximum Revolving
Commitment of $40,000,000; provided, however, that granting of any such increase
shall require the unanimous written consent of the
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Lenders, shall be granted only in the complete discretion of the Lenders, has
not in any way been committed to the Borrower and shall be additionally subject
to amendments to this Agreement, the Notes and such other documents, instruments
and agreements as the Lenders may in their complete discretion select, all of
which shall be in form and substance satisfactory to the Lenders in their
complete discretion. The Borrower acknowledges that neither the Agent nor any of
the Lenders has made any representation or warranty, either expressly or by or
implication that any such increase in the Revolving Commitment would be granted
at any time and the Borrower acknowledges and agrees that no Lender nor the
Agent has any obligations of any kind with respect to, and the Borrower has no
right to, the grant of any such increase in the Revolving Commitment.
2.2 [Intentionally omitted].
2.3 Fees.
(a) Commitment Fee. The Borrower agrees to pay to the Agent for the
ratable benefit of the Lenders providing the Revolving Commitment a commitment
fee on the average daily unused portion of the Revolving Commitment from the
date hereof until the Revolving Maturity Date at the rate of (i) three-quarters
of one percent (3/4 of 1%) per annum, payable on the last Business Day of each
Fiscal Quarter of the Borrower commencing on the first such date occurring after
the date of this Agreement through the date on which the Agent receives
Borrower's financial statements for a Fiscal Quarter of the Borrower pursuant to
Section 6.1(a)(ii) commencing with the March 31, 1999 Fiscal Quarter of the
Borrower establishing that Borrower is in compliance with Section 6.2 and
thereafter for any Fiscal Quarter of the Borrower for which Borrower is not in
compliance with Section 6.2 and (ii) commencing with the Fiscal Quarter of the
Borrower ending March 31, 1999, so long as Borrower is in compliance with
Section 6.2, one-half of one percent (1/2 of 1%) per annum, payable on the last
Business Day of each such Fiscal Quarter of the Borrower, and in all the
foregoing cases payable on the Revolving Maturity Date.
(b) Agency and Facility Fees. Upon execution of this Agreement and
thereafter, the Borrower shall pay to the Agent non-refundable fees in the
amounts agreed to separately by the Borrower. In addition, upon execution of
this Agreement the Borrower shall pay to the Agent a facility fee in the amount
agreed to separately by the Borrower and which shall be allocated to the Lender
by the Agent in its discretion.
2.4 Repayment.
(a) Mandatory Repayments. The aggregate principal amount of the
Revolving Loans outstanding on the Revolving Maturity Date, together with
accrued interest thereon, shall be due and payable in full on the Revolving
Maturity Date. If at any time the outstanding Borrowings under Section 2.1
exceed the least of (x) the Revolving Commitment then in effect or (y) the
Borrowing Base, then the Borrower shall immediately repay the excess to the
Agent for the ratable accounts of the Lenders providing the Revolving
Commitment.
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(b) Optional Prepayment. The Borrower may at its option prepay the
Loans, in whole or in part, at any time and from time to time, provided that the
Agent shall have received from the Borrower notice of any such prepayment at
least one (1) Business Day prior to the date of the proposed prepayment if such
date is not the last day of the then current Interest Period for each Loan being
prepaid, in each case specifying the date and the amount of prepayment, and
provided further, that the Borrower shall be liable for and shall promptly pay
to the Agent for the ratable benefit of the Lenders any Breakage Costs in
respect of LIBO Rate Loans. Partial prepayments hereunder shall be in an
aggregate principal amount of the lesser of (a) $200,000 or any whole multiple
of $100,000 in excess thereof in the case of Prime Rate Loans and $1,000,000 or
any whole multiple of $250,000 in excess thereof in the case of LIBO Rate Loans
and (b) the outstanding balance of the Loan being prepaid.
(c) Mandatory Prepayment. The Borrower shall immediately upon
receipt deliver to the Agent for the benefit of the Lenders (as their interests
may appear) the proceeds of the following as a mandatory prepayment and
permanent reduction of the Revolving Commitment: (i) one hundred percent (100%)
of the Net Proceeds received from the issuance of Debt or from the sale or other
disposition of any assets of the Borrower or any Guarantor outside the ordinary
course of business (in excess of amounts permitted under this Agreement); (ii)
fifty percent (50%) of the Net Proceeds of an Equity Issuance (other than that
described in clause (ii) of the definition of Equity Issuance); and (iii) one
hundred percent (100%) of the Net Proceeds of any insurance payments received in
respect of lost or damaged property that are not promptly applied to the repair,
rebuilding or replacement of such property; provided, however, that any such
mandatory prepayment may be waived, in whole or in part, by any Lender solely as
to such Lender.
(d) Excess Cash Flow Repayment. [Intentionally Omitted]
(e) Optional Escrow. Notwithstanding the foregoing provisions of
this Section 2.4, if the amount of Prime Rate Loans then outstanding is not
sufficient to satisfy the entire mandatory prepayment requirement hereunder, the
Borrower may, at its option, in order to avoid the payment of Breakage Costs,
place any amounts which it would otherwise be required to use to prepay LIBO
Rate Loans on a day other than the last day of the Interest Period therefor in
an interest-bearing escrow account with the Agent until the end of such Interest
Period at which time such escrowed amounts shall be applied to prepay such LIBO
Rate Loans.
2.5 Interest Rate and Payment Dates.
(a) Payment of Interest. Interest with respect to each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and on the date
of any prepayment.
(b) Prime Rate Loans. Revolving Loans which are Prime Rate Loans
shall bear interest on the unpaid principal amount thereof at a rate per annum
equal to the Prime Rate plus the Applicable Margin.
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(c) LIBO Rate Loans. Revolving Loans which are LIBO Rate Loans shall
bear interest for each Interest Period with respect thereto on the unpaid
principal amount thereof at a rate per annum equal to the LIBO Rate determined
for such Interest Period in accordance with the terms hereof plus the Applicable
Margin.
2.6 Continuation and Conversion Options. The Borrower may elect from time
to time to convert any outstanding Loans from Loans bearing interest at a rate
determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis by giving the Agent (i)
irrevocable notice in the form of Exhibit D of an election to convert Loans to
Prime Rate Loans and (ii) at least three (3) LIBO Business Days' prior
irrevocable notice of an election to convert Loans to LIBO Rate Loans, provided
that any conversion of Loans other than Prime Rate Loans shall only be made on
the last day of an Interest Period with respect thereto, provided, further that
no Loan may be converted to a Loan other than a Prime Rate Loan so long as an
Event of Default or Potential Event of Default has occurred and is continuing.
The Borrower may elect from time to time to continue any outstanding Loans other
than Prime Rate Loans upon the expiration of the Interest Period(s) applicable
thereto by giving to the Agent at least three (3) LIBO Business Days' prior
irrevocable notice in the form of Exhibit D of continuation of a LIBO Rate Loan
and the succeeding Interest Period(s) of such continued Loan or Loans will
commence on the last day of the Interest Period of the Loan to be continued,
provided that no Loan may be continued as a Loan other than a Prime Rate Loan so
long as an Event of Default or Potential Event of Default has occurred and is
continuing. Each notice electing to convert or continue a Loan shall be in the
form of Exhibit D and shall specify: (i) the proposed conversion/continuation
date; (ii) the amount of the Loan to be converted/continued; (iii) the nature of
the proposed continuation/conversion; and (iv) in the case of a conversion to,
or continuation of, a Loan other than a Prime Rate Loan, the requested Interest
Period, and shall certify that no Event of Default or Potential Event of Default
has occurred and is continuing. On the date on which such conversion or
continuation is being made each Lender shall take such action as is necessary to
effect such conversion or continuation. In the event that no Notice of
Continuation or Conversion is received by the Agent with respect to outstanding
Loans other than Prime Rate Loans, upon expiration of the Interest Period(s)
applicable thereto, such Loans shall convert to Prime Rate Loans. Subject to the
limitations set forth in this Section and in the definition of Interest Period,
all or any part of outstanding Loans may be converted or continued as provided
herein, provided that partial conversions or continuations with respect to Loans
other than Prime Rate Loans shall be in an aggregate minimum amount of
$1,000,000 and in an integral multiple of $250,000 in excess thereof.
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ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
3.1 Use of Proceeds. The proceeds of the Loans hereunder shall be used
by the Borrower for general corporate purposes, including working capital needs,
payment of the costs and fees incurred in connection with obtaining the
Revolving Commitment and closing the Loans, capital expenditures, financing for
acquisitions and refinancing of existing indebtedness.
3.2 Post Default Interest. Notwithstanding anything to the contrary
contained in Section 2.5, after the occurrence of an Event of Default and
following notice to the Borrower, all Obligations shall bear interest at a rate
per annum which is equal to two percent (2%) above the highest rate which would
otherwise be applicable pursuant to Section 2.5, from the date of such Event of
Default. In addition, any Loan that is a Loan other than a Prime Rate Loan,
shall be converted to a Prime Rate Loan at the end of the then current Interest
Period thereafter.
3.3 Computation of Interest and Fees.
(a) Calculations. Interest in respect of the Prime Rate Loans and
fees shall be calculated on the basis of a 365/366 day year for the actual days
elapsed. Any change in the interest rate on a Prime Rate Loan resulting from a
change in the Prime Rate shall become effective as of the opening of business on
the day on which such change in the Prime Rate shall become effective. In
computing interest on any Loan, the date of the making of the Loan shall be
included and the date of payment shall be excluded; provided that if a Loan is
repaid on the same day on which it is made, one day's interest shall be paid on
that Loan. Interest in respect of the LIBO Rate Loans shall be calculated on the
basis of a 360 day year for the actual days elapsed.
(b) Determination by Agent. Each determination of an interest rate
or fee by the Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower in the absence of manifest error.
3.4 Payments. The Borrower shall make each payment of principal,
interest and fees hereunder and under the Notes, without setoff or counterclaim,
not later than 10:00 A.M., San Francisco time, on the day when due in lawful
money of the United States of America to the Agent at the office of the Agent
designated from time to time in immediately available funds. The Borrower hereby
authorizes the Agent to charge its accounts with the Agent in order to cause
timely payment to be made to the Agent of all principal, interest, fees and
expenses due hereunder (subject to sufficient funds being available in its
accounts for that purpose). The Agent shall promptly pay to each Lender its pro
rata share of each payment received by the Agent as their interests may appear.
3.5 Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a day which is not a
Business Day, such payment
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may be made on the next succeeding Business Day, and with respect to payments of
principal, interest thereon shall be payable at the then applicable rate during
such extension.
3.6 Reduced Return. If any Lender shall have determined that any
applicable law, regulation, rule or regulatory requirement promulgated after the
date hereof ("Requirement") regarding capital adequacy, or any change therein
occurring after the date hereof, or any change occurring after the date hereof
in the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital as a consequence
of its Commitment and obligations hereunder to a level below that which would
have been achieved but for such Requirement, change or compliance (taking into
consideration that Lender's policies with respect to capital adequacy) by an
amount deemed by that Lender to be material (which amount shall be determined by
that Lender's reasonable allocation of the aggregate of such reductions
resulting from such events), then from time to time, within thirty (30) days
after such Lender delivers to the Borrower a statement in reasonable detail
setting forth the basis and calculation for allocating any additional amounts,
the Borrower shall pay to that Lender such additional amount or amounts as will
compensate that Lender for such reduction.
3.7 Indemnities.
(a) Subject to the provisions of Section 9.5, whether or not the
transactions contemplated hereby shall be consummated, the Borrower agrees to
indemnify, pay and hold the Agent and each Lender, the shareholders, officers,
directors, employees and agents of the Agent and each Lender, and each other
Person controlling any of the foregoing within the meaning of either Section 15
of the Securities Act of 1933, as amended, or Section 20 of the Securities
Exchange Act of 1934, as amended (each, an "Indemnified Person"), harmless from
and against any and all claims, liabilities, losses, damages, costs and
expenses, including reasonable attorneys' fees and costs (including the
reasonable fees and out-of-pocket expenses of counsel) and including costs of
investigation, document production, attendance at a deposition or other
discovery, related to or in connection with the transactions contemplated by
this Agreement, any of the Related Transactions or any contemplated use of the
proceeds of the Loans, whether or not any Indemnified Person is a party thereto
(collectively, the "Indemnified Liabilities"), except to the extent that such
Indemnified Liabilities result from the gross negligence or willful misconduct
of the Agent, or any Lender or any other Indemnified Person. If any claim is
made, or any action, suit or proceeding is brought, against any Indemnified
Person pursuant to this Section, the Indemnified Person shall notify the
Borrower of such claim or of the commencement of such action, suit or
proceeding, and the Borrower shall have the option to, and at the request of the
Indemnified Person shall, direct and control the defense of such action, suit or
proceeding, employing counsel selected by the Borrower and reasonably
satisfactory to the Indemnified Person, and pay the fees and expenses of such
counsel; provided, however, that any Indemnified Person may at its own expense
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, such Indemnified Person shall have the right to employ separate
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counsel at the Borrower's expense and to control and direct its own defense of
such action, suit or proceeding if, in the reasonable opinion of counsel to such
Indemnified Person, (i) there are or may be legal defenses available to such
Indemnified Person or to other Indemnified Persons that are different from or
additional to those available to the Borrower that the Borrower cannot assert,
or (ii) a conflict or potential conflict exists between the Borrower and such
Indemnified Person that would make such separate representation advisable. The
Borrower agrees that it will not, without the prior written consent of the
Agent, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding with respect to which
the indemnification provided for in this Section is available (whether or not
any Indemnified Person is a party thereto) unless such settlement, compromise or
consent includes an unconditional release of the Agent and each other
Indemnified Person from all liability arising or that may arise out of such
claim, action, suit or proceeding. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 3.7 may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by any Indemnified Person. This covenant shall survive
termination of this Agreement and payment of the outstanding Notes.
(b) Funding Losses. The Borrower agrees to indemnify each Lender and
to hold each Lender harmless from any loss or expense including, but not limited
to, any such loss or expense arising from interest or fees payable by such
Lender to lenders of funds obtained by it in order to maintain its LIBO Rate
Loans hereunder, which such Lender may sustain or incur as a consequence of (i)
default by the Borrower in payment of the principal amount of or interest on the
LIBO Rate Loans of that Lender, (ii) default by the Borrower in making a
conversion or continuation after the Borrower has given a notice thereof, (iii)
default by the Borrower in making any payment after the Borrower has given a
notice of payment or (iv) the Borrower making any payment of a LIBO Rate Loan on
a day other than the last day of the Interest Period for such Loan. For purposes
of this Section and Section 3.10, it shall be assumed that the affected Lender
had funded or would have funded 100%, as the case may be, of a LIBO Rate Loan in
the London interbank market for an amount and term. The determination of such
amount by such Lender shall be presumed correct in the absence of manifest
error. This covenant shall survive termination of this Agreement and payment of
the outstanding Notes.
3.8 Funding Sources. Nothing in this Agreement shall be deemed to
obligate any Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
3.9 Sharing of Payments, Etc. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Loans owing to it in excess of its ratable share
of payments on account of the Loans obtained by all the Lenders, then such
Lender shall forthwith purchase from the other Lenders such participations in
the Loans owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; provided, however, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such
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purchase from each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery together
with an amount equal to such Lender's ratable share (according to the proportion
of (i) the amount of such Lender's required repayment to (ii) the total amount
so recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 3.9 or any other provision of this Agreement
may, to the fullest extent permitted by law, exercise all of its rights of
payment (including the right to set-off) with respect to such participation as
fully as if such Lender were the direct creditor of the Borrower in the amount
of such participation.
3.10 Inability to Determine Interest Rate. In the event that the Agent or
any Lender shall have determined (which determination shall be conclusive and
binding upon the Borrower in the absence of manifest error) that by reason of
circumstances affecting the London interbank market generally, adequate and
reasonable means do not exist for ascertaining the LIBO Rate applicable pursuant
to Section 2.5 for any Interest Period with respect to a LIBO Rate Loan that
will result from a requested LIBO Rate Loan or that such rate of interest does
not adequately cover the cost of funding such Loan, the Agent or such Lender
shall forthwith give notice of such determination to the Borrower not later than
1:00 P.M., San Francisco time, on the requested Borrowing date, the requested
conversion date or the last day of an Interest Period of a Loan which was to
have been continued as a LIBO Rate Loan. If such notice is given and has not
been withdrawn (i) any requested LIBO Rate Loan shall be made as a Prime Rate
Loan, or, at the Borrower's option, such Loan shall not be made, (ii) any Loan
that was to have been converted to a LIBO Rate Loan shall be continued as, or
converted into, a Prime Rate Loan and (iii) any outstanding LIBO Rate Loan shall
be converted, on the last day of the then current Interest Period with respect
thereto, to a Prime Rate Loan. Until such notice has been withdrawn by the
Agent, no further LIBO Rate Loans shall be made and the Borrower shall not have
the right to convert a Loan to a LIBO Rate Loan. The Agent will review the
circumstances affecting the London interbank market from time to time and the
Agent will withdraw such notice at such time as it shall determine in the
exercise of its reasonable judgment that the circumstances giving rise to said
notice no longer exist.
3.11 Requirements of Law. In the event that any law, regulation or
directive or any change therein or in the interpretation or application thereof
or compliance by the Agent or any Lender with any request or directive (whether
or not having the force of law) from any central bank or other governmental
authority, agency or instrumentality:
(a) does or shall subject the Agent or any Lender to any tax of any
kind whatsoever with respect to this Agreement, any Note or any Loan made
hereunder, or change the basis of taxation of payments to the Agent or any
Lender of principal, commitment fee, interest or any other amount payable
hereunder (except for income taxes or changes in the rate of tax on the overall
net income of the Agent or such Lender);
(b) does or shall impose, modify or hold applicable any reserve,
assessment rate, special deposit, compulsory loan or other requirement against
assets held by, or deposits or other
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liabilities in or for the account of, advances or loans by, or other credit
extended by, or any other acquisition of funds by, any office of the Agent or
any Lender which are not otherwise included in the determination of any LIBO
Rate at the last Borrowing, conversion or continuation date of a Loan;
(c) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or other requirement against Commitments to
extend credit;
(d) does or shall impose on the Agent or any Lender any other
condition;
and the result of any of the foregoing is to increase the cost to the Agent or
any Lender of making, renewing or maintaining its Revolving Commitment or the
LIBO Rate Loans or to reduce any amount receivable thereunder (which increase or
reduction shall be determined by the Agent's or such Lender's reasonable
allocation of the aggregate of such cost increases or reduced amounts receivable
resulting from such events), then, in any such case, the Borrower shall pay to
the Agent or such Lender within thirty (30) Business Days of its statement
described below, any additional amounts necessary to compensate the Agent or
such Lender for such additional cost or reduced amount receivable as determined
by the Agent or such Lender with respect to this Agreement. If the Agent or
Lender becomes entitled to claim any additional amounts pursuant to this Section
3.11, it shall notify the Borrower of the event by reason of which it has become
so entitled. A statement setting forth in reasonable detail the calculation as
to any additional amounts payable pursuant to the foregoing sentence, and
setting forth the basis and calculation for allocating such additional amounts
among the other borrowers of the affected Agent or Lender, submitted by the
affected Agent or Lender to the Borrower shall be conclusive in the absence of
manifest error.
3.12 Illegality. Notwithstanding any other provisions herein, if any law,
regulation, treaty or directive or any change therein or in the interpretation
or application thereof by an entity with jurisdiction over the Agent or any
Lender, shall make it unlawful, impossible, or impracticable for such Agent or
any Lender to make or maintain LIBO Rate Loans as contemplated by this
Agreement, (a) the commitment of the Agent or any Lender hereunder to make LIBO
Rate Loans or convert Prime Rate Loans to LIBO Rate Loans shall forthwith be
suspended until such event is resolved and (b) the Agent's or such Lender's
Loans then outstanding as LIBO Rate Loans, if any, shall be converted
automatically to Prime Rate Loans on the next succeeding Interest Payment Date
or within such earlier period as allowed by law. The Borrower hereby agrees to
pay the Agent or any such Lender, within thirty (30) days of its demand, any
additional amounts necessary to compensate the Agent or any such Lender for any
costs incurred by the Agent or any such Lender in making any conversion in
accordance with this Section, including, but not limited to, any interest or
fees payable by the Agent or any such Lender to lenders of funds obtained by it
in order to make or maintain its LIBO Rate Loans hereunder (the Agent's or any
such Lender's notice of such costs, in reasonable detail as certified to the
Borrower and the Agent to be conclusive absent manifest error).
3.13 Obligation to Mitigate. The Agent and each Lender agrees that as
promptly as practicable after it becomes aware of the occurrence of an event
that would entitle it to give
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notice pursuant to Section 3.6, 3.11 or 3.12, it will use reasonable efforts to
make, fund or maintain its affected LIBO Rate Loans through another Lending
Office of the Agent or such Lender if, as a result thereof, the increased cost
would be avoided or materially reduced or the illegality would thereby cease to
exist and if, in the reasonable opinion of the Agent or such Lender, the making,
funding or maintaining of such LIBO Rate Loans through such other Lending Office
would not in any material respect be disadvantageous to the Agent or such Lender
or contrary to the Agent's or such Lender's internal policies or normal banking
practices or any applicable legal or regulatory restrictions, provided that the
Borrower shall pay all incremental expenses incurred by the Agent or any such
Lender as a result of utilizing such other Lending Office.
3.14 Taxes. (a) Any and all payments by the Borrower to each Lender or the
Agent under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for, any Taxes. In addition, the
Borrower shall pay all Other Taxes to the relevant taxing authority or other
authority in accordance with applicable law.
(b) If the Borrower shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section), such
Lender or the Agent, as the case may be, receives an amount equal to the sum it
would have received had no such deductions or withholdings been made;
(ii) the Borrower shall make such deductions and withholdings;
and
(iii) the Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable law.
(c) The Borrower agrees to indemnify and hold harmless each Lender
and the Agent for the full amount of (i) Taxes and (ii) Other Taxes that are
payable by such Lender or the Agent and any penalties, interest, additions to
tax, expenses or other similar liabilities arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 45 days after
the date the Lender or the Agent makes written demand therefor.
(d) Each Lender that is not incorporated or organized in or under
the laws of the United States of America or a state thereof (a "Non-U.S.
Lender") shall:
(i) deliver to the Borrower and the Agent, prior to the first
day on which the Borrower is required to make any payments hereunder to such
Lender, two copies of either United States Internal Revenue Service Form 1001 or
Form 4224 or, in the case of a Non-U.S. Lender claiming exemption from U.S.
Federal withholding tax under Section 871(h) or 881(c) of the Internal Revenue
Code with respect to payments of "portfolio interest", a Form W-8, or any
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subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender
delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not
a bank for purposes of Section 881(c) of the Internal Revenue Code, is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the
Internal Revenue Code) of the Borrower and is not a controlled foreign
corporation related to the Borrower (within the meaning of Section 864(d)(4) of
the Internal Revenue Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S.
Federal withholding tax on payments by the Borrower under this Agreement;
(ii) deliver to the Borrower and the Agent two further copies
of any such form of certification on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any event
requiring a change in the most recent form previously delivered by it to the
Borrower; and
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by the Borrower or
the Agent;
unless in any such case any change in treaty, law or regulation has occurred
prior to the date on which any such delivery would otherwise be required that
renders any such form inapplicable or would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender so
advises the Borrower and the Agent. Each Non-U.S. Lender that shall become a
participant pursuant to Section 9.6 or a Lender pursuant to Section 9.6 shall,
upon the effectiveness of the related transfer, be required to provide all the
forms and statements required pursuant to this Section 3.14(d), provided that in
the case of a participant such participant shall furnish all such required forms
and statements to the Lender from which the related participation shall have
been purchased.
(e) The Borrower shall not be required to indemnify any Non-U.S.
Lender or the Agent, or to pay any additional amounts to any Non-U.S. Lender or
the Agent, in respect of U.S. Federal withholding tax pursuant to paragraph (a)
above to the extent that (i) the obligation to withhold amounts with respect to
U.S. Federal withholding tax existed on the date such Non-U.S. Lender became a
party to this Agreement (or, in the case of a Non-U.S. participant, on the date
such participant became a participant hereunder) or as of the date such Non-U.S.
Lender changes its applicable Lending Office; provided, however, that this
clause (i) shall not apply to the extent that (x) the indemnity payments or
additional amounts any Lender (or participant) would be entitled to receive
(without regard to this clause (i)) do not exceed the indemnity payment or
additional amounts that the Person making the assignment, participation,
transfer or change in Lending Office would have been entitled to receive in the
absence of such assignment, participation, transfer or change in Lending Office,
or (y) such assignment, participation, transfer or change in Lending Office had
been requested by the Borrower, (ii) the obligation to pay such additional
amounts would not have arisen but for a failure by such Non-U.S. Lender or
Non-U.S. participant to comply with the provisions of paragraph (d) above or
(iii) any of the representations or certifications made by a Non-U.S. Lender or
Non-U.S. participant pursuant to paragraph (d) above are incorrect at the time a
payment hereunder is made, other than by reason
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of any change in treaty, law or regulation having effect after the date such
representations or certifications were made.
(f) If the Borrower determines in good faith that a reasonable basis
exists for contesting any Taxes for which indemnification has been demanded
hereunder, the relevant Lender or the Agent, as applicable, shall cooperate with
the Borrower in challenging such Taxes at the Borrower's expense if so requested
by the Borrower in writing. If any Lender or the Agent, as applicable, receives
a refund of a Tax for which a payment has been made by the Borrower pursuant to
this Agreement, which refund in the good faith judgment of such Lender or Agent,
as the case may be, is attributable to such payment made by the Borrower, then
the Lender or the Agent, as the case may be, shall reimburse the Borrower for
such amount as the Lender or Agent, as the case may be, determines to be the
proportion of the refund as will leave it, after such reimbursement, in no
better or worse position than it would have been in if the payment had not been
required. Neither the Lenders nor the Agent shall be obliged to disclose
information regarding its tax affairs or computations to the Borrower in
connection with this paragraph (f) or any other provision of this Section 3.14.
(g) Promptly after the date of any payment by the Borrower of Taxes
or Other Taxes, the Borrower shall furnish to each Lender or the Agent the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to such Lender or the Agent.
ARTICLE IV
CONDITIONS OF EFFECTIVENESS AND LENDING
4.1 Conditions Precedent to Effectiveness. The effectiveness of this
Agreement is subject to the conditions precedent that:
(a) The Agent shall have received the following, each dated as of
the date hereof (except for the documents referred to in clause (ii)), in form
and substance satisfactory to the Agent and (except for the Notes) in sufficient
copies for each Lender:
(i) The Notes issued by the Borrower to the order of each
Lender;
(ii) Copies of the Articles of Incorporation of the Borrower
and each Guarantor, certified as of a recent date by the Secretary of State of
California;
(iii) Copies of the Bylaws of the Borrower and each Guarantor,
certified by the Secretary or an Assistant Secretary of such Person;
(iv) Copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower and each Guarantor, approving the Loan
Documents to which such Person is a party and the transactions contemplated
thereunder;
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(v) An incumbency certificate executed by the Secretary or an
Assistant Secretary of the Borrower and each Guarantor or equivalent document,
certifying the names and signatures of the officers of the Borrower and each
Guarantor or other Persons authorized to sign the Loan Documents to which such
Person is a party and the other documents to be delivered hereunder;
(vi) An executed and completed Notice of Borrowing regarding
any Revolving Loans to be made or maintained on the date hereof;
(vii) An executed and completed Borrowing Base Certificate;
(viii) Executed copies of all Loan Documents; and
(ix) A favorable opinion of counsel to the Borrower and each
Guarantor, in the form of Exhibit E, and as to such other matters as any Lender
may reasonably request.
(x) Borrower's projections of its future performance.
(b) The Borrower shall have paid to the Agent, for distribution (as
appropriate) to the Agent and the Lenders, the fees, costs and expenses payable
as required in Section 2.3 and Section 9.5, which amounts the Borrower may fund
with a Borrowing.
(c) All corporate and legal proceedings and all instruments and
documents in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in content, form and substance to the Agent and
its counsel, and each Lender, the Agent and the Agent's counsel shall have
received any and all further information and documents which the Agent or such
counsel may reasonably have requested in connection therewith, such documents
where appropriate to be certified by proper corporate or governmental
authorities.
(d) The Related Transactions shall have closed in a manner and
pursuant to documentation in all respects satisfactory to the Agent.
4.2 Conditions Precedent to Each Borrowing. The obligation of each Lender
to make a Loan on the occasion of each Borrowing (including the initial
Borrowing) shall be subject to the further conditions precedent that on the date
of such Borrowing:
(a) the following statements shall be true and the Agent shall have
received the Notice of Borrowing required by Section 2.1(b) and Section 2.2(b),
which notice shall be deemed to be a certification by the Borrower that:
(i) the representations and warranties contained in Section
5.1 are correct on and as of the date of such Borrowing as though made on and as
of such date, except to the extent that such representations and warranties
specifically relate only to an earlier date, in which
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case such representations and warranties shall have been true and correct on and
as of such earlier date,
(ii) no event has occurred and is continuing, or would result
from such Borrowing, which constitutes an Event of Default or Potential Event of
Default,
(iii) all Loan Documents are in full force and effect, and
(iv) based on information available to the Borrower as of the
date of such requested Borrowing, the Borrower represents and warrants that (x)
the amount of such Borrowing, when added to all Revolving Loans then
outstanding, will not exceed the Borrowing Base and (y) the Borrower is, as of
the date of such Borrowing, and is projected to be, as of the last day of the
next ending Fiscal Quarter, in minimum compliance with each of the covenants set
forth in Section 6.2.
(b) no injunction or other restraining order shall have been issued
and no hearing to cause an injunction or other restraining order to be issued
shall be pending or noticed with respect to any action, suit or proceeding
seeking to enjoin or otherwise prevent the consummation of, or to recover any
damages or obtain relief as a result of, the transactions contemplated by this
Agreement or the making of the Loans hereunder.
(c) As to Borrowings subsequent to the 90th day after the date
hereof the Agent's inspection of the Borrower's accounts receivable records at
the Borrower's premises shall have been completed and shall have been in all
respects satisfactory in form and substance to the Agent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties. The Borrower represents and warrants
as follows:
(a) Organization. The Borrower and each of its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the state of
its formation. The Borrower and each of its Subsidiaries is also duly
authorized, qualified and licensed in all applicable jurisdictions, and under
all applicable laws, regulations, ordinances or orders of public authorities, to
carry on its business in the locations and in the manner presently conducted.
(b) Authorization. The execution, delivery and performance by the
Borrower or other executing Person of the Loan Documents, and the making of
Borrowings hereunder, are within the Borrower's or such other Person's corporate
powers, have been duly authorized by all necessary corporate action, and do not
contravene (i) the Borrower's or such other Person's charter, by-laws or other
organizational document or (ii) any law or regulation (including
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Regulations G, T, U and X) or any contractual restriction binding on or
affecting the Borrower or such other Person, and will not result in the creation
of a Lien on any of its properties (other than under a Loan Document).
(c) Governmental Consents; Regulation. No authorization or approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body (except (i) the filing of any necessary financing statements
to perfect the Liens granted under the Security Agreement and (ii) routine
reports required pursuant to the Securities Exchange Act of 1934, as amended,
which reports will be made in the ordinary course of business) is required for
the due execution, delivery and performance by the Borrower or other executing
Person of the Loan Documents. Neither the Borrower nor any of its Subsidiaries
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended, or a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(d) Validity. The Loan Documents are the binding obligations of the
Borrower or other executing Person, enforceable in accordance with their
respective terms; except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
(e) Financial Condition. The balance sheet of the Borrower and its
consolidated Subsidiaries as at December 31, 1996 and September 30, 1997 and the
related statements of income and retained earnings of the Borrower and its
consolidated Subsidiaries for the Fiscal Year or Fiscal Quarter (as the case may
be) then ended, copies of which have been furnished to each Lender, fairly
present the financial condition of the Borrower and its consolidated
Subsidiaries as at such dates and the results of the operations of the Borrower
and its consolidated Subsidiaries for the respective periods ended on such
dates, all in accordance with GAAP, consistently applied, and since September
30, 1997 (subject, in the case of the September 30,1997 financial statements, to
year-end audit adjustments and the absence of footnotes) there has been no
material adverse change in the business, operations, properties, assets,
prospects or condition (financial or otherwise) of the Borrower and its
Subsidiaries, taken as a whole.
(f) Litigation. Except as set forth on Schedule 5.1(f), there is no
pending or threatened action or proceeding affecting the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the consolidated financial condition or operations
of the Borrower and its Subsidiaries or which may have a material adverse effect
on the Borrower's or another executing Person's ability to perform their
respective obligations under the Loan Documents, having regard for their other
financial obligations.
(g) Employee Benefit Plans. The Borrower and each of its ERISA
Affiliates is in compliance in all material respects with any applicable
provisions of ERISA and the
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regulations and published interpretations thereunder with respect to all
Employee Benefit Plans. No Termination Event has occurred or is reasonably
expected to occur with respect to any Pension Plan.
(h) Disclosure. No representation or warranty of the Borrower
contained in this Agreement or any other document, certificate or written
statement furnished to the Agent or any Lender by or on behalf of the Borrower
or any Subsidiary for use in connection with the transactions contemplated by
this Agreement contains any untrue statement of a material fact or omits to
state a material fact (known to the Borrower in the case of any document not
furnished by it) necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to the Borrower (other than
matters of a general economic nature) which materially adversely affects the
business, operations, properties, assets, prospects or condition (financial or
otherwise) of the Borrower or its Subsidiaries, taken as a whole, which has not
been disclosed herein or in such other documents, certificates and statements
furnished to the Agent or any Lender for use in connection with the transactions
contemplated hereby.
(i) Margin Stock. No proceeds of any Loan will be used to purchase
or carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
(j) Environmental Matters. Except as set forth in Schedule 5.1(j),
neither the Borrower nor any Subsidiary, nor any of their respective officers,
employees, representatives or agents, nor, to the best of their knowledge, any
other Person, has treated, stored, processed, discharged, spilled, or otherwise
disposed of any substance defined as hazardous or toxic by any applicable
federal, state or local law, rule, regulation, order or directive, or any waste
or by-product thereof, at any real property or any other facility owned, leased
or used by the Borrower or any Subsidiary, in violation of any applicable
statutes, regulations, ordinances or directives of any governmental authority or
court, which violations may result in liability to the Borrower or any
Subsidiary or any of their respective officers, employees, representatives,
agents or shareholders in an amount exceeding $250,000 for all such violations;
and the unresolved violations set forth in said Schedule will not result in
liability to the Borrower or any Subsidiary or any of their respective officers,
employees, representatives, agents or shareholders in an amount exceeding
$250,000 for all such unresolved violations. Except as set forth in said
Schedule, no employee or other Person has ever made a claim or demand against
the Borrower or any Subsidiary based on alleged damage to health caused by any
such hazardous or toxic substance or by any waste or by-product thereof; and the
unsatisfied claims or demands against the Borrower or any Subsidiary set forth
in said Schedule will not result in uninsured liability to the Borrower or any
Subsidiary or any of their respective officers, employees, representatives,
agents or shareholders in an amount exceeding $250,000 for all such unsatisfied
claims or demands. Except as set forth in said Schedule, neither the Borrower
nor any Subsidiary has been charged by any governmental authority with
improperly using, handling, storing, discharging or disposing of any such
hazardous or toxic substance or waste or by-product thereof or with causing or
permitting any pollution of any body of water; and the outstanding charges set
forth in said Schedule will not result in liability to the Borrower or any
Subsidiary or any of their
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<PAGE> 40
respective officers, employees, representatives, agents or shareholders in an
amount exceeding $250,000 for all such outstanding charges.
(k) Employee Matters. There is no strike or work stoppage in
existence or threatened involving the Borrower or its Subsidiaries that may
materially adversely affect the consolidated financial condition or operations
of the Borrower and its Subsidiaries or that may have a material adverse effect
on the Borrower's ability to perform its obligations under the Loan Documents,
having regard for its other financial obligations.
ARTICLE VI
COVENANTS
6.1 Affirmative Covenants. So long as any Note shall remain unpaid or any
Lender shall have any Commitment hereunder, the Borrower will, and will cause
its Subsidiaries to (unless the Lenders shall otherwise consent in writing as
provided in Section 9.1):
(a) Financial Information. Furnish to each Lender and the Agent:
(i) as soon as available, but in any event within ninety (90)
days after the end of each Fiscal Year of the Borrower, a copy of the
consolidated and consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of each Fiscal Year and the related
consolidated and consolidating statements of income (or comparable statement)
and changes in cash flow for such year, setting forth in each case in
comparative form the figures as at the end of the previous year as to the
balance sheet and the figures for the previous corresponding period as to the
other statements, accompanied, with respect to such consolidated statements, by
an unqualified report and opinion thereon of independent certified public
accountants reasonably acceptable to the Agent; all such financial statements to
be complete and correct in all material respects and in accordance with GAAP
applied consistently throughout the Fiscal Year (except as approved by such
accountants and disclosed therein);
(ii) as soon as available, but in any event within forty-five
(45) days after the end of each of the first three Fiscal Quarters of the
Borrower, a copy of the unaudited consolidated and consolidating balance sheet
of the Borrower and its consolidated Subsidiaries as at the end of such period
and the related unaudited consolidated and consolidating statements of income
(or comparable statement) and changes in cash flow for such period and year to
date, setting forth in each case in comparative form the figures as at the end
of the previous Fiscal Year as to the balance sheet and the figures for the
previous corresponding period as to the other statements, certified by a duly
authorized officer of the Borrower as being fairly stated in all material
respects subject to year end and audit adjustments, all such financial
statements to be complete and correct in all material respects and in accordance
with GAAP subject to normal year end and audit adjustments and the absence of
footnotes, applied consistently throughout the period reflected therein (except
as approved by such accountants and disclosed therein);
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<PAGE> 41
(iii) as soon as available, but in any event within thirty
(30) days after the end of each calendar month, a copy of the unaudited
consolidated and consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such period and the related unaudited
consolidated and consolidating statements of income (or comparable statement)
for such month certified by a duly authorized officer of the Borrower as being
fairly stated in all material respects subject to normal quarterly, year end and
audit adjustments and the absence of footnotes;
(iv) together with each delivery of financial statements of
the Borrower and its Subsidiaries pursuant to subdivisions (i) and (ii) above,
(A) an officer's certificate stating that the signer has reviewed the terms of
the Loan Documents and has made, or caused to be made under his/her supervision,
a review in reasonable detail of the transactions and condition of the Borrower
and its Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during or at the
end of such accounting period, and that the signer does not have knowledge of
the existence as at the date of the officer's certificate, of any condition or
event which constitutes an Event of Default or Potential Event of Default, or,
if any such condition or event existed or exists, specifying the nature and
period of existence thereof and what action the Borrower has taken, is taking
and proposes to take with respect thereto; and (B) a Compliance Certificate in
the form of Exhibit F demonstrating in reasonable detail compliance during and
at the end of such accounting periods with the each of the covenants and
restrictions contained in Section 6.2 as of the end of the fiscal period covered
thereby;
(v) substantially concurrent with the sending or filing
thereof, copies of all reports which the Borrower sends to a majority of its
security holders, and copies of all reports and registration statements which
the Borrower or any of its Subsidiaries files with the S.E.C. or any national
securities exchange; and
(vi) as soon as available, but in any event within thirty (30)
days after the end of each calendar month through March 31, 1999 and thereafter
within 30 days after the end of each Fiscal Quarter of the Borrower, a Borrowing
Base Certificate in substantially the form of Exhibit J setting forth the
calculation of the Borrowing Base, certified by the chief financial officer,
corporate controller or treasurer of the Borrower, and an aging of the
Borrower's accounts receivable and accounts payable in form and detail
acceptable to the Agent.
(b) Notices and Information. Deliver to the Agent and each Lender:
(i) promptly upon any officer of the Borrower obtaining
knowledge (A) of any condition or event which constitutes an Event of Default or
Potential Event of Default, (B) that any Person has given any notice to the
Borrower or any of its Subsidiaries or taken any other action with respect to a
claimed default or event or condition of the type referred to in Section 7.1(f),
(C) of the institution of any litigation involving an alleged liability
(including possible forfeiture of property) of the Borrower or any of its
Subsidiaries equal to or greater than $100,000 or any adverse determination in
any litigation involving a potential liability of the Borrower or any of its
Subsidiaries equal to or greater than $100,000, or (D) of a material
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<PAGE> 42
adverse change in the business, operations, properties, assets or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole,
an officers' certificate specifying the nature and period of existence of any
such condition or event, or specifying the notice given or action taken by such
holder or Person and the nature of such claimed default, Event of Default,
Potential Event of Default, event or condition, and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
(ii) promptly upon becoming aware of the occurrence of or
forthcoming occurrence of any (A) Termination Event, or (B) "prohibited
transaction," as such term is defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA, in connection with any Employee Benefit Plan or
any trust created thereunder, a written notice specifying the nature thereof,
what action the Borrower has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the Internal Revenue
Service, the Department of Labor, or the Pension Benefit Guaranty Corporation
with respect thereto;
(iii) with reasonable promptness copies of (A) all notices
received by the Borrower or any of its ERISA Affiliates of the Pension Benefit
Guaranty Corporation's intent to terminate any Pension Plan or to have a trustee
appointed to administer any Pension Plan, (B) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by the Borrower or
any of its ERISA Affiliates with the Internal Revenue Service with respect to
each Pension Plan, and (C) all notices received by the Borrower or any of its
ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or
amount of withdrawal liability pursuant to Section 4202 of ERISA;
(iv) promptly, but in any event within thirty (30) days after
receipt thereof, a copy of any notice, summons, citation, directive, letter or
other form of communication from any governmental authority or court in any way
concerning any action or omission on the part of the Borrower or any of its
Subsidiaries in connection with any substance defined as toxic or hazardous by
any applicable federal, state or local law, rule, regulation, order or directive
or any waste or by-product thereof, or concerning the filing of a Lien upon,
against or in connection with the Borrower, its Subsidiaries, or any of their
leased or owned real or personal property, in connection with a Hazardous
Substance Superfund or a Post-Closure Liability Fund as maintained pursuant to
Section 9507 of the Internal Revenue Code if such act or omission may result in
liability in an amount exceeding $100,000 for all such acts or omissions or if
any such Lien, together with all other such Liens, is filed upon or against
property the fair market value of which exceeds $100,000 in the aggregate; and
(v) promptly, but in any event within ten (10) days after
request, such other information and data with respect to the Borrower or any of
its Subsidiaries as from time to time may be reasonably requested by the Agent
or any Lender.
(c) Corporate Existence, Etc. At all times preserve and keep in full
force and effect its and its Subsidiaries' corporate existence and rights and
franchises material to its business and those of each of its Subsidiaries;
provided, however, that the corporate existence of
37
<PAGE> 43
any such Subsidiary may be terminated if such termination is accomplished in
accordance with Section 6.2(j)(i).
(d) Payment of Taxes and Claims. Pay, and cause each of its
Subsidiaries to pay, all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
franchises, business, income or property before any penalty or interest accrues
thereon, and all claims (including claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien upon any of its properties or assets, prior to the time when
any penalty or fine shall be incurred with respect thereto; provided that no
such charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if such
reserve or other appropriate provision, if any, as shall be required in
accordance with GAAP shall have been made therefor.
(e) Maintenance of Properties; Insurance. Maintain or cause to be
maintained in good repair, working order and condition all material properties
used or useful in the business of the Borrower and its Subsidiaries and from
time to time make or cause to be made all appropriate repairs, renewals and
replacements thereof. The Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and business of its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other corporations. The Borrower will comply
with any other insurance requirement set forth in any other Loan Document.
(f) Inspection. Permit any authorized representatives designated by
the Agent or any Lender to visit and inspect any of the properties of the
Borrower or any of its Subsidiaries, including its and their financial and
accounting records, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their officers
and independent public accountants, all upon reasonable advance notice and at
such reasonable times during normal business hours and as often as may be
reasonably requested.
(g) Compliance with Laws, Etc. Exercise, and cause each of its
Subsidiaries to exercise, all due diligence in order to comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including all environmental laws, rules, regulations and
orders, noncompliance with which would materially adversely affect the business,
properties, assets, operations, prospects or condition (financial or otherwise)
of the Borrower and its Subsidiaries, taken as a whole.
(h) Borrower's Account. Maintain the Borrower's Account at all times
with the Agent.
6.2 Negative Covenants. So long as any Note shall remain unpaid or any
Lender shall have any Commitment hereunder, the Borrower will not, and will not
permit any Subsidiaries to, without the written consent of the Lenders as
provided in Section 9.1:
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(a) Consolidated Net Worth. Permit Consolidated Net Worth at any
time commencing on March 31, 1999 to be less than an amount equal to 120% of
Borrower's Consolidated Net Worth at December 31, 1998 plus (i) 75% of
cumulative Consolidated Net Income (but not loss) for each Fiscal Quarter of the
Borrower commencing with the Fiscal Quarter ending March 31, 1999, plus (ii)
100% of the Net Proceeds of any Equity Issuance by the Borrower after the date
hereof, plus (iii) increases in stockholders' equity upon any conversion of any
Subordinated Debt or preferred stock to common stock by any Person after the
date hereof.
(b) [Intentionally omitted]
(c) Leverage Ratio. As at the end of any Fiscal Quarter of the
Borrower commencing with the Fiscal Quarter of the Borrower ending March 31,
1999, permit the ratio of Consolidated Total Debt as of the Fiscal Quarter of
the Borrower then ending to EBITDA as of the Fiscal Quarter of the Borrower then
ending to be more than the correlative amount indicated below:
<TABLE>
<CAPTION>
Fiscal Quarter of the
Borrower Ending Ratio
--------------- -----
<S> <C>
March 31, 1999 5.00:1.00
June 30, 1999 4.75:1.00
September 30, 1999 4.50:1.00
December 31, 1999 4.25:1.00
March 31, 2000 4.00:1.00
June 30, 2000 3.75:1.00
Each Fiscal Quarter Ending 3.50:1.00
of the Borrower thereafter
</TABLE>
(d) Interest Coverage Ratio. As at the end of any Fiscal Quarter of
the Borrower commencing with the Fiscal Quarter of the Borrower ending March 31,
1999, permit the ratio of EBITDA as of the Fiscal Quarter of the Borrower then
ending to Interest Expense as of the Fiscal Quarter of the Borrower then ending
to be less than the ratio set forth below opposite the Fiscal Quarter of the
Borrower in question set forth below (in each case determined based upon the
EBITDA and Interest Expense for the Fiscal Quarter of the Borrower in question
and the immediately preceding three consecutive Fiscal Quarters of the
Borrower):
Fiscal Quarter of the
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<PAGE> 45
<TABLE>
<CAPTION>
Borrower Ending Ratio
--------------- -----
<S> <C>
March 31, 1999 1.50:1.00
June 30, 1999 1.75:1.00
September 30, 1999 2.00:1.00
December 31, 1999 2.25:1.00
Each Fiscal Quarter Ending
of the Borrower thereafter 2.50:1.00
</TABLE>
(e) Minimum EBITDA. Permit EBITDA for any Fiscal Quarter of the
Borrower commencing with the Fiscal Quarter of the Borrower ending March 31,
1998 to be less than the amount set forth below under the column headed "Minimum
Quarterly EBITDA" immediately opposite the Fiscal Quarter of the Borrower in
question or permit EBITDA for any such Fiscal Quarter of the Borrower and the
immediately preceding three Fiscal Quarters of the Borrower to be less than the
amount set forth below under the column headed "Minimum Rolling Four Quarter
EBITDA" opposite the Fiscal Quarter of the Borrower in question:
<TABLE>
<CAPTION>
Minimum Minimum Rolling
Fiscal Quarter of the Quarterly Four Quarter
Borrower Ending EBITDA EBITDA
--------------- ------ ------
<S> <C> <C>
March 31, 1998 $1,000,000 $10,000,000
June 30, 1998 $3,500,000 $10,000,000
September 30, 1998 $3,500,000 $14,000,000
December 31, 1998 $5,000,000 $20,000,000
March 31, 1999 $5,000,000 $22,500,000
June 30, 1999 $5,000,000 $25,000,000
September 30, 1999 $5,000,000 $27,500,000
Each Fiscal Quarter Ending
of the Borrower thereafter $5,000,000 $30,000,000
</TABLE>
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<PAGE> 46
(e)(e) Profitability. Shall not have Consolidated Net Income of less
than $1.00 for (a) two or more Fiscal Quarters of the Borrower (i) in the 1999
Fiscal Year of the Borrower or (ii) in any four consecutive Fiscal Quarters of
the Borrower commencing with the Fiscal Quarter of the Borrower ending March 31,
2000 or (b) any four consecutive Fiscal Quarters of the Borrower commencing with
the Fiscal Quarter of the Borrower ending December 31, 1999.
(f) Liens Etc. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, whether now owned or hereafter acquired, other than:
(i) Permitted Liens;
(ii) purchase money Liens upon or in any property acquired,
leased or held by the Borrower or any Subsidiary in the ordinary course of
business to secure the purchase price of such property or to secure indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
property, including Capital Leases;
(iii) Liens securing Subordinated Debt on the date of this
Agreement, subject to the subordination provisions of such Subordinated Debt;
(iv) all renewals, refundings, refinancings and extensions of
any such Liens described in clauses (i), (ii) and (iii) above; provided that the
principal amount secured is not increased and that such Lien is not extended to
other property (other than after acquired property of the same type which is
already collateral).
(g) Debt. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Debt, other than:
(i) Debt existing on the date hereof and set forth on Schedule
6.2(g);
(ii) Debt owed to the Lenders hereunder;
(iii) Debt secured by Liens permitted under Section 6.2(f);
(iv) Debt of a wholly-owned Subsidiary of the Borrower to
another wholly-owned Subsidiary of the Borrower and Debt of the Borrower to a
wholly-owned Subsidiary of the Borrower; provided, however, that the maximum
amount of Debt owing by Foreign Subsidiaries to the Borrower or any Guarantor
shall not exceed $10,000,000 in the aggregate at any time outstanding;
(v) Contingent Obligations permitted under Section 6.2(l);
(vi) Debt not otherwise permitted by clauses (i) through (v)
above, not in excess of $1,000,000 in the aggregate at any one time outstanding;
and
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<PAGE> 47
(vii) all renewals, refundings, refinancings or extensions of
any such Debt described in clauses (i) and (iii) above, provided that the terms
thereof are not materially more burdensome to the Borrower than those set forth
in the documents evidencing such Debt as in effect on the date hereof in the
case of Debt described in clause (i), and provided, further, that no additional
assets (other than after acquired property of the same type which is already
collateral) are pledged to secure any renewals, refundings, refinancings or
extensions of Debt described in clause (iii); and
(viii) Debt under the Senior Unsecured Notes.
(h) Lease Obligations. Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any obligations for the payment
of rental for any property under leases or agreements to lease (other than
Capital Leases) which would cause the direct or contingent liabilities of the
Borrower and its Subsidiaries, on a consolidated basis, in respect of all such
obligations to exceed $7,000,000 payable in any Fiscal Year of the Borrower;
provided, however, that such amount shall be increased by an amount equal to the
periodic increases in rent payable by any of the Borrower or its Subsidiaries
under any such leases, which periodic increases shall not exceed more than 5% of
the prior rent amount in any Fiscal Year.
(i) Dividends, etc. Declare or pay any dividends, purchase or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as such, or
permit any of its Subsidiaries to purchase or otherwise acquire for value any
stock of the Borrower, except that the Borrower may (i) declare and deliver
dividends and distributions payable in capital stock of the Borrower, and (ii)
repurchase its capital stock in connection with any agreement between the
Borrower or its Subsidiaries and any officer, director, employee or consultant
of the Borrower or its Subsidiaries (other than those with Arthur J. Cormier and
John F. Schaefer) entered into in the ordinary course of business wherein the
Borrower or its Subsidiary is obligated or entitled to repurchase from such
officer, director, employee or consultant such capital stock upon such Person's
termination of employment or services with the Borrower; provided that the
aggregate repurchases under this clause (ii) shall not exceed $2,000,000 in the
aggregate during the term of this Agreement, and except that any wholly-owned
Subsidiary of the Borrower may declare and pay cash dividends to the Borrower.
(j) Consolidation, Merger. Consolidate or merge with any other
Person, liquidate, wind-up or dissolve itself or acquire by purchase or
otherwise all or substantially all of the business, property or fixed assets of,
or stock or other evidence of beneficial ownership of, any Person (each, an
"Acquisition"), or permit any of its Subsidiaries to do any of the foregoing,
except that:
(i) any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower or any wholly-owned Subsidiary of the
Borrower or be liquidated, wound up or dissolved, or all or any substantial part
of its business, property or assets may be conveyed, sold, leased, transferred
or otherwise disposed of, in one transaction or a series of transactions, to the
Borrower or any wholly-owned Subsidiary of the Borrower; provided that, in the
case of such
42
<PAGE> 48
a merger or consolidation, the Borrower or such wholly-owned Subsidiary shall be
the continuing or surviving corporation in all such cases before and after
giving effect to such transaction there exists no Event of Default or Potential
Event of Default;
(ii) the Borrower may make Consolidated Capital Expenditures
permitted under Section 6.2(n);
(iii) the Borrower may make Acquisitions not otherwise
contemplated by this Section 6.2(j), where the sum of (x) the cash consideration
plus (y), the excess, if any, of the book value of the liabilities of the Person
being acquired over the book value of the assets of the Person being acquired
(each at the time immediately prior to the Acquisition) does not exceed an
aggregate amount over the period commencing on the date of this Agreement and
ending on the Revolving Maturity Date of $10,000,000; provided that any such
Acquisition may only be made if in all cases before and after giving effect to
any such Acquisition, (a) there exists no Event of Default or Potential Event of
Default and (b) the ratio of Consolidated Total Debt as at the end of the Fiscal
Quarter of the Borrower immediately preceding any such Acquisition to EBITDA as
at the end of such Fiscal Quarter of the Borrower is less than 3.50:1.00 and
such ratio remains less than 3.50:1.00 immediately after any such Acquisition;
and
(iv) the Borrower may make Investments permitted under Section
6.2(k).
(k) Investments. Make or permit to remain outstanding, or permit any
Subsidiary to make or permit to remain outstanding, any Investment, except that:
(i) the Borrower and its Subsidiaries may continue to own
Investments existing on the date hereof and set forth on Schedule 6.2(k);
(ii) the Borrower and its Subsidiaries may own, purchase or
acquire certificates of deposit issued by any Lender, commercial paper rated
Moody's P-I, municipal bonds rated Moody's AA or better, direct obligations of
the United States of America or its agencies, and obligations guaranteed by the
United States of America;
(iii) the Borrower may acquire nominal amounts of stock of
public corporations, which acquisitions shall not exceed $500,000 in the
aggregate during the term of this Agreement;
(iv) the Borrower may acquire and own stock, obligations or
securities received from customers in connection with debts created in the
ordinary course of business owing to the Borrower or a Subsidiary;
(v) the Borrower may continue to own the existing capital
stock of its Subsidiaries;
43
<PAGE> 49
(vi) the Borrower and its Subsidiaries may make or permit to
remain outstanding Investments (whether in the form of loans or capital
contributions) within the limits permitted under Section 6.2(g)(iv); and
(vii) the Borrower may make any Acquisition permitted by
Section 6.2(j).
(l) Contingent Obligations. Create or become or remain liable, or
permit any of its Subsidiaries to create or become or remain liable, with
respect to any Contingent Obligation, except that:
(i) the Borrower or its Subsidiaries may remain liable with
respect to Contingent Obligations existing on the date hereof and set forth on
Schedule 6.2(l);
(ii) the Borrower may enter into Interest Rate Agreements and
Currency Agreements that are not speculative in nature; and
(iii) the Borrower or its Subsidiaries may endorse negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
(m) Asset Sales. Convey, sell, lease, transfer or otherwise dispose
of, or permit any Subsidiary to convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, (i) all or any part
of its or its Subsidiary's business, property or fixed assets outside of the
ordinary course of business, whether now owned or hereafter acquired, or (ii)
any capital stock or debt of any of its Subsidiaries, except:
(i) the Borrower may convey, sell, lease, transfer or
otherwise dispose of business, property or fixed assets the fair market value of
which does not exceed $250,000 in the aggregate in any Fiscal Year; and
(ii) the Borrower or its Subsidiaries may convey, sell, lease,
transfer of otherwise dispose of obsolete or worn out assets.
(n) Consolidated Capital Expenditures. Commencing 1998 make, or
permit any Subsidiary to make, Consolidated Capital Expenditures in excess of
(a) if and so long as Borrower maintains a ratio of Consolidated Total Debt to
EBITDA of less than 3.5:1.0 as of the endings of Fiscal Quarters of the
Borrower, in each case determined on the basis of the Consolidated Total Debt
and EBITDA for the Fiscal Quarter of the Borrower in question and for the
immediately preceding three consecutive Fiscal Quarters of the Borrower,
$10,000,000 in any Fiscal Year of the Borrower and (b) so long as such ratio is
3.5:1.0 or greater, $2,000,000 in each Fiscal Quarter of the Borrower; provided
that the Borrower may carry over up to 50% of the Consolidated Capital
Expenditures permitted hereunder but not made in any Fiscal Year to the next
succeeding Fiscal Year so long as the Borrower is and, as a result of making
such additional Consolidated Capital Expenditures in such succeeding Fiscal Year
would remain, in compliance with each of the other financial covenants set forth
in Section 6.2.
44
<PAGE> 50
(o) Transactions with Shareholders and Affiliates. Enter into, or
permit any of its Subsidiaries to enter into, any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder of 5% or more of any class of equity securities of the
Borrower, or with any Affiliate of the Borrower or any such holder, on terms
that (when taken in the light of any related or series of transactions of which
such transaction is a part (if any)) are less favorable to the Borrower or any
such Subsidiary than those which might be obtained at the time from Persons who
are not such a holder or Affiliate.
(p) Agreements Restricting Payment of Dividends. Permit any of its
Subsidiaries to enter into any agreement restricting the ability of such
Subsidiary to declare, order, pay or make or set apart any sum for any dividends
or other distributions or repayment of intercompany Debt on account of any
shares of any class of its stock.
(q) Restrictive Agreements. Agree with any Person, or permit any of
its Subsidiaries to agree with any Person, that the Borrower or such Subsidiary
will not create, incur or suffer to exist any Liens on its properties.
(r) Payments on Debt under the Senior Unsecured Notes and
Subordinated Debt. (i) Declare, order or pay, or permit any of its Subsidiaries
to declare, order or pay, any amount of principal of, premium, if any,
liquidated damages or interest on, or redeem, purchase or retire or make any
sinking fund or similar payment, or permit any of its Subsidiaries to do any of
the foregoing, with respect to any Subordinated Debt (including any Subordinated
Debt listed in Schedule 6.2(g)) or the Senior Unsecured Notes, except that the
Borrower may make scheduled payments of interest on the Senior Unsecured Notes,
provided, that no Event of Default or Potential Event of Default has occurred
and is continuing, or would result from such payment; or (ii) amend the terms of
any agreement relating to Subordinated Debt or the Senior Unsecured Notes,
including without limitation the Indenture, except that the Borrower and any of
its Subsidiaries may amend the terms of any Subordinated Debt so long as such
amendment does not impose any additional obligations or liabilities on the
Borrower or any of its Subsidiaries or impair the rights or benefits of the
Agent or the Lenders contained therein or amend any of the subordination
provisions thereof or (iii) except as prohibited hereby fail to comply with the
terms and conditions of or governing (x) the Subordinated Debt or (y) the Senior
Unsecured Notes, including without limitation the Indenture.
(s) Sales and Lease-Backs. Become or remain liable, or permit any of
its Subsidiaries to become or remain liable, directly or indirectly, with
respect to any lease, whether an operating lease or a Capital Lease, of any
property (whether real, personal or mixed), whether now owned or hereafter
acquired, (i) which the Borrower or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person or (ii) which the
Borrower or any of its Subsidiaries intends to use for substantially the same
purpose as any other property which has been or is to be sold or transferred by
the Borrower or any of its Subsidiaries to any Person in connection with such
lease; provided that the Borrower and its Subsidiaries may become and remain
liable as lessee, guarantor or other surety with respect to any such lease if
and to the extent that the Borrower or any of its Subsidiaries would be
permitted to enter into, and remain liable under, such lease under Section
6.2(h).
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(t) Conduct of Business. Engage, or permit any of its Subsidiaries
to engage, in any business other than (i) the business engaged in by the
Borrower and its Subsidiaries on the date of this Agreement and similar or
related businesses, and (ii) such other lines of business as may be consented to
by the Lenders as provided in Section 9.1.
(u) Fiscal Year. Change its fiscal year-end from December 31.
(v) New Subsidiaries. Create any new Subsidiaries (including any new
Subsidiaries created in connection with an Acquisition permitted pursuant to
Section 6.2(j)) unless, in the case of any Subsidiary that is not a Foreign
Subsidiary, such Subsidiary executes and delivers to the Agent, for the benefit
of the Lenders, a Subsidiary Guaranty of the Obligations in substantially the
form of Exhibit G attached hereto, and a Subsidiary Security Agreement in
substantially the form of Exhibit H attached hereto, with respect to all of its
assets, and the parent of such Subsidiary grants to the Agent for the benefit of
the Lenders a first priority, perfected pledge of all of the capital stock of
such Subsidiary (but limited to 65% of Foreign Subsidiaries if the Agent
receives evidence satisfactory to it that a pledge of greater than 65% would
have material adverse tax consequences).
(w) Investments in Foreign Subsidiaries. Make, or permit any
Subsidiary to make, any Investment in any Foreign Subsidiary if, after giving
effect to such Investment, the Borrower's aggregate Investment in all Foreign
Subsidiaries would be in excess of 20% of the Borrower's consolidated total
assets (determined in accordance with GAAP).
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay (i) any installment of principal
when due hereunder, (ii) any installment of interest when due hereunder or (iii)
any other amount payable hereunder on the date when due and (in the case of this
clause (a)(iii)) such failure shall continue for three Business Days; or
(b) Any representation or warranty made by the Borrower herein or by
the Borrower or any Guarantor (or any of their respective officers) in
connection with this Agreement or the other Loan Documents to which such person
is a party shall prove to have been incorrect in any material respect when made;
or
(c) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in Sections 3.1, 6.1(b)(i)(A), (b)(i)(B), (c), (f) or 6.2
on its part to be performed or observed; or
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(d) The Borrower or any Guarantor shall fail to perform or observe
any term, covenant or agreement contained in this Agreement or any other Loan
Document to which such Person is a party other than those referred to in
Sections 7.1(a), (b), and (c) above on its part to be performed or observed and
any such failure shall remain unremedied or uncured for thirty (30) days after
the Borrower or such Guarantor (as the case may be) knows of such failure; or
(e) The Borrower or any of its Subsidiaries shall default in the
performance of or compliance with any term contained in any Loan Document other
than this Agreement and such default shall not have been remedied or waived
within any applicable grace period; or
(f) The Borrower or any of its Subsidiaries shall (A) fail to pay
any principal of, or premium or interest on, any Debt, the aggregate outstanding
principal amount of which is at least $250,000 (excluding Debt evidenced by the
Notes), when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt, or (B) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement or
instrument relating to any such Debt, when required to be performed or observed,
such failure shall continue after the applicable grace period, if any, specified
in such agreement or instrument, if the effect of such failure to perform or
observe is to accelerate, or to permit the acceleration of, the maturity of such
Debt; or
(g) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within sixty (60) days from the
entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii) and (iii) above;
or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
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(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance) equal to or greater than $500,000 and all
such judgments or decrees shall not have been vacated, discharged, or stayed or
bonded pending appeal within thirty (30) days from the entry thereof; or
(i) (i) The Borrower or any of its ERISA Affiliates shall fail to
make full payment when due of all amounts which, under the provisions of any
Pension Plan or Section 412 of the Internal Revenue Code, the Borrower or any of
its ERISA Affiliates is required to pay as contributions thereto;
(ii) any accumulated funding deficiency shall occur or exist,
whether or not waived, with respect to any Pension Plan;
(iii) the Borrower or any of its ERISA Affiliates shall enter
into any transaction which has as its principal purpose the evasion of liability
under Subtitle D of Title IV of ERISA;
(iv) (A) Any Pension Plan maintained by the Borrower or any of
its ERISA Affiliates shall be terminated within the meaning of Title IV of
ERISA, or (B) a trustee shall be appointed by an appropriate United States
district court to administer any Pension Plan, or (C) the Pension Benefit
Guaranty Corporation (or any successor thereto) shall institute proceedings to
terminate any Pension Plan or to appoint a trustee to administer any Pension
Plan, or (D) the Borrower or any of its ERISA Affiliates shall withdraw (under
Section 4063 of ERISA) from a Pension Plan, if as of the date of the event
listed in subclauses (A)-(D) above or any subsequent date, the Borrower or its
ERISA Affiliates has any liability (such liability to include any liability to
the Pension Benefit Guaranty Corporation, or any successor thereto, or to any
other party under Sections 4062, 4063 or 4064 of ERISA or any other provision of
law) resulting from or otherwise associated with the events listed in subclauses
(A)-(D) above; or
(v) As used in this Section 7.1(i) the term "accumulated
funding deficiency" has the meaning specified in Section 412 of the Internal
Revenue Code, and the terms "actuarial present value" and "benefit liabilities'
have the meanings specified in Section 4001 of ERISA; or
(j) Any Change in Control shall occur;
THEN, (i) upon the occurrence of any Event of Default described in clause (g)
above, the Commitments shall immediately terminate and all Loans hereunder with
accrued interest thereon, and all other amounts owing under this Agreement, the
Notes and the other Loan Documents shall automatically become due and payable;
and (ii) upon the occurrence of any other Event of Default, the Agent shall at
the request, or may with the consent, of the Requisite Lenders, by notice to the
Borrower, declare the Commitments to be terminated forthwith, whereupon the
Commitments shall immediately terminate, and/or, by notice to the Borrower,
declare the Loans hereunder, with accrued interest thereon, and all other
amounts owing under this Agreement, the
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Notes and the other Loan Documents to be due and payable forthwith, whereupon
the same shall immediately become due and payable and the Agent may exercise any
and all rights and remedies available at law or in equity and/or under any of
the Loan Documents. Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived.
ARTICLE VIII
THE AGENT
8.1 Authorization and Action. Each Lender hereby appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. As to any matters not
expressly provided for by this Agreement (including enforcement or collection of
the Notes), the Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Requisite Lenders, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that Agent shall not be required to
take any action which is contrary to this Agreement or any other Loan Document
or applicable law; provided, further, that the Agent shall be fully justified in
refusing to take or to continue to take any action hereunder unless it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by the Agent by reason of taking or
continuing to take any such action. The Agent shall promptly furnish to each
Lender copies of all material documents, reports, certificates, financial
statements and notices furnished to the Agent by the Borrower; provided,
however, that the Agent shall not be liable to any Lender for its failure to
provide copies of such material documents, reports, certificates, financial
statements and notices unless such failure constitutes gross negligence or
willful misconduct by the Agent.
8.2 Agent's Reliance, etc. Neither the Agent nor any of its respective
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken under or in connection with this Agreement, except for its
own gross negligence or willful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible to any Lender for the negligence
or misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. Without limitation of the generality of the foregoing, the
Agent: (i) may treat the payee of any Note as the holder thereof until the Agent
receives written notice of the assignment or transfer thereof signed by such
payee and in form satisfactory to the Agent; (ii) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made by the Borrower in or in connection with this Agreement;
(iv) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement on the
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part of the Borrower or to inspect the property (including the books and
records) of the Borrower; (v) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other instrument or document furnished pursuant hereto;
and (vi) shall incur no liability under or in respect of this Agreement by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, cable or telex) believed by it in good faith to be
genuine and signed or sent by the proper party or parties.
8.3 The Agent and Affiliates. With respect to its Commitment, the Loans
made by it and the Note issued to it, the Agent shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though the Agent were not the Agent; and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated, include the Agent in its individual
capacity. The Agent and its affiliates may accept deposits from, lend money to,
act as trustee under indentures of, and generally engage in any kind of business
with, the Borrower, any of its subsidiaries and any Person who may do business
with or own securities of the Borrower or any such subsidiary, all as if it were
not the Agent and without any duty to account therefor to the Lenders.
8.4 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements referred to in Section 5.1(e) and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent,
except as to the delivery of documents required to be delivered to each Lender
pursuant to the terms hereof, or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement.
8.5 Indemnification. Without limiting the obligations of the Borrower
hereunder, the Lenders agree to indemnify the Agent (to the extent not
reimbursed by the Borrower or any Guarantor), ratably according to the
respective principal amounts outstanding under the Notes then held by each of
them (or if no Notes are at the time outstanding or if any Notes are held by
Persons which are not Lenders, ratably according to the respective amounts of
their Commitments), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, but subject to the proviso to
the preceding sentence each Lender agrees to reimburse the Agent promptly upon
demand for its ratable share of any reasonable out-of-pocket expenses (including
counsel fees and out-of-pocket expenses) incurred by the Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or
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responsibilities under, this Agreement, to the extent that the Agent is not
reimbursed for such expenses by the Borrower or any Guarantor.
8.6 Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Borrower and the Lenders and may be removed at any time
with or without cause by the Requisite Lenders. Upon any such resignation or
removal, the Requisite Lenders shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Requisite
Lenders, and shall have accepted such appointment, within thirty (30) days after
the retiring Agent's giving of notice of resignation or the Requisite Lenders'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a commercial bank organized
under the laws of the United States of America or of any State thereof. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Amendments, etc. No amendment or waiver of any provision of the Loan
Documents nor consent to any departure by the Borrower or any Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Borrower and the Lenders having at least 51% of the sum of (x)
the aggregate principal amount of Loans outstanding and (y) the aggregate
principal amount of the unused portion of the Revolving Commitment; and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all the Lenders, do any
of the following: (a) waive any of the conditions specified in Sections 4.1 and
4.2 or modify Section 9.7, (b) increase the Commitments of the Lenders, (c)
reduce the principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, (d) postpone any date fixed for any payment (including any
mandatory prepayment pursuant to Section 2.4) of principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, (e) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Notes, or the number of Lenders, which shall be required for the Lenders or any
of them to take any action hereunder (f) release any Guarantor or release any
material portion of the Collateral, or (g) amend this Section 9.1; and provided,
further, that no amendment, waiver or consent shall, unless in writing and
signed by the Agent in addition to the Lenders required above to take such
action, affect the rights or duties of the Agent under this Agreement or any
other Loan Document.
9.2 Notices, etc. Except as otherwise set forth in this Agreement, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex or
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facsimile communication) and mailed or telegraphed or telexed or sent by
facsimile or delivered, if to the Borrower, at its address set forth on the
signature page hereof; and if to any Lender or the Agent, at its address set
forth on the signature page hereof; or, as to each party, at such other address
as shall be designated by such party in a written notice to the other parties.
All such notices and communications shall be effective three (3) Business Days
after deposit in the U.S mail, postage prepaid, when sent by telex or sent by
facsimile, or when delivered, respectively, except that notices and
communications to the Agent pursuant to Article II or VII shall not be effective
until received by the Agent.
9.3 Right of Setoff; Deposit Accounts. Upon and after the occurrence of
any Event of Default, each Lender is hereby authorized by the Borrower, at any
time and from time to time, without notice, (a) to set off against, and to
appropriate and apply to the payment of, the obligations and liabilities of the
Borrower under the Loan Documents (whether matured or unmatured, fixed or
contingent or liquidated or unliquidated) any and all amounts owing by such
Lender to the Borrower (whether payable in Dollars or any other currency,
whether matured or unmatured, and, in the case of deposits, whether general or
special, time or demand and however evidenced) and (b) pending any such action,
to the extent necessary, to hold such amounts as collateral to secure such
obligations and liabilities and to return as unpaid for insufficient funds any
and all checks and other items drawn against any deposits so held as such Lender
in its sole discretion may elect. The Borrower hereby grants to each Lender a
security interest in all deposits and accounts maintained with that Lender. The
rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of set-off) which such Lender may have.
9.4 No Waiver; Remedies. No failure on the part of the Agent or any Lender
to exercise, and no delay in exercising, any right under any of the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
9.5 Costs and Expenses. The Borrower agrees to pay on demand all
reasonable fees and out-of-pocket costs and expenses of the Agent (including the
fees and out-of-pocket expenses of local or foreign counsel) in connection with
the preparation, amendment, or modification of the Loan Documents. The Borrower
agrees to pay on demand all fees and out-of-pocket costs and expenses of the
Agent and each Lender (including the fees and out-of-pocket expenses of local or
foreign counsel) in connection with the enforcement (including in appellate,
bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar
proceedings) or restructuring of the Loan Documents or "work-out" of the
Obligations whether or not such work-out or restructuring is consummated.
9.6 Additional Lenders; Assignments; Participations.
(a) Any Lender may assign, from time to time, all or any portion of
its Commitments or its Loans and its Notes to an Affiliate of that Lender or to
a Federal Reserve Bank or, subject to the prior written approval of the Borrower
(which approval will not be
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unreasonably withheld or delayed and may be evidenced by the Borrower's
execution of an Assignment Agreement), to any other financial institution or any
fund that is regularly engaged in making, purchasing or investing in loans
reasonably acceptable to the Agent, by executing and delivering an Assignment
Agreement in substantially the form of Exhibit I annexed hereto, provided the
assigning Lender or the assignee has paid to the Agent a registration and
processing fee in the amount of $2,500. From and after the effective date of
such assignment (i) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it, have the
rights and obligations of a Lender hereunder and (ii) the Lender assignor
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it (other than to an Affiliate or to a Federal Reserve Bank),
relinquish its rights and be released from its obligations under this Agreement
(other than pursuant to Section 9.6(e)), and, in the case of an assignment
covering all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party hereto,
subject to its continuing obligations under Section 9.6(e) (other than to an
Affiliate or to a Federal Reserve Bank). The Commitments hereunder and Annex I
hereto shall be modified to reflect the Commitment of such assignee as provided
in Section 9.6(f) and (g), and, if any such assignment occurs while any Notes
are outstanding, new Notes shall, upon the surrender of the assigning Lender's
Notes, be issued to such assignee and to the assigning Lender as necessary to
reflect the new Commitments of the assigning Lender and of its assignee.
(b) Each Lender may sell, negotiate or grant participations to other
financial institutions in all or part of the obligations of the Borrower
outstanding under the Loan Documents, without notice to or the approval of the
Agent or the Borrower; provided that any such sale, negotiation or participation
shall be in compliance with the applicable federal and state securities laws and
the other requirements of this Section 9.6. No participant shall constitute a
"Lender" under any Loan Document, and the Borrower shall continue to deal solely
and directly with the Agent and the Lenders.
(c) Each Lender may disclose to any proposed assignee or participant
any information relating to the Borrower or any of its Subsidiaries; provided,
that prior to such disclosure such proposed assignee or participant shall have
agreed in writing to keep any such information confidential substantially on the
terms of Section 9.6(e).
(d) The grant of a participation interest shall be on such terms as
the granting Lender determines are appropriate, provided only that (i) the
holder of such a participation interest shall not have any of the rights of a
Lender under this Agreement except, if the participation agreement so provides,
rights to demand the payment of costs of the type described in Article III, to
the extent that the grantor of the participation would otherwise be entitled to
demand such payments, and rights to receive information provided by the Borrower
from time to time pursuant to Sections 6.1 (a) and (b) hereof, (ii) the consent
of the holder of such a participation interest shall not be required for
amendments or waivers of provisions of the Loan Documents other than those that
(A) increase the amount of the Commitments, (B) extend the term of the
Commitments in which such participant participates, (C) decrease the rate of
interest or the amount of any fee or any other amount payable to the Lenders
under the Loan Documents in which such participant participates, (D) reduce the
principal amount payable under the Loan
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Documents in which such participant participates, or (E) extend the date fixed
for the payment of principal or interest or any other amount payable under the
Loan Documents in which such participant participates, and (iii) no Lender shall
grant participation interests to more than 2 additional financial institutions.
(e) Each Lender understands that some of the information and
documents furnished to it pursuant to this Agreement may be confidential and
each Lender agrees that it will keep all non-public information, documents and
agreements so furnished to it (and identified as confidential) confidential in
accordance with its customary procedures and will make no disclosure to other
Persons of such information or agreements until it shall have become public,
except (i) to the extent required in connection with matters involving
operations under or enforcement or amendment of the Loan Documents; (ii) to such
Lender's examiners and auditors or in accordance with such Lender's obligations
under law or regulations or pursuant to subpoenas or other process to make
information available to governmental agencies and examiners or to others; (iii)
to any corporate parent of any Lender so long as such parent agrees to accept
such information or agreement subject to the restrictions provided in this
Section 9.6(e); (iv) to any participant bank or trust company of any Lender so
long as such participant shares the corporate parent with such Lender and agrees
to keep such information, documents or agreement confidential in accordance with
the restrictions provided in this Section 9.6(e); (v) to the Agent or to any
other Lender and their respective counsel and other professional advisors and to
its own counsel and professional advisors so long as such Persons are instructed
to keep such information confidential in accordance with the provisions of this
Section 9.6(e); (vi) to proposed assignees and participants in accordance with
Section 9.6(c); and (vii) with the prior written consent of the Borrower.
(f) The Agent, on behalf of the Borrower, shall maintain at the
address of the Agent specified herein (or at such other address as may be
designated by the Agent from time to time in accordance with Section 9.2) a copy
of each Assignment Agreement delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders and the Commitment of
and principal amount of the Loans owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Lenders shall treat each Person whose name
is recorded in the Register as the owner of a Loan or other obligation hereunder
as the owner thereof for all purposes of this Agreement and the other Loan
Documents, notwithstanding any notice to the contrary. Any assignment of any
Loan or other obligation hereunder shall be effective only upon appropriate
entries with respect thereto being made in the Register. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(g) Upon its receipt of an Assignment Agreement executed by an
assigning Lender and its assignee (and consented to by the Borrower (such
consent not to be unreasonably withheld)) together with payment to the Agent of
the registration and processing fee described in Section 9.6(a), the Agent shall
record the information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower. Immediately upon the
recordation of such information in the Register, this Agreement shall be deemed
to be
54
<PAGE> 60
amended to the extent, but only to the extent, necessary to reflect the addition
of the assignee and the resulting adjustment of the Commitments arising
therefrom, and (i) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment Agreement, shall have the rights of a Lender under the Loan
Documents and (ii) the assigning Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment Agreement, relinquish its rights and be released
from its obligations under the Loan Documents. The Commitment allocated to each
assignee shall reduce such Commitments of the assigning Lender pro tanto.
9.7 Effectiveness; Binding Effect; Governing Law. This Agreement shall
become effective when it shall have been executed by the Borrower, the Agent and
each Lender and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agent, each Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of any Agent and all of
the Lenders. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS
CHOICE OF LAW DOCTRINE.
9.8 Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER
SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY OR IN
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER
HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER IRREVOCABLY CONSENTS TO
THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL
SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY
AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY
SUCH LITIGATION HAS
55
<PAGE> 61
BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
9.9 Waiver of Jury Trial. THE AGENT AND THE LENDERS AND THE BORROWER
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE AGENT, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS
ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
9.10 Entire Agreement. This Agreement with Exhibits and Schedules and the
other Loan Documents embody the entire agreement and understanding between the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof.
9.11 Separability of Provisions. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
9.12 Obligations Several. The obligation of each Lender hereunder is
several, and no Lender shall be responsible for the obligation or commitment of
any other Lender hereunder. Nothing contained in this Agreement and no action
taken by the Lenders pursuant hereto shall be deemed to constitute the Lenders
to be a partnership, an association, a joint venture or any other kind of
entity.
9.13 Survival of Certain Agreements. Notwithstanding anything in this
Agreement or implied by law to the contrary, the agreements of the Borrower set
forth in Sections 3.6, 3.7, 3.11, 3.14 and 9.5 and the agreements of the Lenders
set forth in Sections 3.9, 3.10, 8.2, 8.5 and 9.3 shall survive the payment of
the Loans and the Notes and the termination of this Agreement.
56
<PAGE> 62
9.14 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement; signature
pages may be detached from counterpart documents and reassembled to form
duplicate executed originals.
9.15 Intercreditor Agreements with Customers. The Agent shall on behalf of
the Lenders at the request of the Borrower from time to time enter into
intercreditor agreements with the customers of the Borrower who have made
advance deposits for the purchase of inventory. Such agreements shall: (i) be in
a form acceptable to the Agent in the exercise of its reasonable commercial
judgment; (ii) permit the Borrower to deposit the customer's advance into a
separate deposit account which will be subject to a security interest solely in
favor of such customer; (iii) permit such customer to have a first priority
perfected security interest in the inventory purchased with such customer's
deposit; and (iv) include such other terms as are mutually agreeable.
57
<PAGE> 63
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PHASE METRICS, INC.
By: /s/ R. J. Saunders
----------------------------------------
Title: Vice President - Finance
Address:
10260 Sorrento Valley Road
San Diego, California 92121
Telephone: (619) 646-4850
Telecopier: (619) 646-4990
Attention: R. Joseph Saunders
THE AGENT:
FLEET NATIONAL BANK
By: /s/ Fleet National Bank
-----------------------------------------
Title: Vice President
Address:
One Federal Street
Boston, Massachusetts 02110
Mail Stop: MA OF DO7A
Telephone: (617) 346-0029
Telecopier: (617) 346-1633
Attention: Mathew Glauninger (credit matters)
Attention: Kathy Connell (operations matters)
58
<PAGE> 64
THE LENDERS:
FLEET NATIONAL BANK
By: /s/ Fleet National Bank
-----------------------------------------
Title: Vice President
Address:
One Federal Street
Boston, Massachusetts 02110
Mail Stop: MA OF DO7A
Telephone: (617) 346-0029
Telecopier: (617) 346-1633
Attention: Mathew Glauninger (credit matters)
Attention: Kathy Connell (operations matters)
IMPERIAL BANK
By: /s/ Imperial Bank
-----------------------------------------
Title:
Address:
701 B Street, 6th Fl.
San Diego, California 92101
Telephone: (619) 338-1501
Telecopier: (619) 234-2234
Attention: Steven Cusato
59
<PAGE> 65
ANNEX I
<TABLE>
<CAPTION>
Lender Revolving Commitment
- ------ --------------------
<S> <C>
Fleet National Bank $12,500,000
Imperial Bank $12,500,000
Total $25,000,000
- ----- -----------
</TABLE>
A-1
<PAGE> 66
EXHIBIT A
PHASE METRICS, INC.
REVOLVING PROMISSORY NOTE
San Diego, California
$______________________ ________________,____
FOR VALUE RECEIVED, PHASE METRICS, INC., a Delaware corporation (the
"Borrower"), promises to pay to the order of ________________________ (the
"Lender") the principal amount of _______________($____________) or, if less,
the aggregate amount of Revolving Loans (as defined in the Credit Agreement
referred to below) made by the Lender to the Borrower pursuant to the Credit
Agreement referred to below and outstanding on the Revolving Maturity Date (as
defined in the Credit Agreement referred to below) which shall be paid on the
Revolving Maturity Date. This Note amends and restates that certain revolving
promissory note of the Borrower payable to the order of the Lender dated
December 4, 1996.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
office of the Agent described in the Credit Agreement. Until notified of the
transfer of this Note, the Borrower shall be entitled to deem the Lender or such
person who has been so identified by the transferor in writing to the Borrower
as the holder of this Note, as the owner and holder of this Note. Each of the
Lender and any subsequent holder of this Note agrees that before disposing of
this Note or any part hereof it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid on the schedule attached hereto, if any; provided, however, that the
failure to make notation of any payment made on this Note shall not limit or
otherwise affect the obligation of the Borrower hereunder with respect to
payments of principal or interest on this Note.
This Note is referred to in, and is entitled to the benefits of, the
Amended and Restated Credit Agreement dated as of January 30, 1998, as same may
hereafter be amended, restated or modified (the "Credit Agreement") among the
Borrower, the financial institutions named therein and Fleet National Bank, as
Agent. The Credit Agreement, among other things, (i) provides for the making of
advances (the "Loans") by the Lender to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Loan being evidenced by this Note, and (ii) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
-A-2-
<PAGE> 67
The terms of this Note are subject to amendment only in the manner
provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligation of the Borrower,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees and the out-of-pocket expenses of counsel, incurred in the
collection and enforcement of this Note. The Borrower hereby consents to
renewals and extensions of time at or after the maturity hereof, without notice,
and hereby waives diligence, presentment, protest, demand and notice of every
kind and, to the full extent permitted by law, the right to plead any statute of
limitations as a defense to any demand hereunder.
This Note shall be governed by, and construed in accordance with, the laws
of the state of New York without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
Phase Metrics, Inc.
By
------------------------------------
Title
---------------------------------
-A-3-
<PAGE> 68
TRANSACTIONS
ON NOTE
Date Amount Amount Principal Interest Interest Notation
of Loan of Balance Paid Paid Made by
Made Principal Through
Paid
<PAGE> 69
EXHIBIT B
[INTENTIONALLY OMITTED]
<PAGE> 70
EXHIBIT C
[FORM OF NOTICE OF BORROWING]
NOTICE OF BORROWING
Pursuant to that certain Amended and Restated Credit Agreement dated as of
January 30, 1998, as amended, restated or otherwise modified to the date hereof
(said Amended and Restated Credit Agreement, as so amended, restated or
otherwise modified, being the "Credit Agreement," the terms defined therein and
not otherwise defined herein being used herein as therein defined), by and among
Phase Metrics, Inc., a Delaware corporation, (the "Borrower"), the financial
institutions listed therein as Lenders ("Lenders") and Fleet National Bank, as
Agent ("Agent"), this represents Borrower's request to borrow on
_________________, 199_ from Lenders, in accordance with their respective
commitment, $___________________ in Revolving Loans as [Prime/LIBO] Rate Loans.
[The initial Interest Period for such Loans is requested to be a _______________
month period.] The proceeds of such Loans are to be deposited in the Borrower's
Account.
The undersigned officer, to the best of his knowledge, on behalf of the
Borrower, certifies that:
(i) The representations and warranties contained in the Credit Agreement
and the other Loan Documents are true and correct in all material respects on
and as of the date hereof to the same extent as though made on and as of the
date hereof, except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties were true and correct in all material respects on and as of such
earlier date;
(ii) No event has occurred and is continuing or would result from the
consummation of the borrowing contemplated hereby that would constitute an Event
of Default or a Potential Event of Default;
(iii) All Loan Documents are in full force and effect; and
(iv) Based on information available to the Borrower as of the date of such
requested Borrowing, the Borrower represents and warrants that (x) the amount of
such Borrowing, when added to all Revolving Loans then outstanding, will not
exceed the Borrowing Base and (y) the Borrower is, as of the date of the
Borrowing, and is projected to be, as of the last day of the next ending Fiscal
Quarter, in minimum compliance with the financial covenants and other
restrictions as set forth in Section 6.2.
-C-1-
<PAGE> 71
DATED:
--------------------------
PHASE METRICS, INC.
By
-----------------------------------------
Title
---------------------------------------
-C-2-
<PAGE> 72
EXHIBIT D
[FORM OF NOTICE OF CONVERSION/CONTINUATION]
NOTICE OF CONVERSION/CONTINUATION
Pursuant to that certain Amended and Restated Credit Agreement dated as of
January 30, 1998, as amended, restated or otherwise modified to the date hereof
(said Amended and Restated Credit Agreement, as so amended, restated or
otherwise modified, being the "Credit Agreement," the terms defined therein and
not otherwise defined herein being used herein as therein defined), by and among
Phase Metrics, Inc., a Delaware corporation (the "Borrower"), the financial
institutions listed therein as Lenders and Fleet National Bank, as Agent, this
represents the Borrower's request to [Select A or B with appropriate insertions
and deletions: [A: convert $_________ principal amount of presently outstanding
Revolving Loans that are [Prime/LIBO] Rate Loans [having an Interest Period that
expires on ___________________ 199_] to [Prime/LIBO] Rate Loans on
___________________ 199_. [The initial Interest Period for such [LIBO] Rate
Loans is requested to be a ________________ month period.] [B: continue as
[LIBO] Rate Loans $_______________ in principal amount of presently outstanding
Revolving Loans having an Interest Period that expires on ____________ 199_. The
Interest Period for such [LIBO] Rate Loans commencing on ____________ 199_ is
requested to be a ____________ month period.]
[For Conversions to or Continuations of LIBO Rate Loans Only: The
undersigned officer, to the best of his/her knowledge, on behalf of the
Borrower, certifies that no Event of Default or Potential Event of Default
has occurred and is continuing under the Credit Agreement.]
DATED:
--------------------------
PHASE METRICS, INC.
By
-----------------------------------------
Title
---------------------------------------
-D-1-
<PAGE> 73
EXHIBIT E
[Letterhead of Brobeck Phleger & Harrison LLP]
[TO BE PROVIDED]
-E-1-
<PAGE> 74
EXHIBIT F
[FORM OF COMPLIANCE CERTIFICATE]
COMPLIANCE CERTIFICATE
I. This Compliance Certificate ("Compliance Certificate") is executed and
delivered by Phase Metrics, Inc., a Delaware corporation (the "Borrower") to
Fleet National Bank (the "Agent") pursuant to Section 6.1(a)(iv)(B) of the
Amended and Restated Credit Agreement dated as of January 30, 1998 among the
Borrower, the financial institutions named therein, and the Agent (the "Credit
Agreement"). Any terms used herein and not defined herein shall have the
meanings defined in the Credit Agreement. This Compliance Certificate covers the
Borrower's:
Fiscal Quarter ended ______________, 19__
Fiscal Year ended ______________, 19__
The following paragraphs set forth calculations in compliance with
obligations pursuant to Section 6.2(a), (c), (d), (e), (e)(e), (g), (h), (j),
(m) and (n) of the Credit Agreement, as of the end of the appropriate fiscal
period set forth in paragraph 1 hereof.
A. Consolidated Net Worth (Sec. 6.2(a)) - March 31, 1999 and
thereafter:
1. Consolidated Net Worth $ ___________
2. (a) Consolidated Net Worth at
12/31/98 x 120% = $ ___________
(b) 75% of cumulative Consolidated
Net Income for each Fiscal
Quarter of the Borrower
commencing with the Fiscal $ ___________
Quarter ending March 31, 1999
(c) 100% of the Net Proceeds of any
Equity Issuance by the Borrower $ ___________
after the date of the Credit
Agreement
(d) 100% of the increase in
shareholders' equity as a result
of any conversion of Subordinated $_____________
Debt to capital stock
3. (a)+(b)+(c)+(d) $_____________
Required: 1 > 3 $_____________
-F-1-
<PAGE> 75
B. [Intentionally Omitted]
C. Leverage Ratio (Sec. 6.2(c)) - March 31, 1999 and thereafter:
(a) Consolidated Total Debt $_____________
(b) EBITDA $_____________
Ratio (a) to (b) ______________
Maximum Permitted Ratio ______________
D. Interest Coverage Ratio (Sec. 6.2(d)) - March 31, 1999 and
thereafter:
(a) EBITDA $_____________
(b) Interest Expense $_____________
Ratio (a) to (b) ______________
Minimum Permitted Ratio ______________
E. Minimum EBITDA (Sec. 6.2(e)) - March 31, 1998 and thereafter:
Required > $__________ for Fiscal
Quarter in question; and > $__________ $_____________
for Fiscal Quarter in question and 3 Fiscal Quarter
preceding Fiscal Quarters $_____________
4 Fiscal Quarters
E.E. Minimum Profitability (Sec. 6.2 (e)(e)) - 1999 and thereafter
Fiscal Quarters only:
Consolidated Net Income
(a) for most recent Fiscal Quarter $_____________
(b) immediately preceding Fiscal $_____________
Quarter
(c) 2nd preceding Fiscal Quarter $_____________
(d) third preceding Fiscal Quarter $_____________
F. Debt (Sec. 6.2(g):
-F-2-
<PAGE> 76
Debt from Foreign Subsidiaries
Permitted: < $10,000,000 $_____________
G. Lease Obligations (Sec. 6.2(h)):
Operating Lease Obligations of the
Borrower and subsidiaries in the
current Fiscal Year $_____________
Required: < $7,000,000 indexed </= 5%
per year
H. Acquisitions (Sec. 6.2(j)):
(a) Cash consideration for
Acquisitions made $_____________
(b) Book value of liabilities acquired $_____________
(c) Book value of assets acquired $_____________
(d) $10,000,000
Required: (a)+absolute value of
[(b)-(c)] < (d)
Permitted: Aggregate $10,000,000 if in
compliance with (j) below
(e) Consolidated Total Debt at most recent
Fiscal Quarter ending $____________
(f) EBITDA at most recent Fiscal Quarter $____________
ending
(g) Ratio (e) to (f) ___:1.00
(h) Consolidated Total Debt after $____________
Acquisition
(i) EBITDA after Acquisition $____________
(j) Ratio (h) to (i) ___:1.00
Required (g) and (j) < 3.50:1.00
-F-3-
<PAGE> 77
I. Asset Sales (Sec. 6.2(m)):
Fair market value of assets sold in
current Fiscal Year $_____________
Permitted: < $250,000
J. Consolidated Capital Expenditures (Sec. 6.2(n)):
(a) So long as rolling 4-Fiscal Quarter Ratio of
Consolidated Total Debt to EBITDA is < 3.5:1.0:
Consolidated Capital Expenditures
of the Borrower and its Subsidiaries for
the current Fiscal Year $_____________
Permitted: $10,000,000 in each Fiscal
Year plus unused permitted
carryover from previous
Fiscal Year ($_____)
(b) If said ratio is 3.5:1.0 or greater:
Consolidated Capital Expenditures of
the Borrower for the current Fiscal
Quarter $_____________
Permitted: $2,000,000 plus unused
permitted carryover from
previous Fiscal Year
($____)
3. The undersigned agrees to furnish to the Administrative Agent, promptly
upon the request of any Lender, any additional information regarding the
calculations set forth in this Compliance Certificate.
4. The undersigned has reviewed the terms of the Credit Agreement and has
made, or caused to be made under his/her supervision, a review in reasonable
detail of the transactions and condition of the Borrower and its Subsidiaries
during the fiscal period covered by this Compliance Certificate. The undersigned
does not (either as a result of such review or otherwise) have any knowledge of
the existence as of the date of this Compliance Certificate of
-F-4-
<PAGE> 78
any condition or event that constitutes an Event of Default or a Potential Event
of Default, with the exception set forth below in response to which the Borrower
is taking or proposes to take the following actions (if none, so state):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. This Compliance Certificate is executed on ______________________ by
the Chief Executive Officer, Chief Financial Officer, Treasurer or Controller of
the Borrower. The undersigned hereby certifies on behalf of the Borrower that
each and every matter contained herein is derived from the Borrower's books and
records and is, to the best knowledge of the undersigned, true and correct.
PHASE METRICS, INC.
a Delaware corporation
By:
---------------------------------------
Title:
---------------------------------------
-F-5-
<PAGE> 79
EXHIBIT G
FORM OF GUARANTY
This GUARANTY is entered into as of ___________, ____ by ________________
("Guarantor"), in favor of and for the benefit of Fleet National Bank, as
administrative agent for the Lenders (as hereinafter defined) ("Administrative
Agent") party to the Credit Agreement (as hereinafter defined).
RECITALS
A. Phase Metrics, Inc., a [California corporation] [a Delaware corporation
and the successor by merger to Phase Metrics, Inc., a California corporation]
(the "Borrower"), certain financial institutions (each, a "Lender" and
collectively, the "Lenders"), [DLJ Capital Funding, Inc., as Syndication Agent]
and Fleet National Bank, as Administrative Agent for the Lenders, have entered
into a Credit Agreement dated as of [December 4, 1996] (said Credit Agreement,
as it may hereafter be amended from time to time, being the "Credit Agreement,"
the terms defined therein and not otherwise defined herein being used herein as
therein defined), pursuant to which the Administrative Agent and the Lenders
have made certain commitments, subject to the terms and conditions set forth in
the Credit Agreement, to extend certain credit facilities to the Borrower.
B. Guarantor is a wholly-owned subsidiary of the Borrower. It is a
condition of the Credit Agreement that the Borrower will cause Guarantor to
enter into a Guaranty guaranteeing the obligations of the Borrower under the
Credit Agreement, and a Security Agreement granting to the Administrative Agent
a security interest in all of Guarantor's assets.
C. It is in Guarantor's best interest that the Lenders agree to continue
to extend credit to the Borrower, in order that the Borrower can advance funds
to Guarantor, and in order that the Borrower remains a viable corporation which
has the financial ability to provide operational and other support to Guarantor.
Accordingly, Guarantor desires to guaranty all of the obligations of the
Borrower under the Credit Agreement and to undertake the obligations
contemplated by this Agreement.
NOW, THEREFORE, based upon the foregoing and in order to induce Lenders
and Administrative Agent to continue to make credit available to the Borrower,
Guarantor hereby agrees as follows:
SECTION 1. DEFINITIONS
1.1. Certain Defined Terms. As used in this Guaranty, the following terms
shall have the following meanings unless the context otherwise requires:
-G-1-
<PAGE> 80
"Guarantied Obligations" has the meaning assigned to that term in
subsection 2.1.
"Guaranty" means this Guaranty dated as of December 1996 as it may be
amended, supplemented or otherwise modified from time to time.
"Payment in full", "paid in full" or any similar term means payment in
full in cash of the Guarantied Obligations including, without limitation, all
principal, interest, costs, fees and expenses (including, without limitation,
legal fees and expenses) of Lenders and Administrative Agent as required under
the Loan Documents.
1.2. Interpretation.
(a) References to "Sections" and "subsections" shall be to Sections
and subsections, respectively, of this Guaranty unless otherwise specifically
provided.
(b) In the event of any conflict or inconsistency between the terms,
conditions and provisions of this Guaranty and the terms, conditions and
provisions of the Credit Agreement, the terms, conditions and provisions of this
Guaranty shall prevail.
SECTION 2. THE GUARANTY
2.1. Guaranty of the Guarantied Obligations. Subject to the provisions of
subsection 2.2(a), Guarantor hereby irrevocably and unconditionally guaranties,
as primary obligor and not merely as surety, the due and punctual payment in
full of all Guarantied Obligations when the same shall become due, whether at
stated maturity, by required prepayment, declaration, acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section
362(a)). The term "Guarantied Obligations" is used herein in its most
comprehensive sense and includes:
(a) any and all Obligations of the Borrower and each other Obligor
in respect of notes, advances, borrowings, loans, debts, interest, fees, costs,
expenses (including, without limitation, legal fees and expenses of counsel and
allocated costs of internal counsel), indemnities and liabilities of whatsoever
nature now or hereafter made, incurred or created, whether absolute or
contingent, liquidated or unliquidated, whether due or not due, and however
arising under or in connection with the Credit Agreement and the other Loan
Documents, including those arising under successive borrowing transactions under
the Credit Agreement which shall either continue the Obligations of the Borrower
or an Obligor or from time to time renew them after they have been satisfied;
and
(b) those expenses set forth in subsection 2.8 hereof.
2.2. Limitation on Amount Guarantied; Contribution by Guarantor. (a)
Anything contained in this Guaranty to the contrary notwithstanding, the
obligations of Guarantor
-G-2-
<PAGE> 81
hereunder shall be limited to a maximum aggregate amount equal to the largest
amount that would not render its obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the United
States Code or any applicable provisions of comparable state law (collectively,
the "Fraudulent Transfer Laws"), in each case after giving effect to all other
liabilities of Guarantor, contingent or otherwise, that are relevant under the
Fraudulent Transfer Laws (specifically excluding, however, any liabilities of
Guarantor (x) in respect of intercompany indebtedness to the Borrower or other
affiliates of the Borrower to the extent that such indebtedness would be
discharged in an amount equal to the amount paid by Guarantor hereunder and (y)
under any guaranty of Subordinated Debt which guaranty contains a limitation as
to maximum amount similar to that set forth in this subsection 2.2(a), pursuant
to which the liability of Guarantor hereunder is included in the liabilities
taken into account in determining such maximum amount) and after giving effect
as assets to the value (as determined under the applicable provisions of the
Fraudulent Transfer Laws) of any rights to subrogation or contribution of
Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an
equitable allocation among Guarantor and other affiliates of the Borrower of
obligations arising under guaranties by such parties.
(b) Guarantor under this Guaranty, and each guarantor under other
guaranties relating to the Credit Agreement (the "Related Guaranties") which
contain a contribution provision similar to that set forth in this subsection
2.2(b), together desire to allocate among themselves (collectively, the
"Contributing Guarantors"), in a fair and equitable manner, their obligations
arising under this Guaranty and the Related Guaranties. Accordingly, in the
event any payment or distribution is made by Guarantor under this Guaranty or a
guarantor under a Related Guaranty (a "Funding Guarantor") that exceeds its Fair
Share (as defined below), that Funding Guarantor shall be entitled to a
contribution from each of the other Contributing Guarantors in the amount of
such other Contributing Guarantor's Fair Share Shortfall (as defined below),
with the result that all such contributions will cause each Contributing
Guarantor's Aggregate Payments (as defined below) to equal its Fair Share. "Fair
Share" means, with respect to a Contributing Guarantor as of any date of
determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum
Amount (as defined below) with respect to such Contributing Guarantor to (y) the
aggregate of the Adjusted Maximum Amounts with respect to all Contributing
Guarantors, multiplied by (ii) the aggregate amount paid or distributed on or
before such date by all Funding Guarantors under this Guaranty and the Related
Guaranties in respect of the obligations guarantied. "Fair Share Shortfall"
means, with respect to a Contributing Guarantor as of any date of determination,
the excess, if any, of the Fair Share of such Contributing Guarantor over the
Aggregate Payments of such Contributing Guarantor. "Adjusted Maximum Amount"
means, with respect to a Contributing Guarantor as of any date of determination,
the maximum aggregate amount of the obligations of such Contributing Guarantor
under this Guaranty and the Related Guaranties, determined in accordance with
subsection 2.2(a) or, if applicable, a similar provision contained in a Related
Guaranty; provided that, solely for purposes of calculating the "Adjusted
Maximum Amount" with respect to any Contributing Guarantor for purposes of this
subsection 2.2(b), the assets or liabilities arising by virtue of any rights to
or obligations of contribution hereunder or under any similar provision
contained in a Related Guaranty shall not be considered as assets or liabilities
of such Contributing Guarantor. "Aggregate Payments" means, with respect to a
Contributing Guarantor
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as of any date of determination, the aggregate amount of all payments and
distributions made on or before such date by such Contributing Guarantor in
respect of this Guaranty and the Related Guaranties (including, without
limitation, in respect of this subsection 2.2(b) or any similar provision
contained in a Related Guaranty). The amounts payable as contributions hereunder
and under similar provisions in the Related Guaranties shall be determined as of
the date on which the related payment or distribution is made by the applicable
Funding Guarantor. The allocation among Contributing Guarantors of their
obligations as set forth in this subsection 2.2(b) or any similar provision
contained in a Related Guaranty shall not be construed in any way to limit the
liability of any Contributing Guarantor hereunder or under a Related Guaranty.
Each Contributing Guarantor under a Related Guaranty is a third party
beneficiary to the contribution agreement set forth in this subsection 2.2(b).
2.3. Liability of Guarantor Absolute. Guarantor agrees that its
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than indefeasible payment in
full of the Guarantied Obligations. In furtherance of the foregoing and without
limiting the generality thereof, Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment when due and not of
collectibility.
(b) The Administrative Agent may enforce this Guaranty upon the
occurrence of an Event of Default under the Credit Agreement notwithstanding the
existence of any dispute between Lenders and the Borrower with respect to the
existence of such Event of Default.
(c) The obligations of Guarantor hereunder are independent of the
obligations of the Borrower under the Loan Documents and the obligations of any
other guarantor of the obligations of the Borrower under the Loan Documents, and
a separate action or actions may be brought and prosecuted against Guarantor
whether or not any action is brought against the Borrower or any of such other
guarantors and whether or not the Borrower is joined in any such action or
actions.
(d) Guarantor's payment of a portion, but not all, of the Guarantied
Obligations shall in no way limit, affect, modify or abridge Guarantor's
liability for any portion of the Guarantied Obligations which has not been paid.
Without limiting the generality of the foregoing, if the Administrative Agent is
awarded a judgment in any suit brought to enforce Guarantor's covenant to pay a
portion of the Guarantied Obligations, such judgment shall not be deemed to
release Guarantor from its covenant to pay the portion of the Guarantied
Obligations that is not the subject of such suit.
(e) The Administrative Agent or any Lender, upon such terms as it
deems appropriate, without notice or demand and without affecting the validity
or enforceability of this Guaranty or giving rise to any reduction, limitation,
impairment, discharge or termination of Guarantor's liability hereunder, from
time to time may (i) renew, extend, accelerate, increase the rate of interest
on, or otherwise change the time, place, manner or terms of payment of the
Guarantied Obligations, (ii) settle, compromise, release or discharge, or accept
or refuse any
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offer of performance with respect to, or substitutions for, the Guarantied
Obligations or any agreement relating thereto and/or subordinate the payment of
the same to the payment of any other obligations; (iii) request and accept other
guaranties of the Guarantied Obligations and take and hold security for the
payment of this Guaranty or the Guarantied Obligations; (iv) release, surrender,
exchange, substitute, compromise. settle, rescind, waive, alter, subordinate or
modify, with or without consideration, any security for payment of the
Guarantied Obligations, any other guaranties of the Guarantied Obligations, or
any other obligation of any Person with respect to the Guarantied Obligations;
(v) enforce and apply any security now or hereafter held by or for the benefit
of the Administrative Agent or any Lender in respect of this Guaranty or the
Guarantied Obligations and direct the order or manner of sale thereof, or
exercise any other right or remedy that the Administrative Agent or Lenders, or
any of them, may have against any such security, as the Administrative Agent in
its discretion may determine consistent with the Credit Agreement and any
applicable security agreement, including foreclosure on any such security
pursuant to one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable, and even though such action
operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of Guarantor against the Borrower or any security for the
Guarantied Obligations; and (vi) exercise any other rights available to it under
the Loan Documents.
(f) This Guaranty and the obligations of Guarantor hereunder shall
be valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than indefeasible
payment in full of the Guarantied Obligations), including without limitation the
occurrence of any of the following, whether or not Guarantor shall have had
notice or knowledge of any of them: (i) any failure or omission to assert or
enforce or agreement or election not to assert or enforce, or the stay or
enjoining, by order of court, by operation of law or otherwise, of the exercise
or enforcement of, any claim or demand or any right, power or remedy (whether
arising under the Loan Documents, at law, in equity or otherwise) with respect
to the Guarantied Obligations or any agreement relating thereto, or with respect
to any other guaranty of or security for the payment of the Guarantied
Obligations; (ii) any rescission, waiver, amendment or modification of, or any
consent to departure from, any of the terms or provisions (including without
limitation provisions relating to events of default) of the Credit Agreement,
any of the other Loan Documents or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Guarantied Obligations, in
each case whether or not in accordance with the terms of the Credit Agreement or
such Loan Document or any agreement relating to such other guaranty or security;
(iii) the Guarantied Obligations, or any agreement relating thereto, at any time
being found to be illegal, invalid or unenforceable in any respect; (iv) the
application of payments received from any source (other than payments received
pursuant to the other Loan Documents or from the proceeds of any security for
the Guarantied Obligations, except to the extent such security also serves as
collateral for indebtedness other than the Guarantied Obligations) to the
payment of indebtedness other than the Guarantied Obligations, even though the
Administrative Agent or Lenders, or any of them, might have elected to apply
such payment to any part or all of the Guarantied Obligations; (v) any Lender's
or the Administrative Agent's consent to the change, reorganization or
termination of the corporate structure or existence of the Borrower or any of
its Subsidiaries and to any corresponding restructuring of the Guarantied
Obligations; (vi) any
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failure to perfect or continue perfection of a security interest in any
collateral which secures any of the Guarantied Obligations; (vii) any defenses
(other than payment), set-offs or counterclaims which the Borrower may allege or
assert against Administrative Agent or any Lender in respect of the Guarantied
Obligations, including but not limited to failure of consideration, breach of
warranty, payment, statute of frauds, statute of limitations, accord and
satisfaction and usury; and (viii) any other act or thing or omission, or delay
to do any other act or thing, which may or might in any manner or to any extent
vary the risk of Guarantor as an obligor in respect of the Guarantied
Obligations.
2.4. Waivers by Guarantor. Guarantor hereby waives, for the benefit
of Lenders and the Administrative Agent:
(a) any defense based upon any legal disability or other
defense of any of any other Guarantor, or by reason of the cessation or
limitation of the liability of any other Guarantor from any cause (other than
full payment of all Guarantied Obligations), including, but not limited to,
failure of consideration, breach of warranty, statute of frauds, statute of
limitations, accord and satisfaction, and usury;
(b) any defense based upon any legal disability or other
defense of any other guarantor or other Person;
(c) any defense based upon any lack of authority of the
officers, directors, partners or agents acting or purporting to act on behalf of
any of the other Guarantor or any principal of any other Guarantor or any defect
in the formation of any of any other Guarantor or any principal of any other
Guarantor;
(d) any defense based upon the application by the Borrower of
the proceeds of the Loans for purposes other than the purposes represented by
the Borrower to Administrative Agent or intended or understood by Administrative
Agent or such Guarantor;
(e) any defense based on Guarantor's rights, under statute or
otherwise, to require Administrative Agent to sue any other Guarantor or
otherwise to exhaust its rights and remedies against any other Guarantor or any
other Person or against any collateral before seeking to enforce its right to
require such Guarantor to satisfy the Guarantied Obligations of any other
Guarantor;
(f) any defense based on Administrative Agent's failure at any
time to require strict performance by any Guarantor of any provision of the Loan
Documents. Guarantor agrees that no such failure shall waive, alter or diminish
any right of Administrative Agent thereafter to demand strict compliance and
performance therewith. Nothing contained herein shall prevent Administrative
Agent from foreclosing on the Lien of any security agreement, or exercising any
rights available to Administrative Agent thereunder, and the exercise of any
such rights shall not constitute a legal or equitable discharge of such
Guarantor;
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(g) any defense arising from any act or omission of
Administrative Agent which changes the scope of Guarantor's risks hereunder;
(h) any defense based upon Administrative Agent's election of
any remedy against Guarantor or any other Guarantor or both; any defense based
on the order in which Administrative Agent enforces its remedies;
(i) any defense based on (A) Administrative Agent's surrender,
release, exchange, substitution, dealing with or taking any additional
collateral, (B) Administrative Agent's abstaining from taking advantage of or
realizing upon any Lien or other guaranty, and (C) any impairment of collateral
securing the Guarantied Obligations, including, but not limited to,
Administrative Agent's failure to perfect or maintain a Lien in such collateral;
(j) any defense based upon Administrative Agent's failure to
disclose to Guarantor any information concerning another Guarantor's financial
condition or any other circumstances bearing on another Guarantor's ability to
pay the Guarantied Obligations;
(k) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
any other respects more burdensome than that of a principal;
(l) any defense based upon Administrative Agent's election, in
any proceeding instituted under the Bankruptcy Code, of the application of
Section 1111(b)(2) of the Bankruptcy Code or any successor statute;
(m) any defense based upon any borrowing or any grant of a
security interest under Section 364 of the Bankruptcy Code;
(n) any defense based on Administrative Agent's failure to be
diligent or to satisfy any other standard imposed on a secured party, in
exercising rights with respect to collateral securing the Guarantied
Obligations;
(o) notice of acceptance hereof; notice of the existence,
creation or acquisition of any Guarantied Obligation; notice of any Event of
Default; notice of the amount of the Guarantied Obligations outstanding from
time to time; notice of any other fact which might increase Guarantor's risk;
diligence; presentment; demand of payment; protest; filing of claims with a
court in the event of another Guarantor's receivership or bankruptcy and all
other notices and demands to which such Guarantor might otherwise be entitled
(and agrees the same shall not have to be made on the other Guarantor as a
condition precedent to Guarantor's obligations hereunder);
(p) any defense based on errors and omissions by
Administrative Agent in connection with its administration of the Loans, other
than those caused by the Administrative Agent's gross negligence or willful
misconduct;
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(q) any defense based on application of fraudulent conveyance
or transfer law or shareholder distribution law to any of the Guarantied
Obligations or the security therefor;
(r) any defense based on Administrative Agent's failure to
seek relief from stay or adequate protection in the Borrower's or another
Guarantor's bankruptcy proceeding or any other act or omission by Administrative
Agent which impairs such Guarantor's prospective subrogation rights;
(s) any defense based on legal prohibition of Administrative
Agent's acceleration of the maturity of the Guarantied Obligations during the
occurrence of an Event of Default or any other legal prohibition on enforcement
of any other right or remedy of Administrative Agent with respect to the
Guarantied Obligations and the security therefor; and
(t) the benefit of any statute of limitations affecting the
liability of Guarantor hereunder or the enforcement hereof.
2.5. Payment by Guarantor; Application of Payments. Subject to the
provisions of subsection 2.2(a), Guarantor hereby agrees, in furtherance of the
foregoing and not in limitation of any other right which the Administrative
Agent or any other Person may have at law or in equity against Guarantor by
virtue hereof, that upon the failure of the Borrower to pay any of the
Guarantied Obligations when and as the same shall become due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)),
Guarantor will forthwith pay, or cause to be paid, in cash, to the
Administrative Agent for the ratable benefit of Lenders, an amount equal to the
sum of the unpaid principal amount of all Guarantied Obligations then due as
aforesaid, accrued and unpaid interest on such Guarantied Obligations
(including, without limitation, interest which, but for the filing of a petition
in bankruptcy with respect to the Borrower, would have accrued on such
Guarantied Obligations, whether or not a claim is allowed against such Borrower
for such interest in any such bankruptcy proceeding) and all other Guarantied
Obligations then owed to the Administrative Agent and/or Lenders as aforesaid.
All such payments shall be applied promptly from time to time by the
Administrative Agent:
First, to the payment of the reasonable costs and expenses of any
collection or other realization under this Guaranty, including reasonable
compensation to the Administrative Agent and its agents and counsel, and all
expenses, liabilities and advances made or incurred by the Administrative Agent
in connection therewith;
Second, to the payment of all other Guarantied Obligations ratably to
Lenders; and
Third, after payment in full of all Guarantied Obligations, to the payment
to Guarantor, or its successors or assigns, or to whoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may direct,
of any surplus then remaining from such payments.
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2.6. Subrogation. Until the Guarantied Obligations shall have been
indefeasibly paid in full, Guarantor shall withhold exercise of (a) any right of
subrogation, (b) any right of contribution Guarantor may have against any other
guarantor of the Guarantied Obligations (including without limitation any such
right of contribution under a Related Guaranty as contemplated by subsection
2.2(b)), (c) any right to enforce any remedy which the Administrative Agent or
any Lender now has or may hereafter have against the Borrower or (d) any benefit
of, and any right to participate in, any security now or hereafter held by the
Administrative Agent or any Lender. Guarantor further agrees that, to the extent
the waiver of its rights of subrogation and contribution as set forth herein is
found by a court of competent jurisdiction to be void or voidable for any
reason, any rights of subrogation Guarantor may have against the Borrower or
against any collateral or security, and any rights of contribution Guarantor may
have against any other guarantor, shall be junior and subordinate to any rights
Administrative Agent or Lenders may have against the Borrower to all right,
title and interest the Administrative Agent or Lenders may have in any such
collateral or security, and to any right the Administrative Agent or Lenders may
have against such other guarantor. The Administrative Agent, on behalf of
Lenders, may use, sell or dispose of any item of collateral or security as it
sees fit without regard to any subrogation rights Guarantor may have, and upon
any such disposition or sale any rights of subrogation Guarantor may have shall
terminate. If any amount shall be paid to Guarantor on account of such
subrogation rights at any time when all Guarantied Obligations shall not have
been paid in full, such amount shall be held in trust for Administrative Agent
on behalf of Lenders and shall forthwith be paid over to Administrative Agent
for the benefit of Lenders to be credited and applied against the Guarantied
Obligations, whether matured or unmatured, in accordance with the terms of the
Credit Agreement or any applicable security agreement.
2.7. Subordination of Other Obligations. Any indebtedness of the Borrower
now or hereafter held by Guarantor is hereby subordinated in right of payment to
the Guarantied Obligations, and any such indebtedness of the Borrower to
Guarantor collected or received by Guarantor after an Event of Default has
occurred and is continuing shall be held in trust for the Administrative Agent
on behalf of Lenders and shall forthwith be paid over to the Administrative
Agent for the benefit of Lenders to be credited and applied against the
Guarantied Obligations but without affecting, impairing or limiting in any
manner the liability of Guarantor under any other provision of this Guaranty.
2.8. Expenses. Guarantor agrees to pay, or cause to be paid, and to save
the Administrative Agent and Lenders harmless against liability for, any and all
costs and expenses (including fees and disbursements of counsel and allocated
costs of internal counsel) incurred or expended by the Administrative Agent or
any Lender in connection with the enforcement of or preservation of any rights
under this Guaranty.
2.9. Continuing Guaranty: Termination of Guaranty. This Guaranty is a
continuing guaranty and shall remain in effect until all of the Guarantied
Obligations shall have been indefeasibly paid in full and the Commitments shall
have terminated.
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2.10. Authority of Guarantor or Borrower. It is not necessary for Lenders
or the Administrative Agent to inquire into the capacity or powers of Guarantor
or the Borrower or the officers, directors or any agents acting or purporting to
act on behalf of either of them.
2.11. Financial Condition of Borrower. Any Loans may be granted to the
Borrower or continued from time to time without notice to or authorization from
Guarantor regardless of the financial or other condition of the Borrower at the
time of any such grant or continuation. Lenders and the Administrative Agent
shall have no obligation to disclose or discuss with Guarantor their assessment,
or Guarantor's assessment, of the financial condition of the Borrower. Guarantor
has adequate means to obtain information from the Borrower on a continuing basis
concerning the financial condition of the Borrower and its ability to perform
its obligations under the Loan Documents, and Guarantor assumes the
responsibility for being and keeping informed of the financial condition of the
Borrower and of all circumstances bearing upon the risk of nonpayment of the
Guarantied Obligations. Guarantor hereby waives and relinquishes any duty on the
part of the Administrative Agent or any Lender to disclose any matter, fact or
thing relating to the business, operations or conditions of the Borrower now
known or hereafter known by the Administrative Agent or any Lender.
2.12. Rights Cumulative. The rights, powers and remedies given to Lenders
and the Administrative Agent by this Guaranty are cumulative and shall be in
addition to and independent of all rights, powers and remedies given to Lenders
and the Administrative Agent by virtue of any statute or rule of law or in any
of the other Loan Documents or any agreement between Guarantor and Lenders
and/or the Administrative Agent or between the Borrower and Lenders and/or the
Administrative Agent. Any forbearance or failure to exercise, and any delay by
any Lender or the Administrative Agent in exercising, any right, power or remedy
hereunder shall not impair any such right, power or remedy or be construed to be
a waiver thereof, nor shall it preclude the further exercise of any such right,
power or remedy.
2.13. Bankruptcy; Post-Petition Interest; Reinstatement of Guaranty. (a)
So long as any Guarantied Obligations remain outstanding, Guarantor shall not,
without the prior written consent of the Administrative Agent in accordance with
the terms of the Credit Agreement, commence or join with any other Person in
commencing any bankruptcy, reorganization or insolvency proceedings of or
against the Borrower. The obligations of Guarantor under this Guaranty shall not
be reduced, limited, impaired, discharged, deferred, suspended or terminated by
any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of the Borrower or by
any defense which the Borrower may have by reason of the order, decree or
decision of any court or administrative body resulting from any such proceeding.
(b) Guarantor acknowledges and agrees that any interest on any
portion of the Guarantied Obligations which accrues after the commencement of
any proceeding referred to in clause (a) above (or, if interest on any portion
of the Guarantied Obligations ceases to accrue by operation of law by reason of
the commencement of said proceeding, such interest as would have accrued on such
portion of the Guarantied Obligations if said proceedings had not been
commenced) shall be included in the Guarantied Obligations because it is the
intention of
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Guarantor and the Administrative Agent that the Guarantied Obligations which are
guarantied by Guarantor pursuant to this Guaranty should be determined without
regard to any rule of law or order which may relieve any Borrower of any portion
of such Guarantied Obligations. Guarantor will permit any trustee in bankruptcy,
receiver, debtor in possession, assignee for the benefit of creditors or similar
person to pay the Administrative Agent, or allow the claim of the Administrative
Agent in respect of, any such interest accruing after the date on which such
proceeding is commenced.
(c) In the event that all or any portion of the Guarantied
Obligations are paid by Borrowers, the obligations of Guarantor hereunder shall
continue and remain in full force and effect or be reinstated, as the case may
be, in the event that all or any part of such payment(s) are rescinded or
recovered directly or indirectly from the Administrative Agent or any Lender as
a preference, fraudulent transfer or otherwise, and any such payments which are
so rescinded or recovered shall constitute Guarantied Obligations for all
purposes under this Guaranty.
2.14. Notice of Events. As soon as Guarantor obtains knowledge thereof,
Guarantor shall give the Administrative Agent written notice of any condition or
event which has resulted or might reasonably be expected to result in (a) a
material adverse change in the financial condition of Guarantor or the Borrower
or (b) a breach of or noncompliance with any term, condition or covenant
contained herein or in the Credit Agreement, any other Loan Document or in any
document delivered pursuant hereto or thereto, or (c) a material breach of, or
noncompliance with, any material term, condition or covenant of any material
contract to which Guarantor or the Borrower is a party or by which Guarantor or
the Borrower or Guarantor's or the Borrower's property may be bound.
2.15. Set Off. In addition to any other rights any Lender or the
Administrative Agent may have under law or in equity, if any amount shall at any
time be due and owing by Guarantor to any Lender or the Administrative Agent
under this Guaranty, such Lender or the Administrative Agent is authorized at
any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness of any Lender or the Administrative Agent owing to Guarantor
and any other property of Guarantor held by any Lender or the Administrative
Agent to or for the credit or the account of Guarantor against and on account of
the Guarantied Obligations and liabilities of Guarantor to any Lender or the
Administrative Agent under this Guaranty.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders and the Administrative Agent to accept this
Guaranty and to enter into the Credit Agreement and to make the Loans
thereunder, Guarantor hereby represents and warrants to Lenders that the
following statements are true and correct:
3.1. Organization. Guarantor is duly organized, validly existing and in
good standing under the laws of the state of its formation. Guarantor is also
duly authorized, qualified and
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licensed in all applicable jurisdictions, and under all applicable laws,
regulations, ordinances or orders of public authorities, to carry on its
business in the locations and in the manner presently conducted.
3.2. Authorization. The execution, delivery and performance by Guarantor
of the Guaranty are within Guarantor's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (i)
Guarantor's articles of incorporation, by-laws or other organizational document
or (ii) any law or regulation or any contractual restriction binding on or
affecting Guarantor.
3.3. Governmental Consents. No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by Guarantor of
this Guaranty.
3.4. Validity. This Guaranty is the binding obligation of Guarantor,
enforceable in accordance with its terms; except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application and equitable principles relating to
or affecting creditors' rights.
SECTION 4. MISCELLANEOUS
4.1. Survival of Warranties. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Guaranty, any increase in the Commitments under the Credit Agreement and the
execution and delivery of the Notes.
4.2. Notices. Except as otherwise set forth in this Guaranty, all notices
and other communications provided for hereunder shall be in writing (including
telegraphic, telex or facsimile communication) and mailed or telegraphed or
telexed or sent by facsimile or delivered, if to Guarantor, at its address set
forth on the signature page hereof; and if to the Administrative Agent, at its
address set forth on the signature page hereof; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other parties. All such notices and communications shall be effective three (3)
Business Days after deposit in the U.S mail, postage prepaid, when sent by telex
or sent by facsimile, or when delivered, respectively.
4.3. Separability of Provisions. In case any one or more of the provisions
contained in this Guaranty should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
4.4. Amendments and Waivers. No amendment, modification, termination or
waiver of any provision of this Guaranty, or consent to any departure by
Guarantor therefrom, shall in any event be effective without the written
concurrence of all Lenders under the Credit Agreement. Any waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it was given.
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4.5. Headings. Section and subsection headings in this Guaranty are
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
4.6. Applicable Law. THIS GUARANTY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO ITS CHOICE OF LAW DOCTRINE.
4.7. Successors and Assigns. This Guaranty is a continuing guaranty and
shall be binding upon Guarantor and its successors and assigns. This Guaranty
shall inure to the benefit of Lenders, the Administrative Agent and their
respective successors and assigns. Guarantor shall not assign this Guaranty or
any of the rights or obligations of Guarantor hereunder without the prior
written consent of all Lenders. Any Lender may, without notice or consent,
assign its interest in this Guaranty in whole or in part. The terms and
provisions of this Guaranty shall inure to the benefit of any assignee or
transferee of any Note, and in the event of such transfer or assignment the
rights and privileges herein conferred upon Lenders and the Administrative Agent
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof.
4.8. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF GUARANTOR, THE AGENTS, THE LENDERS OR THE BORROWER SHALL BE BROUGHT
AND MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE
COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION
WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. GUARANTOR HEREBY EXPRESSLY
AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK, NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE
AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK. GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE
OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS
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BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT GUARANTOR HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, GUARANTOR HEREBY IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY
AND THE OTHER LOAN DOCUMENTS.
4.9. Waiver of Trial by Jury. GUARANTOR AND THE ADMINISTRATIVE AGENT
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF GUARANTOR OR THE ADMINISTRATIVE AGENT. GUARANTOR ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE LENDERS
ENTERING INTO EACH SUCH OTHER LOAN DOCUMENT.
4.10. No Other Writing. This writing is intended by Guarantor and the
Administrative Agent as the final expression of this Guaranty and is also
intended as a complete and exclusive statement of the terms of their agreement
with respect to the matters covered hereby. No course of dealing, course of
performance or trade usage, and no parol evidence of any nature, shall be used
to supplement or modify any terms of this Guaranty. There are no conditions to
the full effectiveness of this Guaranty.
4.11. Further Assurances. At any time or from time to time, upon the
request of the Administrative Agent or the Requisite Lenders, Guarantor shall
execute and deliver such further documents and do such other acts and things as
the Administrative Agent or the Requisite Lenders may reasonably request in
order to effect fully the purposes of this Guaranty.
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IN WITNESS WHEREOF, Guarantor has executed this Guaranty by its duly
authorized officer as of the date first above written.
[GUARANTOR]
Notice Address:
By:
Phase Metrics, Inc. ----------------------------------------
10260 Sorrento Valley Road
San Diego, California 92121
Attention: R. Joseph Saunders
Telecopy No.: (619) 646-4990 Title:
-------------------------------------
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EXHIBIT H
[FORM OF SECURITY AGREEMENT]
This Security Agreement is entered into as of ____________, ____ between
Phase Metrics, Inc., [a California corporation] [a Delaware corporation and the
successor by merger to Phase Metrics, Inc., a California corporation] (the
"Borrower"), and Fleet National Bank, as administrative agent for the Lenders as
defined below ("[Administrative] Agent").
RECITALS
WHEREAS, the Borrower has entered into a Credit Agreement dated as of
[__________, ____] with certain financial institutions (each, a "Lender" and
collectively, the "Lenders"), [DLJ Capital Funding, Inc., as Syndication Agent,]
and [Administrative] Agent (the "Credit Agreement") and related documentation;
WHEREAS, each of the Guarantors has entered into a Guaranty of the
Obligations created under the Credit Agreement, and a Security Agreement dated
as of December 4, 1996 ("Guarantor Security Agreements") granting to Lenders a
security interest in all of their assets;
WHEREAS, it is a condition precedent to the making of Loans to the
Borrower under the Credit Agreement that the Borrower shall have executed and
delivered to the Administrative Agent a Security Agreement granting to Lenders a
security interest in all of its assets;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make the Loans under the Credit Agreement and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Borrower hereby agrees with Administrative Agent as follows:
SECTION 1. Grant of Security. The Borrower hereby assigns to
Administrative Agent, for the benefit of Administrative Agent and Lenders, and
hereby grants to Administrative Agent, for the benefit of Administrative Agent
and Lenders a security interest in, all of the Borrower's right, title and
interest in and to the property described on Exhibit A attached hereto, in the
Pledged Collateral (as defined in Section 10 hereof) and in the Intellectual
Property Collateral (as defined in Section 5(e) hereof), in each case whether
now or hereafter existing or in which the Borrower now has or hereafter acquires
an interest and wherever the same may be located (the "Collateral").
Notwithstanding the foregoing, no security interest shall be granted by the
Borrower in any of its right, title and interest under that certain Master
Capital Lease Agreement, dated January 1, 1996, with NTFC Capital Corporation
(the "Excluded Property"). Notwithstanding the foregoing, no security interest
shall be granted, and the term "Collateral" shall not include, any general
intangibles of the Borrower (whether owned or held as licensee or lessee, or
otherwise), to the extent that (i) such general intangibles are not assignable
or capable of being encumbered as a matter of law or under the terms of the
license, lease or other agreement applicable thereto (but solely to the extent
that any such restriction shall be
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enforceable under applicable law), without the consent of the licensor or lessor
thereof or other applicable party thereto and (ii) such consent has not been
obtained; provided, however, that the foregoing grant of security interest shall
extend to, and the term "Collateral" shall include, (A) any general intangible
which is a receivable, or goods which are the subject of any receivable, (B) any
and all proceeds of any general intangibles which are otherwise excluded to the
extent that the assignment or encumbrance of such proceeds is not so restricted,
and (C) upon obtaining the consent of any such licensor, lessor or other
applicable party's consent with respect to any such otherwise excluded general
intangibles, such general intangibles as well as any and all proceeds thereof
that might have theretofore been excluded from such grant of a security interest
and the term "Collateral". The Borrower agrees to use its best efforts to obtain
any such required consent.
SECTION 2. (a) Security for Obligations. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all obligations and liabilities of every
nature of the Borrower and each Obligor now or hereafter existing, under or
arising out of or in connection with the Credit Agreement, the Notes, any other
Loan Document or otherwise, and all extensions or renewals thereof, whether for
principal, interest, fees, expenses, indemnities or otherwise, whether voluntary
or involuntary, direct or indirect, absolute or contingent, liquidated or
unliquidated, whether or not jointly owed with others, and whether or not from
time to time decreased or extinguished and later increased, created or incurred,
and all or any portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered directly or
indirectly from Administrative Agent or a Lender as a preference, fraudulent
transfer or otherwise (all such obligations and liabilities being the
"Underlying Debt"), and all obligations of every nature of the Borrower and each
Obligor now or hereafter existing under this Agreement (all such obligations,
together with the Underlying Debt, being the "Secured Obligations").
(b) This Agreement creates a continuing security interest in the
Collateral and shall:
(i) remain in full force and effect until payment in full of
all Secured Obligations and the termination of all Commitments;
(ii) be binding upon the Borrower, its successors, transferees
and assigns; and
(iii) inure, together with the rights and remedies of
Administrative Agent hereunder, to the benefit of Administrative Agent and each
Lender.
Without limiting the generality of the foregoing clause (iii), any Lender may
assign or otherwise transfer (in whole or in part) any Note or Loan held by it
to any other Person or entity, and such other Person or entity shall thereupon
become vested with all the rights and benefits in respect thereof granted to
such Lender under any Loan Document (including this Agreement) or otherwise,
subject, however, to any contrary provisions in such assignment or transfer, and
to the
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provisions of Section 9.6 and Article VIII of the Credit Agreement. Upon the
payment in full of all Secured Obligations and the termination of all
Commitments, the security interest granted herein shall terminate and all rights
to the Collateral shall revert to the Borrower. Upon any such termination,
Administrative Agent will, at the Borrower's sole expense, execute and deliver
to the Borrower such documents as the Borrower shall reasonably request to
evidence such termination.
SECTION 3. Borrower Remains Liable. Anything contained herein to the
contrary notwithstanding, (a) the Borrower shall remain liable under any
contracts and agreements included in the Collateral (the "Related Contracts"),
to the extent set forth therein, to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Administrative Agent of any of its rights hereunder shall not
release the Borrower from any of its duties or obligations under the contracts
and agreements included in the Collateral, and (c) neither Administrative Agent
nor any Lender shall have any obligation or liability under any contracts and
agreements included in the Collateral by reason of this Agreement, nor shall
Administrative Agent or any Lender be obligated to perform any of the
obligations or duties of the Borrower thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 4. Representations and Warranties. The Borrower represents
and warrants as follows:
(a) Ownership of Collateral. Except for the security interest
created by this Agreement and the Permitted Liens, the Borrower owns the
Collateral free and clear of any Liens. Except such as may have been filed in
favor of Administrative Agent relating to this Agreement and the Permitted
Liens, no effective financing statement or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
(b) Location of Equipment and Inventory. All of the Equipment and
Inventory is, as of the date hereof, located at the places specified in Schedule
I annexed hereto.
(c) Office Locations. The chief place of business and the chief
executive office of the Borrower are located at 10260 Sorrento Valley Road, San
Diego, CA 92121; the offices where the Borrower keeps its records regarding its
Accounts and all originals of chattel paper which evidence Accounts are located
at:
10260 Sorrento Valley Road, San Diego, CA 92121;
47475 Fremont Blvd., Fremont, CA 94538;
2260 American Ave., Unit #1, Hayward, CA 94545-1815;
and 4040 Pike Lane, Concord, CA 94520.
All records regarding the Accounts of the Borrower have been
maintained in California for the preceding four months.
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(d) Fictitious Names, etc.. The Borrower does not conduct any
business under any trade-name or fictitious business name. The Borrower is not a
"retail merchant" within the meaning of Section 9102 of the Uniform Commercial
Code - Secured Transactions of the State of California.
(e) Governmental Authorizations. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by the Borrower of the
security interest granted hereby or for the execution, delivery or performance
of this Agreement by the Borrower or (ii) the perfection of or the exercise by
Administrative Agent of its rights and remedies hereunder.
(f) Perfection. This Agreement creates a valid, perfected and first
priority security interest in the Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or desirable to
perfect and protect such security interest have been duly made or taken.
(g) Compliance with Laws. The Borrower is in compliance with the
requirements of all applicable laws, rules, regulations and orders of every
governmental authority, the non-compliance with which might materially adversely
affect the business, properties, assets, operations, condition (financial or
otherwise) or prospects of the Borrower or the value of the Collateral or the
worth of the Collateral as collateral security.
(h) Other Information. All information heretofore, herein or
hereafter supplied to Administrative Agent by or on behalf of the Borrower with
respect to the Collateral is (or, as to hereafter supplied information, will be)
accurate and complete in all material respects.
SECTION 5. Further Assurances.
(a) The Borrower agrees that from time to time, at its expense, the
Borrower will promptly execute and deliver all further instruments and
documents, and take all further action that may be reasonably necessary or
desirable, or that Administrative Agent may request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of the
foregoing, the Borrower will: (i) if any Account shall be evidenced by a
promissory note or other instrument (excluding checks), deliver and pledge to
Administrative Agent hereunder such note or instrument, duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to Administrative Agent; (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as Administrative
Agent may request, in order to perfect and preserve the security interests
granted or purported to be granted hereby; (iii) at any reasonable time, upon
demand by Administrative Agent, exhibit the Collateral to and allow inspection
of the Collateral by Administrative Agent, or persons designated by
Administrative Agent; (iv) mark conspicuously each document included in the
Inventory and, at the request of the Administrative Agent, each chattel paper
included in the Accounts, each Related Contract and each of its records
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pertaining to the Collateral with a legend, in form and substance satisfactory
to Administrative Agent, indicating that such document, chattel paper, Related
Contract or Collateral is subject to the security interest granted hereby; and
(v) at Administrative Agent's request, appear in and defend any action or
proceeding that may affect the Borrower's title to or Administrative Agent's
security interest in all or any part of the Collateral.
(b) The Borrower hereby authorizes Administrative Agent to file one
or more financing or continuation statements, and amendments thereto, relative
to all or any part of the Collateral without the signature of the Borrower. The
Borrower agrees that a carbon, photographic or other reproduction of this
Agreement or of a financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement and may be filed as a
financing statement in any and all jurisdictions.
(c) The Borrower will furnish to Administrative Agent from time to
time statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as Administrative Agent
may reasonably request, all in reasonable detail.
(d) Upon the request of Administrative Agent at any time, the
Borrower will, within ten (10) days thereafter, deliver to Administrative Agent
to hold in escrow, a copy of all material software source codes, if any used by
the Borrower in its business. Following any such request, the Borrower will
promptly deliver to such escrow agent modifications and updates of all such
material source codes from time to time as such modifications and updates are
developed.
(e) The Borrower shall execute and deliver a Collateral Assignment,
Patent Mortgage and Security Agreement in substantially the form of Exhibit B to
this Agreement covering the intellectual property rights described therein (the
"Intellectual Property Collateral"). The Borrower shall register or cause to be
registered (to the extent not already registered) with the United States Patent
and Trademark Office or the United States Copyright Office, as applicable, the
Intellectual Property Collateral listed on Exhibits A, B and C to the Collateral
Assignment, Patent Mortgage and Security Agreement within thirty (30) days of
the date of this Agreement. The Borrower shall register or cause to be
registered with the United States Patent and Trademark Office or the United
States Copyright Office, as applicable, the additional Intellectual Property
Collateral developed or acquired by the Borrower from time to time in connection
with any product prior to the sale or licensing of such product to any third
party, including without limitation revisions or additions to the Intellectual
Property Collateral listed on such Exhibits A, B and C. The Borrower shall
execute and deliver such additional instruments and documents from time to time
as Administrative Agent shall reasonably request to perfect Administrative
Agent's security interest in such additional Intellectual Property Collateral.
SECTION 6. Covenants of the Borrower. The Borrower shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of
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insurance covering the Collateral where violation is likely to have a material
adverse effect on Administrative Agent's rights in the Collateral or the value
of the Collateral or Administrative Agent's ability to foreclose on the
Collateral;
(b) notify Administrative Agent of any change in the Borrower's
name, identity or corporate structure within 15 days of such change;
(c) give Administrative Agent 30 days' prior written notice of any
change in the Borrower's chief place of business, chief executive office or
residence;
(d) if Administrative Agent gives value to enable the Borrower to
acquire rights in or the use of any Collateral (as specified in writing by
Administrative Agent to the Borrower at the time of the giving of such value),
use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent the validity thereof is being contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP have been
set aside; provided that the Borrower shall in any event pay such taxes,
assessments, charges, levies or claims not later than five days prior to the
date of any proposed sale under any judgment writ or warrant of attachment
entered or filed against the Borrower or any of the Collateral as a result of
the failure to make such payment.
SECTION 7. Special Covenants With Respect to Equipment and Inventory. The
Borrower shall:
(a) keep the Equipment and Inventory (other than Equipment
consisting of laptop computers and other than Inventory sold in the ordinary
course of business) at the places specified on Schedule I annexed hereto or,
upon 30 days' prior written notice to Administrative Agent, at such other places
in jurisdictions where all representations and warranties set forth in Section 4
(including subsection (f) thereof) shall be true and correct, and all actions
required pursuant to the first sentence of Section 5(a) shall have been taken
with respect to such Inventory and Equipment;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual, and shall forthwith,
or, in the case of any loss or damage to any of the Equipment when subsection
(c) of Section 8 is not applicable, as quickly as practicable after the
occurrence thereof, make or cause to be made all repairs, replacements and other
improvements in connection therewith that are necessary or desirable to such
end. The Borrower shall promptly furnish to Administrative Agent a statement
respecting any loss or damage to any of the Equipment in excess of $50,000;
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(c) keep correct and accurate records of the Inventory, in
accordance with good business practices, including itemizing the Borrower's cost
therefor and a (where applicable) the current list prices for the Inventory; and
(d) if any Inventory is in possession or control of any of the
Borrower's agents or processors, upon the occurrence of an Event of Default,
instruct such agent or processor to hold all such Inventory for the account of
Administrative Agent and subject to the instructions of Administrative Agent.
SECTION 8. Insurance.
(a) The Borrower shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory in which it has an interest in such
amounts, against such risks, in such form and with such insurers as shall be
satisfactory to Administrative Agent from time to time. Such insurance shall
include, without limitation, property damage insurance and liability insurance.
Each policy for property damage insurance shall provide for all losses to be
paid directly to Administrative Agent, except that policies with respect to
Capital Leases may name the lessor as primary loss payee and Administrative
Agent as secondary loss payee. Each policy shall in addition name the Borrower
and Administrative Agent as insured parties thereunder (without any
representation or warranty by or obligation upon Administrative Agent) as their
interests may appear and have attached thereto a loss payable clause acceptable
to Administrative Agent that shall (i) contain an agreement by the insurer that
any loss thereunder shall be payable to Administrative Agent notwithstanding any
action, inaction or breach of representation or warranty by the Borrower, (ii)
provide that there shall be no recourse against Administrative Agent for payment
of premiums or other amounts with respect thereto, and (iii) provide that at
least 30 days' prior written notice of cancellation, material amendment,
reduction in scope or limits of coverage or of lapse shall be given to
Administrative Agent by the insurer. The Borrower shall, if so requested by
Administrative Agent, deliver to Administrative Agent original or duplicate
policies of such insurance and, as often as Administrative Agent may reasonably
request (but no more frequently than once per year, unless there is a change in
the policy or the insurer), a report of a reputable insurance broker with
respect to such insurance. Further, the Borrower shall, at the request of
Administrative Agent, duly execute and deliver instruments of assignment of such
insurance policies to comply with the requirements of Section 5(a) and cause the
respective insurers to acknowledge notice of such assignment.
(b) Payments for claims issued by any liability insurance maintained
by the Borrower pursuant to this Section 8 may be paid directly to the Person
who shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this Section 8
is not applicable, the Borrower shall make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance maintained by the Borrower pursuant to this Section 8 shall be paid to
the Borrower as reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuation of any Event
of Default or (ii) the actual or constructive loss (in excess of $100,000 per
occurrence) of any Equipment or
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Inventory, all insurance payments in respect of such Equipment or Inventory
shall be paid to and applied by Administrative Agent as specified in Section 18.
SECTION 9. Special Covenants with respect to Accounts and Related
Contracts.
(a) The Borrower shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts and Related Contracts, and all originals of all chattel paper which
evidences Accounts, at the locations specified in Section 4 or, upon 30 days'
prior written notice to Administrative Agent, at such other location in a
jurisdiction where all action required by the first sentence of Section 5(a)
with respect to such Accounts and Related Contracts shall have been taken. The
Borrower will hold and preserve such records and chattel paper and will permit
representatives of Administrative Agent at any time during normal business hours
to inspect and make copies and abstracts from such records, and the Borrower
agrees to render to Administrative Agent, at the Borrower's cost and expense,
such clerical and other assistance as may be reasonably requested with regard
thereto.
(b) The Borrower shall, for not less than 3 years from the date on
which such Account arose, maintain (i) complete records of each Account,
including records of all payments received, credits granted and merchandise
returned, and (ii) all documentation relating thereto.
(c) Except as otherwise provided in this subsection (c), the
Borrower shall continue to collect, at its own expense, all amounts due or to
become due the Borrower under the Accounts and Related Contracts. Administrative
Agent shall have the right at any time, upon the occurrence and during the
continuation of an Event of Default or an event which with the giving of notice
or the lapse of time, or both, would constitute an Event of Default, and upon
written notice to the Borrower of its intention to do so, to notify the account
debtors or obligors under any Accounts of the assignment of such Accounts to
Administrative Agent, and to direct such account debtors or obligors to make
payment of all amounts due or to become due to the Borrower thereunder directly
to Administrative Agent, to notify each person maintaining a lockbox or similar
arrangement to which account debtors or obligors under any Accounts have been
directed to make payment to remit all amounts representing collections on checks
and other payment items from time to time sent to or deposited in such lock box
or other arrangement directly to Administrative Agent and, upon such
notification and at the expense of the Borrower, to enforce collection of any
such Accounts and to adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as the Borrower might have done. After
receipt by the Borrower of the notice from Administrative Agent referred to in
the preceding sentence, (i) all amounts and proceeds (including checks and other
instruments) received by the Borrower in respect of the Accounts and the Related
Contracts shall be received in trust for the benefit of Administrative Agent
hereunder, shall be segregated from other funds of the Borrower and shall be
forthwith paid over or delivered to Administrative Agent in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section 18, and (ii) the Borrower shall not adjust,
settle or compromise the amount or payment of any Account, or release wholly or
partly any account debtor or obligor thereof, or allow any credit or discount
thereon. If the Event of Default giving rise to the
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exercise of such remedies by Administrative Agent shall be cured or waived, then
Administrative Agent shall reinstate the Borrower's collection rights with
respect to such Accounts.
SECTION 10. Special Provisions with Respect to Securities. As security
for the Secured Obligations, the Borrower shall execute and deliver to
Administrative Agent a Pledge Agreement in substantially the form of Exhibit C
to this Agreement, pursuant to which the Borrower shall pledge, assign, grant
and deliver to Administrative Agent, for the benefit of Lenders, a security
interest in the shares of stock, notes, and other collateral described in the
Pledge Agreement (the "Pledged Collateral"). The certificates and other
instruments included in the Pledged Collateral, accompanied by an instrument of
assignment duly executed in blank by the Borrower or its Subsidiary (as
appropriate), have been, or will be immediately upon the subsequent receipt
thereof by the Borrower, delivered by the Borrower to Administrative Agent. The
Borrower will execute and deliver such documents and instruments, and take or
cause to be taken such actions, as Administrative Agent may reasonably request
to perfect or continue the perfection of Administrative Agent's security
interest in the Pledged Collateral. The Borrower represents and warrants to and
covenants with Administrative Agent, for the benefit of Administrative Agent and
Lenders, that there are no subscriptions, warrants or other options exercisable
with respect to the Pledged Collateral.
SECTION 11. Deposit Accounts. Upon the occurrence and during the
continuation of an Event of Default, Administrative Agent may exercise dominion
and control over, and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from any deposit accounts maintained
with any Lender constituting part of the Collateral.
SECTION 12. License of Patents, Trademarks, Copyrights, etc. The Borrower
hereby assigns, transfers and conveys to Administrative Agent, for the benefit
of Administrative Agent and Lenders, effective upon the occurrence of any Event
of Default, the nonexclusive right and license to use all trademarks, trade
names, copyrights, patents or technical processes owned or used by the Borrower
that relate to the Collateral and any other collateral granted by the Borrower
as security for the Secured Obligations, together with any goodwill associated
therewith, all to the extent necessary to enable Administrative Agent to use,
possess and realize on the Collateral for the benefit of Administrative Agent
and Lenders and to enable any successor or assign to enjoy the benefits of the
Collateral. This right and license shall inure to the benefit of all successors,
assigns and transferees of Administrative Agent and its successors, assigns and
transferees, whether by voluntary conveyance, operation of law, assignment,
transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and
license is granted free of charge, without requirements that any monetary
payment whatsoever be made to the Borrower.
SECTION 13. Transfers and Other Liens. The Borrower shall not:
(a) except to the extent permitted in the Credit Agreement, sell,
assign (by operation of law or otherwise) or otherwise dispose of any of the
Collateral; or
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(b) except for the security interest created by this Agreement, and
except to the extent permitted in the Credit Agreement, create of suffer to
exist any Lien upon or with respect to any of the Collateral to secure Debt or
other obligations of any Person.
SECTION 14. Administrative Agent Appointed Attorney-in-Fact. The Borrower
hereby irrevocably appoints Administrative Agent as the Borrower's
attorney-in-fact, with full authority in the place and stead of the Borrower and
in the name of the Borrower, Administrative Agent or otherwise, from time to
time in Administrative Agent's discretion to take any action and to execute any
instrument that Administrative Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation: (a) to
sign and file on behalf of the Borrower any financing or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral; (b) upon the occurrence and during the continuation of an Event of
Default, to obtain and adjust insurance required to be maintained by the
Borrower or paid to Administrative Agent pursuant to Section 8; (c) upon the
occurrence and during the continuation of an Event of Default, to ask, demand,
collect, sue for, recover, compound, receive and give acquittance and receipts
for monies due and to become due under or in respect of any of the Collateral;
(d) upon the occurrence and during the continuation of an Event of Default, to
receive, endorse and collect any drafts or other instruments, documents and
chattel paper in connection with clauses (a) and (b) above; (e) upon the
occurrence and during the continuation of an Event of Default, to file any
claims or take any action or institute any proceedings that Administrative Agent
may deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of Administrative Agent with respect to any of
the Collateral; (f) upon the occurrence and during the continuation of an Event
of Default, to pay or discharge taxes or liens levied or placed upon or
threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Administrative Agent
in its sole discretion, any such payments made by Administrative Agent to become
obligations of the Borrower to Administrative Agent, due and payable immediately
without demand; (g) upon the occurrence and during the continuation of an Event
of Default, to sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and (h) upon the occurrence and during the
continuation of an Event of Default, generally to sell, transfer, pledge, make
any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though Administrative Agent were the absolute owner
thereof for all purposes, and to do, at Administrative Agent's option and the
Borrower's expense, at any time or from time to time, all acts and things that
Administrative Agent deems necessary to protect, preserve or realize upon the
Collateral and Administrative Agent's security interest therein in order to
effect the intent of this Agreement, all as fully and effectively as the
Borrower might do. The Borrower hereby acknowledges and agrees that the power of
attorney granted pursuant to this Section is irrevocable and coupled with an
interest.
SECTION 15. Administrative Agent May Perform. If the Borrower fails to
perform any agreement contained herein, Administrative Agent may itself perform,
or cause performance of, such agreement, and the expenses of Administrative
Agent incurred in connection therewith shall be payable by the Borrower under
Section 19.
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SECTION 16. Agent Has No Duty; Standard of Care. The powers conferred on
Administrative Agent hereunder are solely to protect its interest and the
interest of the Lenders in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Administrative Agent shall have no duty as to
any Collateral or as to the taking of any necessary steps to reserve rights
against prior parties or any other rights pertaining to any Collateral.
Administrative Agent shall be deemed to have exercised reasonable care in the
custody and preservation of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which Administrative Agent
accords its own property.
SECTION 17. Remedies. If any Event of Default shall have occurred and be
continuing Administrative Agent may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"Code") (whether or not the Code applies to the affected Collateral), and also
may (a) require the Borrower to, and the Borrower hereby agrees that it will at
its expense and upon request of Administrative Agent forthwith, assemble all or
part of the Collateral as directed by Administrative Agent and make it available
to Administrative Agent at a place to be designated by Administrative Agent that
is reasonably convenient to both parties, (b) enter onto the property where any
Collateral is located and take possession thereof with or without judicial
process, (c) prior to the disposition of the Collateral, store, process, repair
or recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Administrative Agent deems appropriate,
(d) take possession of the Borrower's premises or place custodians in exclusive
control thereof, remain on such premises and use the same and any of the
Borrower's equipment for the purpose of completing any work in process, taking
any actions described in the preceding clause (c) and collecting any Secured
Obligation, and (e) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Administrative Agent's offices or elsewhere, for cash, on credit or
for future delivery, at such time or times and at such price or prices and upon
such other terms as Administrative Agent may deem commercially reasonable.
Administrative Agent may be the purchaser of any or all of the Collateral at any
such sale and Administrative Agent shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use and apply any of the Secured
Obligations as a credit on account of the purchase price for any Collateral
payable by Administrative Agent at such sale. Each purchaser at any such sale
shall hold the property sold absolutely free from any claim or right on the part
of the Borrower, and the Borrower hereby waives (to the extent permitted by
applicable law) all rights of redemption, stay and/or appraisal which it now has
or may at any time in the future have under any rule of law or statute now
existing or hereafter enacted. The Borrower agrees that, to the extent notice of
sale shall be required by law, at least ten days' notice to the Borrower of (i)
the time and place of any public sale or (ii) the time after which any private
sale is to be made shall constitute reasonable notification. Administrative
Agent shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Administrative Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed there
for, and such
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sale may, without further notice, be made at the time and place to which it was
so adjourned. The Borrower hereby waives any claims against Administrative Agent
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale, even if Administrative Agent accepts the first offer
received and does not offer such Collateral to more than one offeree, provided
Administrative Agent acted in a commercially reasonable manner. If the proceeds
of any sale or other disposition of the Collateral are insufficient to pay all
the Secured Obligations, the Borrower shall be liable to the maximum extent
permitted by applicable law for the deficiency and the fees of any attorneys
employed by Administrative Agent to collect such deficiency.
SECTION 18. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Administrative Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may in the discretion of Administrative Agent, be held by
Administrative Agent for the benefit of Administrative Agent and Lenders as
Collateral for, and/or then, or at any other time thereafter, applied in full or
in part by Administrative Agent against, the Secured Obligations in the
following order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including reasonable compensation to Administrative Agent
and its agents and counsel, and all other expenses, liabilities and advances
made or incurred by Administrative Agent in connection therewith, and all
amounts for which Administrative Agent is entitled to indemnification hereunder
and all advances made by Administrative Agent hereunder for the account of the
Borrower, and to the payment of all costs and expenses paid or incurred by
Administrative Agent in connection with the exercise of any right or remedy
hereunder, all in accordance with Section 19;
SECOND: To the payment of all other Secured Obligations pro rata to
Lenders; and
THIRD: To the payment to or upon the order of the Borrower, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
SECTION 19. Indemnity and Expenses.
(a) The Borrower agrees to indemnify Administrative Agent and
Lenders from and against any and all claims, losses and liabilities in any way
relating to, growing out of or resulting from this Agreement and the
transactions contemplated hereby (including, without limitation, enforcement of
this Agreement), except to the extent such claims, losses or liabilities result
solely from Administrative Agent's gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
(b) The Borrower will pay to Administrative Agent upon demand the
amount of any and all costs and expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, that Administrative Agent
may incur in connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale
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of, collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of Administrative Agent hereunder,
or (iv) the failure by the Borrower to perform or observe any of the provisions
hereof.
SECTION 20. Amendments, etc. Subject to Section 9.1 of the Credit
Agreement, no amendment or waiver of any provision of this Agreement, or consent
to any departure by the Borrower herefrom, shall in any event be effective
unless the same shall be in writing and signed by Administrative Agent, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given.
SECTION 21. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraph, telex or facsimile
communication) and mailed or telegraphed or telexed or sent by facsimile or
delivered, if to the Borrower or Administrative Agent, at its address set forth
on the signature pages hereof; or, as to each party, at such other address as
shall be designated by such party in a written notice to the other parties. All
such notices and communications shall be effective three (3) Business Days after
deposit in the U.S. mail, postage prepaid, when sent by telex or sent by
facsimile, or when delivered, respectively.
SECTION 22. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of Administrative Agent in the exercise of any
power, right or privilege hereunder shall impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
any other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 23. Severability. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 24. Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 25. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless
otherwise defined herein or in the Credit Agreement, terms used in Article 9 of
the New York Uniform Commercial Code are used herein as therein defined.
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SECTION 26. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE
BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY (TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY OR
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR
OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY
PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY
SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT
ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT
THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF
ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH
RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES (TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 27. Waiver of Jury Trial. THE AGENTS AND THE LENDERS AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE BORROWER. THE BORROWER
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS
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PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A
PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS AND THE
LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION 28. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
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IN WITNESS WHEREOF, The Borrower and Administrative Agent have caused this
Agreement to be duly executed and delivered by their respective officers there
unto duly authorized as of the date first written above.
PHASE METRICS, INC.
By:
-----------------------------------------
Title: Vice President - Finance
Notice Address:
10260 Sorrento Valley Road
San Diego, CA 92121
Telephone: (619) 646-4850
Telecopier: (619) 646-4990
Attention: R. Joseph Saunders
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Fleet National Bank, as
Administrative Agent for the Lenders
By:
-----------------------------------
Title:
Notice Address:
[75 State Street
Mail Stop MA BO F04M
Boston, MA 02109]
[One Federal Street
Mail Stop MA BO D07A
Boston, MA 02110]
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EXHIBIT A
The Collateral shall consist of all right, title and interest of the
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of the Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and the
Borrower's books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to the
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by the Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by the Borrower
and the Borrower's books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of credit,
certificates of deposit and chattel paper now owned or hereafter acquired and
the Borrower's books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing;
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(g) All of the Borrower's other property and rights of every kind and
description and interests therein; and
(h) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
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EXHIBIT B
FORM OF COLLATERAL ASSIGNMENT, PATENT MORTGAGE
AND SECURITY AGREEMENT
This Collateral Assignment, Patent Mortgage and Security Agreement is made
as of ___________, ____, by and between ____________________, a ___________
corporation ("Assignor"), and Fleet National Bank, as Administrative Agent for
Lenders as defined below ("Assignee").
RECITALS
A. Phase Metrics, Inc., certain financial institutions (collectively, the
"Lenders"), [DLJ Capital Funding, Inc., as Syndication Agent,] and Assignee, as
Administrative Agent for the Lenders have entered into a Credit Agreement dated
as of ___________, ____ (said Credit Agreement, as it may hereafter be amended
from time to time, being the "Credit Agreement," the terms defined therein and
not otherwise defined herein being used herein as therein defined), pursuant to
which Assignee as Administrative Agent and Lenders have made certain
commitments, subject to the terms and conditions set forth in the Credit
Agreement to extend certain credit facilities to Assignor.
B. In order to induce Lenders to continue to make credit facilities
available to Assignor under the Credit Agreement, Assignor has agreed to assign
certain intangible property to Assignee for the benefit of Lenders to secure the
obligations of Assignor under the Credit Agreement.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Assignment, Patent Mortgage and Grant of Security Interest. For good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, as collateral security for the prompt and complete payment and
performance of all the Obligations, Assignor hereby assigns, transfers, conveys
and grants a security interest and mortgage to Assignee, as security, in and to
Assignor's entire right, title and interest in, to and under the following (all
of which shall collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether pending or in preparation, registered or unregistered or
published or unpublished, and whether or not the same also constitutes a trade
secret, now or hereafter existing, created, acquired or held throughout the
world, including without limitation those set forth on Exhibit A attached hereto
(collectively, the "Copyrights");
<PAGE> 114
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held throughout the world;
(c) Any and all design rights which may be available to Assignor now
or hereafter existing, created, acquired or held throughout the world;
(d) All patents, patent applications and like protections now or
hereafter existing, created, acquired or held throughout the world, including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including without limitation
the patents and patent applications set forth on Exhibit B attached hereto
(collectively, the "Patents");
(e) Any and all trademarks, trade names, corporate names, business
names, service marks, logos or other source of business identifiers, whether
registered or not, applications to register and registrations of the same and
like protections nor or hereafter, existing, created, acquired or held
throughout the world, and the entire goodwill of the business of Assignor
connected with and symbolized by the foregoing, including without limitation
those set forth on Exhibit C attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the Collateral, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the Collateral;
(g) All licenses or other rights to use any of the Collateral and
all license fees and royalties arising from such use to the extent permitted by
such Collateral; and
(h) All amendments, reissues, renewals and extensions of any of the
Collateral; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
2. Authorization and Request. Assignor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants and
agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business.
(b) Performance of this Assignment does not conflict with or result
in a breach of any agreement to which Assignor is party or by which Assignor is
bound, except to the extent
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<PAGE> 115
that certain intellectual property agreements prohibit the assignment of the
rights thereunder to a third party without the licensor's or other party's
consent and this Assignment constitutes an assignment.
(c) During the term of this Assignment, Assignor will not transfer
or otherwise encumber any interest in the Collateral, except for non-exclusive
licenses granted by Assignor in the ordinary course of business or as set forth
in this Assignment.
(d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Collateral has been judged invalid or unenforceable, in whole
or in part, and no claim has been made that any part of the Collateral violates
the rights of any third party.
(e) Assignor shall promptly advise Assignee of any material change
in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Assignor in or to any Trademark, Patent or
Copyright not specified in this Assignment.
(f) Assignor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld, unless Assignor shall either (x) reasonably determine
in good faith that such Collateral is of negligible economic value to Assignor
(and notice of such determination is delivered to Assignee) or (y) have a valid
business purpose to do so.
(g) Assignor shall promptly register the most recent version of any
of Assignor's Copyrights, if not so already registered, and shall, from time to
time, execute and file such other instruments, and take such further actions as
Assignee may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral.
(h) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected first
priority security interest in the Collateral securing the payment and
performance of the Obligations upon making the filings referred to in clause (i)
below.
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder,
and except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required either (i) for the grant by Assignor of the security
interest granted hereby or for the execution, delivery or performance of this
Assignment by Assignor or (ii) for the perfection or the exercise by Assignee of
its rights and remedies hereunder.
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<PAGE> 116
(j) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects.
(k) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
withheld. Assignor shall not permit the inclusion in any material contract to
which it becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interests
in any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts.
(l) Upon any executive officer of Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any Collateral, the ability
of Assignor to dispose of any Collateral or the rights and remedies of Assignee
in relation thereto, including the levy of any legal process against any of the
Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, any of Assignor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the Collateral
and to inspect the products and quality control records relating thereto upon
reasonable written notice to Assignor and as often as may be reasonably
requested.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Assignee, to perfect Assignee's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
Without limiting the generality of the foregoing, Assignor shall notify Assignee
immediately if it knows, or has reason to know, that any application or
registration relating to any material part of the Collateral may become
abandoned, forfeited or dedicated to the public or
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become invalid or unenforceable, or of any adverse determination or development
regarding Assignor's ownership of any of the Collateral or its right to register
the same or to keep and maintain and enforce the same.
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, from time to time in Assignee's discretion, to take any
action and to execute any instrument which Assignee may deem necessary or
advisable to accomplish the purposes of this Collateral Assignment, including:
(i) To modify, in its sole discretion, this Collateral
Assignment without first obtaining Assignor's approval of or signature to such
modification by amending Exhibit A, Exhibit B and Exhibit C, thereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents or Trademarks acquired by Assignor after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Assignor no longer has or claims any
right, title or interest; and
(ii) To file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Assignor where permitted by law.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Assignor breaches any warranty or agreement made by Assignor in
this Assignment and, as to any breach that is capable of cure, Assignor fails to
cure such breach within five (5) days of the occurrence of such breach.
8. Remedies. Upon the occurrence and continuance of an Event of Default,
Assignee shall have the right to exercise all the remedies of a secured party
under the New York Uniform Commercial Code, including without limitation the
right to require Assignor to assemble the Collateral and any tangible property
in which Assignee has a security interest and to make it available to Assignee
at a place designated by Assignee. Assignee shall have a nonexclusive, royalty
free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies upon
the occurrence of an Event of Default. Assignor will pay any expenses (including
reasonable attorneys' fees) incurred by Assignee in connection with the exercise
of any of Assignee's rights hereunder, including without limitation any expense
incurred in disposing of the Collateral. All of Assignee's rights and remedies
with respect to the Collateral shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this
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Agreement, and (b) all losses or expenses in any way suffered, incurred, or paid
by Assignee as a result of or in any way arising out of, following or
consequential to transactions between Assignee and Assignor, whether under this
Assignment or otherwise (including without limitation reasonable attorneys' fees
and reasonable expenses), except for losses arising from or out of Assignee's
gross negligence or willful misconduct.
10. Reassignment. At such time as Assignor shall completely satisfy all of
the Obligations, Assignee shall execute and deliver to Assignor all deeds,
assignments and other instruments as may be necessary or proper to revest in
Assignor full title to the property assigned hereunder, subject to any
disposition thereof which may have been made by Assignee pursuant hereto.
11. Course of Dealing. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this Assignment is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements.
13. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. Governing Law, Forum Selection and Consent to Jurisdiction. This
Assignment shall be governed by the laws of the State of New York, without
regard for choice of law provisions. ANY LITIGATION BASED HEREON, OR ARISING OUT
OF, UNDER, OR IN CONNECTION WITH, THIS ASSIGNMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF ASSIGNOR OR ASSIGNEE, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY
(TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW
YORK, NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT ASSIGNEE'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND. ASSIGNOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY AND OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED
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THEREBY IN CONNECTION WITH SUCH LITIGATION. ASSIGNOR IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE STATE OF NEW YORK. ASSIGNOR HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
ASSIGNOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, ASSIGNOR HEREBY IRREVOCABLY WAIVES (TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS ASSIGNMENT AND THE OTHER LOAN DOCUMENTS.
16. Waiver of Jury Trial. ASSIGNEE AND ASSIGNOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS ASSIGNMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
ASSIGNEE OR ASSIGNOR. ASSIGNOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL
AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF
EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR ASSIGNEE, THE AGENTS AND THE LENDERS ENTERING INTO THIS
ASSIGNMENT AND EACH SUCH OTHER LOAN DOCUMENT.
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IN WITNESS WHEREOF, the parties hereto have executed this Assignment on
the day and year first above written.
Address of Assignor: ASSIGNOR:
10260 Sorrento Valley Road ------------------------------------------
San Diego, CA 92121
Attn: R. Joseph Saunders By:
---------------------------------------
Title:
------------------------------------
Address of Assignee: ASSIGNEE:
------------------------------------------
By:
---------------------------------------
Title:
------------------------------------
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EXHIBIT A
Copyrights
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EXHIBIT B
Patents
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EXHIBIT C
Trademarks
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SCHEDULE I
TO SECURITY AGREEMENT
Locations of Equipment:
10260 Sorrento Valley Road, San Diego, CA 92121
47475 Fremont Blvd., Fremont, CA 94538
4040 Pike Lane, Concord, CA 94518
5 Tampines Central Unit # 06-07, Telepark, Singapore 529482
2260 American Avenue, Unit 1, Hayward, CA 94545
Locations of Inventory:
10260 Sorrento Valley Road, San Diego, CA 92121
47475 Fremont Blvd., Fremont, CA 94538
4040 Pike Lane, Concord, CA 94518
5 Tampines Central Unit # 06-07, Telepark, Singapore 529482
2260 American Avenue, Unit 1, Hayward, CA 94545
The Borrower also owns certain goods and Inventory which from time to time,
prior to the completion of the manufacturing process of such Inventory, may be
temporarily in the possession of subcontractors for the purpose of adding value
thereto. All such subcontractors are located in the state of California and the
aggregate value of such goods and Inventory does not exceed $250,000 at any one
time.
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EXHIBIT C
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of __________,
____, made by Phase Metrics, Inc., a [California Corporation] [a Delaware
corporation and the successor by merger to Phase Metrics, Inc., a California
corporation] (the "Pledgor"), in favor of Fleet National Bank, as agent
(together with any successor(s) thereto in such capacity, the "Agent") for each
of the Lender Parties (as defined below).
W I T N E S S E T H:
WHEREAS, pursuant to a Credit Agreement, dated as of ___________, ____
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "Credit Agreement"), among the Pledgor, the Lenders
party thereto (individually a "Lender" and collectively the "Lenders"), [DLJ
Capital Funding, Inc., as syndication agent,] and the Agent, the Lenders have
extended Commitments to make Loans to the Pledgor; and
WHEREAS, as a condition precedent to the making of the Loans under the
Credit Agreement, the Pledgor is required to execute and deliver this Pledge
Agreement; and
WHEREAS, the Pledgor has duly authorized the execution, delivery and
performance of this Pledge Agreement;
NOW, THEREFORE, for good and valuable consideration the receipt of which
is hereby acknowledged, and in order to induce the Lenders to make Loans
(including the initial Loans) to the Pledgor pursuant to the Credit Agreement,
the Pledgor agrees, for the benefit of each Lender Party, as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not
underscored) when used in this Pledge Agreement, including its preamble and
recitals, shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Agent" is defined in the preamble.
"Collateral" is defined in Section 2.1.
"Credit Agreement" is defined in the first recital.
"Distributions" means all stock dividends, liquidating dividends, shares
of stock resulting from (or in connection with the exercise of) stock splits,
reclassifications, warrants, options, non-cash dividends, mergers,
consolidations, and all other distributions (whether similar or dissimilar to
the foregoing) on or with respect to any Pledged Shares or other shares of
capital stock constituting Collateral, but shall not include Dividends.
"Dividends" means cash dividends and cash distributions with respect to
any Pledged Shares or other Pledged Property made in the ordinary course of
business and not a liquidating dividend.
"Lender" is defined in the first recital.
"Lender Party" means, as the context may require, any Lender or the Agent
and each of its respective successors, transferees and assigns.
"Lenders" is defined in the first recital.
"Pledge Agreement" is defined in the preamble.
"Pledged Note Issuer" means each Person identified in Item A of Attachment
1 hereto as the issuer of the Pledged Note identified opposite the name of such
Person.
"Pledged Notes" means all promissory notes of any Pledged Note Issuer in
the form or substantially in the form of Exhibit A hereto which are delivered by
the Pledgor to the Agent as Pledged Property hereunder, as such promissory
notes, in accordance with Section 4.5, are amended, modified or supplemented
from time to time and together with any other promissory note of any Pledged
Note Issuer taken in extension or renewal thereof or substitution therefor.
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"Pledged Property" means all Pledged Shares, all Pledged Notes, and all
other pledged shares of capital stock or promissory notes, all other securities,
all assignments of any amounts due or to become due, all other instruments which
are now being delivered by the Pledgor to the Agent or may from time to time
hereafter be delivered by the Pledgor to the Agent for the purpose of pledge
under this Pledge Agreement or any other Loan Document, and all proceeds of any
of the foregoing.
"Pledged Share Issuer" means each Person identified in Item B of
Attachment 1 hereto as the issuer of the Pledged Shares identified opposite the
name of such Person.
"Pledged Shares" means all shares of capital stock of any Pledged Share
Issuer which are delivered by the Pledgor to the Agent as Pledged Property
hereunder.
"Pledgor" is defined in the preamble.
"Secured Obligations" is defined in Section 2.2.
"U.C.C." means the Uniform Commercial Code as in effect in the State of
New York.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined
herein or the context otherwise requires, terms used in this Pledge Agreement,
including its preamble and recitals, have the meanings provided in the Credit
Agreement.
SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the
context otherwise requires, terms for which meanings are provided in the U.C.C.
are used in this Pledge Agreement, including its preamble and recitals, with
such meanings.
ARTICLE II
PLEDGE
SECTION 2.1. Grant of Security Interest. The Pledgor hereby pledges,
hypothecates, assigns, charges, mortgages, delivers, and transfers to the Agent,
for its benefit and the ratable benefit of each of the Lender Parties, and
hereby grants to the Agent, for its benefit and the ratable benefit of the
Lender Parties, a continuing security interest in, all of the following property
(the "Collateral"):
(a) all promissory notes of each Pledged Note Issuer identified in
Item A of Attachment 1 hereto;
(b) all other Pledged Notes issued from time to time;
(c) all issued and outstanding shares of capital stock of each
Pledged Share Issuer identified in Item B of Attachment 1 hereto;
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(d) all other Pledged Shares issued from time to time;
(e) all other Pledged Property, whether now or hereafter delivered
to the Agent in connection with this Pledge Agreement;
(f) all Dividends, Distributions, interest, and other payments and
rights with respect to any Pledged Property; and
(g) all proceeds of any of the foregoing.
SECTION 2.2. Security for Obligations. This Pledge Agreement secures the
payment in full of all Obligations of the Pledgor and each other Obligor now or
hereafter existing under the Credit Agreement, the Notes and each other Loan
Document to which the Pledgor or such Obligor is or may become a party, whether
for principal, interest, costs, fees, expenses, or otherwise (all such
obligations being the "Secured Obligations").
SECTION 2.3. Delivery of Pledged Property. All certificates or instruments
representing or evidencing any Collateral, including all Pledged Shares and all
Pledged Notes, shall be delivered to and held by or on behalf of (and, in the
case of the Pledged Notes, endorsed to the order of) the Agent pursuant hereto,
shall be in suitable form for transfer by delivery, and shall be accompanied by
all necessary instruments of transfer or assignment, duly executed in blank.
SECTION 2.4. Dividends on Pledged Shares and Payments on Pledged Notes. In
the event that any Dividend is to be paid on any Pledged Share or any payment of
principal or interest is to be made on any Pledged Notes at a time when (x) no
Potential Event of Default of the nature referred to in Section 7.1(g) or 7.1(h)
of the Credit Agreement has occurred and is continuing, and (y) no Event of
Default has occurred and is continuing, such Dividend or payment may be paid
directly to the Pledgor. If any such Potential Event of Default or Event of
Default has occurred and is continuing, then any such Dividend or payment shall
be paid directly to the Agent.
SECTION 2.5. Continuing Security Interest; Transfer of Note. This Pledge
Agreement shall create a continuing security interest in the Collateral and
shall
(a) remain in full force and effect until payment in full of all
Secured Obligations and the termination of all Commitments,
(b) be binding upon the Pledgor and its successors, transferees and
assigns, and
(c) inure, together with the rights and remedies of the Agent
hereunder, to the benefit of the Agent and each other Lender Party.
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Without limiting the foregoing clause (c), any Lender may assign or otherwise
transfer (in whole or in part) any Note or Loan held by it to any other Person
or entity, and such other Person or entity shall thereupon become vested with
all the rights and benefits in respect thereof granted to such Lender under any
Loan Document (including this Pledge Agreement) or otherwise, subject, however,
to any contrary provisions in such assignment or transfer, and to the provisions
of Section 9.6 and Article VIII of the Credit Agreement. Upon the payment in
full of all Secured Obligations and the termination of all Commitments, the
security interest granted herein shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon any such termination, the Agent
will, at the Pledgor's sole expense, deliver to the Pledgor, without any
representations, warranties or recourse of any kind whatsoever, all certificates
and instruments representing or evidencing all Pledged Shares and all Pledged
Notes, together with all other Collateral held by the Agent hereunder, and
execute and deliver to the Pledgor such documents as the Pledgor shall
reasonably request to evidence such termination.
SECTION 2.6. Security Interest Absolute. All rights of the Agent and
the security interests granted to the Agent hereunder, and all obligations of
the Pledgor hereunder, shall be absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of the Credit
Agreement, any Note or any other Loan Document,
(b) the failure of any Lender Party or any holder of any Note
(i) to assert any claim or demand or to enforce any right or
remedy against the Borrower, any Guarantor or any other Person under
the provisions of the Credit Agreement, any Note, any other Loan
Document or otherwise, or
(ii) to exercise any right or remedy against any other
guarantor of, or collateral securing, any Secured Obligations of the
Borrower or any Guarantor,
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other
extension, compromise or renewal of any Secured Obligations of the
Borrower or any Guarantor,
(d) any reduction, limitation, impairment or termination of any
Secured Obligations of the Borrower or any Guarantor for any reason,
including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to (and the Pledgor hereby waives any
right to or claim of) any defense or setoff, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality,
nongenuineness, irregularity, compromise, unenforceability of, or any
other event or occurrence affecting, any Secured Obligations of the
Borrower, any Guarantor or otherwise,
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(e) any amendment to, rescission, waiver, or other modification of,
or any consent to departure from, any of the terms of the Credit
Agreement, any Note or any other Loan Document,
(f) any addition, exchange, release, surrender or non-perfection of
any collateral (including the Collateral), or any amendment to or waiver
or release of or addition to or consent to departure from any guaranty,
for any of the Secured Obligations, or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Borrower,
any Guarantor, any surety or any other guarantor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Warranties, etc. The Pledgor represents and warrants unto
each Lender Party, as at the date of each pledge and delivery hereunder
(including each pledge and delivery of Pledged Shares and each pledge and
delivery of a Pledged Notes) by the Pledgor to the Agent of any Collateral, as
set forth in this Article.
SECTION 3.1.1. Ownership, No Liens, etc. The Pledgor is the legal and
beneficial owner of, and has good and marketable title to (and has full right
and authority to pledge and assign) such Collateral, free and clear of all
liens, security interests, options, or other charges or encumbrances, except any
lien or security interest granted pursuant hereto in favor of the Agent.
SECTION 3.1.2. Valid Security Interest. The delivery of such Collateral to
the Agent is effective to create a valid, perfected, first priority security
interest in such Collateral and all proceeds thereof, securing the Secured
Obligations. No filing or other action will be necessary to perfect or protect
such security interest.
SECTION 3.1.3. As to Pledged Shares. In the case of any Pledged Shares
constituting such Collateral, all of such Pledged Shares are duly authorized and
validly issued, fully paid, and non-assessable, and constitute all of the issued
and outstanding shares of capital stock of each Pledged Share Issuer. The
Pledgor has no Subsidiary other than the Pledged Share Issuers.
SECTION 3.1.4. As to Pledged Notes. In the case of each Pledged Notes, all
of such Pledged Notes have been duly authorized, executed, endorsed, issued and
delivered, and are the legal, valid and binding obligation of the issuers
thereof, and are not in default.
SECTION 3.1.5. Authorization, Approval, etc. No authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority, regulatory body or any other Person is required either
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(a) for the pledge by the Pledgor of any Collateral pursuant to this
Pledge Agreement or for the execution, delivery, and performance of this
Pledge Agreement by the Pledgor, or
(b) for the exercise by the Agent of the voting or other rights
provided for in this Pledge Agreement, or, except with respect to any
Pledged Shares, as may be required in connection with a disposition of
such Pledged Shares by laws affecting the offering and sale of securities
generally, the remedies in respect of the Collateral pursuant to this
Pledge Agreement.
SECTION 3.1.6. Compliance with Laws. The Pledgor is in compliance with the
requirements of all applicable laws (including, without limitation, the
provisions of the Fair Labor Standards Act), rules, regulations and orders of
every governmental authority, the non-compliance with which might materially
adversely affect the business, properties, assets, operations, condition
(financial or otherwise) or prospects of the Pledgor or the value of the
Collateral or the worth of the Collateral as collateral security.
ARTICLE IV
COVENANTS
SECTION 4.1. Protect Collateral; Further Assurances, etc. The Pledgor will
not sell, assign, transfer, pledge, or encumber in any other manner the
Collateral (except in favor of the Agent hereunder). The Pledgor will warrant
and defend the right and title herein granted unto the Agent in and to the
Collateral (and all right, title, and interest represented by the Collateral)
against the claims and demands of all Persons whomsoever. The Pledgor agrees
that at any time, and from time to time, at the expense of the Pledgor, the
Pledgor will promptly execute and deliver all further instruments, and take all
further action, that may be necessary or desirable, or that the Agent may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Pledgor will, upon
obtaining any additional shares of capital stock, notes, or other securities
required to be pledged hereunder or under the Security Agreement, promptly (and
in any event within five Business Days) deliver to the Agent such additional
securities and take any other action necessary to perfect and protect any
security interest granted or purported to be granted hereby.
SECTION 4.2. Stock Powers, etc. The Pledgor agrees that all Pledged Shares
(and all other shares of capital stock constituting Collateral) delivered by the
Pledgor pursuant to this Pledge Agreement will be accompanied by duly executed
undated blank stock powers, or other equivalent instruments of transfer
acceptable to the Agent. The Pledgor will, from time to time upon the request of
the Agent, promptly deliver to the Agent such stock powers, instruments, and
similar documents, satisfactory in form and substance to the Agent, with respect
to the Collateral as the Agent may reasonably request and will, from time to
time upon the request of the Agent
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after the occurrence of any Event of Default, promptly transfer any Pledged
Shares or other shares of capital stock constituting Collateral into the name of
any nominee designated by the Agent.
SECTION 4.3. Continuous Pledge. Subject to Section 2.4, the Pledgor will,
at all times, keep pledged to the Agent pursuant hereto all Pledged Shares and
all other shares of capital stock constituting Collateral, all Dividends and
Distributions with respect thereto, all Pledged Notes, all interest, principal
and other proceeds received by the Agent with respect to the Pledged Notes, and
all other Collateral and other securities, instruments, proceeds, and rights
from time to time received by or distributable to the Pledgor in respect of any
Collateral.
SECTION 4.4. Voting Rights; Dividends, etc. The Pledgor agrees:
(a) after any Potential Event of Default of the nature referred to
in Section 7.1(g) or 7.1(h) of the Credit Agreement or an Event of Default
shall have occurred and be continuing, promptly upon receipt thereof by
the Pledgor and without any request therefor by the Agent, to deliver
(properly endorsed where required hereby or requested by the Agent) to the
Agent all Dividends, Distributions, all interest, all principal, all other
cash payments, and all proceeds of the Collateral, all of which shall be
held by the Agent as additional Collateral for use in accordance with
Section 6.3; and
(b) after any Event of Default shall have occurred and be continuing
and the Agent has notified the Pledgor of the Agent's intention to
exercise its voting power under this Section 4.4(b)
(i) the Agent may exercise (to the exclusion of the Pledgor)
the voting power and all other incidental rights of ownership with
respect to any Pledged Shares or other shares of capital stock
constituting Collateral and the Pledgor hereby grants the Agent an
irrevocable proxy, exercisable under such circumstances, to vote the
Pledged Shares and such other Collateral; and
(ii) promptly to deliver to the Agent such additional proxies
and other documents as may be necessary to allow the Agent to
exercise such voting power.
All Dividends, Distributions, interest, principal, cash payments, and proceeds
which may at any time and from time to time be held by the Pledgor but which the
Pledgor is then obligated to deliver to the Agent, shall, until delivery to the
Agent, be held by the Pledgor separate and apart from its other property in
trust for the Agent. The Agent agrees that unless an Event of Default shall have
occurred and be continuing and the Agent shall have given the notice referred to
in Section 4.4(b), the Pledgor shall have the exclusive voting power with
respect to any shares of capital stock (including any of the Pledged Shares)
constituting Collateral and the Agent shall, upon the written request of the
Pledgor, promptly deliver such proxies and other documents, if any, as shall be
reasonably requested by the Pledgor which are necessary to allow the Pledgor to
exercise voting power with respect to any such share of capital stock (including
any of the Pledged Shares) constituting Collateral; provided, however, that no
vote shall be cast, or consent,
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waiver, or ratification given, or action taken by the Pledgor that would impair
any Collateral or be inconsistent with or violate any provision of the Credit
Agreement or any other Loan Document (including this Pledge Agreement).
SECTION 4.5. Additional Undertakings. The Pledgor will not, without
the prior written consent of the Agent:
(a) enter into any agreement amending, supplementing, or waiving any
provision of any Pledged Notes (including any underlying instrument
pursuant to which such Pledged Notes is issued) or compromising or
releasing or extending the time for payment of any obligation of the maker
thereof; or
(b) take or omit to take any action the taking or the omission of
which would result in any impairment or alteration of any obligation of
the maker of any Pledged Notes or other instrument constituting
Collateral.
ARTICLE V
THE AGENT
SECTION 5.1. Agent Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Agent the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor
or otherwise, from time to time in the Agent's discretion, to take any action
and to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Pledge Agreement, including without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (a)
above; and
(c) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Agent with respect to any of the Collateral.
The Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION 5.2. Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Pledgor pursuant to Section 6.4.
-C-9-
<PAGE> 134
SECTION 5.3. Agent Has No Duty. The powers conferred on the Agent
hereunder are solely to protect its interest (on behalf of the Lender Parties)
in the Collateral and shall not impose any duty on it to exercise any such
powers. Except for reasonable care of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral or responsibility for
(a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Property, whether or not the Agent has or is deemed to have
knowledge of such matters, or
(b) taking any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral.
SECTION 5.4. Reasonable Care. The Agent is required to exercise reasonable
care in the custody and preservation of any of the Collateral in its possession;
provided, however, the Agent shall be deemed to have exercised reasonable care
in the custody and preservation of any of the Collateral, if it takes such
action for that purpose as the Pledgor reasonably requests in writing at times
other than upon the occurrence and during the continuance of any Event of
Default, but failure of the Agent to comply with any such request at any time
shall not in itself be deemed a failure to exercise reasonable care.
ARTICLE VI
REMEDIES
SECTION 6.1. Certain Remedies. If any Event of Default shall have
occurred and be continuing:
(a) The Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the
U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and
also may, without notice except as specified below, sell the Collateral or
any part thereof in one or more parcels at public or private sale, at any
of the Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Agent may deem commercially
reasonable. The Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten days' prior notice to the Pledgor of the
time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Agent shall
not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor,
and such sale may, without further notice, be made at the time and place
to which it was so adjourned.
-C-10-
<PAGE> 135
(b) The Agent may
(i) transfer all or any part of the Collateral into the name
of the Agent or its nominee, with or without disclosing that such
Collateral is subject to the lien and security interest hereunder,
(ii) notify the parties obligated on any of the Collateral to
make payment to the Agent of any amount due or to become due
thereunder,
(iii) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any part
thereof, or compromise or extend or renew for any period (whether or
not longer than the original period) any obligations of any nature
of any party with respect thereto,
(iv) endorse any checks, drafts, or other writings in the
Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral, and
(vi) execute (in the name, place and stead of the Pledgor)
endorsements, assignments, stock powers and other instruments of
conveyance or transfer with respect to all or any of the Collateral.
SECTION 6.2. Compliance with Restrictions. The Pledgor agrees that in any
sale of any of the Collateral whenever an Event of Default shall have occurred
and be continuing, the Agent is hereby authorized to comply with any limitation
or restriction in connection with such sale as it may be advised by counsel is
necessary in order to avoid any violation of applicable law (including
compliance with such procedures as may restrict the number of prospective
bidders and purchasers, require that such prospective bidders and purchasers
have certain qualifications, and restrict such prospective bidders and
purchasers to persons who will represent and agree that they are purchasing for
their own account for investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchaser by any governmental regulatory authority or official,
and the Pledgor further agrees that such compliance shall not result in such
sale being considered or deemed not to have been made in a commercially
reasonable manner, nor shall the Agent be liable nor accountable to the Pledgor
for any discount allowed by the reason of the fact that such Collateral is sold
in compliance with any such limitation or restriction.
SECTION 6.3. Application of Proceeds. All cash proceeds received by the
Agent in respect of any sale of, collection from, or other realization upon, all
or any part of the Collateral may, in the discretion of the Agent, be held by
the Agent as additional collateral security for, or then or at any time
thereafter be applied (after payment of any amounts payable to the Agent
pursuant to Section 9.5 of the Credit Agreement and Section 6.4) in whole or in
part by the Agent against, all or any part of the Secured Obligations pro rata
to the Lenders.
-C-11-
<PAGE> 136
Any surplus of such cash or cash proceeds held by the Agent and remaining
after payment in full of all the Secured Obligations, and the termination of all
Commitments, shall be paid over to the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.
SECTION 6.4. Indemnity and Expenses. The Pledgor hereby indemnifies and
holds harmless the Agent from and against any and all claims, losses, and
liabilities arising out of or resulting from this Pledge Agreement (including
enforcement of this Pledge Agreement), except claims, losses, or liabilities
resulting from the Agent's gross negligence or willful misconduct. Upon demand,
the Pledgor will pay to the Agent the amount of any and all reasonable expenses,
including the reasonable fees and disbursements of its counsel and of any
experts and agents, which the Agent may incur in connection with:
(a) the administration of this Pledge Agreement, the Credit
Agreement and each other Loan Document;
(b) the custody, preservation, use, or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral;
(c) the exercise or enforcement of any of the rights of the
Agent hereunder; or
(d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Pledge Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly
indicated herein) be construed, administered and applied in accordance with the
terms and provisions thereof.
SECTION 7.2. Amendments, etc. No amendment to or waiver of any provision
of this Pledge Agreement nor consent to any departure by the Pledgor herefrom
shall in any event be effective unless the same shall be in writing and signed
by the Agent, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it is given.
SECTION 7.3. Protection of Collateral. The Agent may from time to time, at
its option, perform any act which the Pledgor agrees hereunder to perform and
which the Pledgor shall fail to perform after being requested in writing so to
perform (it being understood that no such request need be given after the
occurrence and during the continuance of an Event of Default) and the Agent may
from time to time take any other action which the Agent reasonably deems
necessary for the maintenance, preservation or protection of any of the
Collateral or of its security interest therein.
-C-12-
<PAGE> 137
SECTION 7.4. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing or by facsimile and, if to the
Pledgor, addressed, delivered or transmitted to it at the address or facsimile
number set forth below its signature hereto, if to the Agent, addressed,
delivered or transmitted to it at the address or facsimile number of the Agent
specified in the Credit Agreement or, as to either party, at such other address
or facsimile number as shall be designated by such party in a written notice to
each other party complying as to delivery with the terms of this Section. Any
notice, if mailed and properly addressed with postage prepaid or if properly
addressed and sent by pre-paid courier service, shall be deemed given when
received; any notice, if transmitted by facsimile, shall be deemed given when
transmitted (upon receipt of electronic confirmation of transmission).
SECTION 7.5. Headings. The various headings of this Pledge Agreement
are inserted for convenience only and shall not affect the meaning or
interpretation of this Pledge Agreement or any provisions hereof.
SECTION 7.6. Severability. Wherever possible each provision of this Pledge
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Pledge Agreement shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Pledge Agreement.
SECTION 7.7. Governing Law, Entire Agreement, etc. THIS PLEDGE AGREEMENT
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF
THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE
STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE
THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT
THERETO.
SECTION 7.8. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENT, THE
LENDERS OR THE PLEDGOR SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY (TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW) IN THE COURTS OF THE STATE OF NEW YORK,
NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S
-C-13-
<PAGE> 138
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, NEW YORK COUNTY AND OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE
PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE
PLEDGOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL,
POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK.
THE PLEDGOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE
LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO
ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. TO THE EXTENT THAT THE PLEDGOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY
FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION
OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE PLEDGOR HEREBY
IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED UNDER APPLICABLE LAW) SUCH IMMUNITY
IN RESPECT OF ITS OBLIGATIONS UNDER THIS PLEDGE AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
SECTION 7.9. Waiver of Jury Trial. THE AGENT AND THE PLEDGOR HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF THE AGENT OR THE PLEDGOR. THE PLEDGOR ACKNOWLEDGES AND
AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION
(AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT ENTERING INTO
THIS PLEDGE AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION 7.10. Counterparts. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
-C-14-
<PAGE> 139
-C-15-
<PAGE> 140
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
PHASE METRICS, INC.
By
-----------------------------------------
Title: Vice President - Finance
Address:
10260 Sorrento Valley Road
San Diego, CA 92121
Telephone No.: (619) 646-4850
Facsimile No.: (619) 646-4990
Attention: R. Joseph Saunders
FLEET NATIONAL BANK
By
------------------------------------------
Name:
Title:
Address:
------------------------------------
------------------------------------
Facsimile No.:
-------------------------------
Attention:
----------------------------------
-C-16-
<PAGE> 141
ATTACHMENT 1
to
Pledge Agreement
[TO BE UPDATED]
Item A. Pledged Shares
<TABLE>
<CAPTION>
Pledged Percentage of
Certificate ownership
Pledged Share Issuer Pledged Shares Number Pledged
- -------------------- -------------- ------ -------
<S> <C> <C> <C>
Air Bearings, Incorporated 2,000 7 100%
Applied Robotic
Technologies, Inc. 80,750 105 100%
Helios Incorporated 1,600,000 23 100%
Phase Metrics International,
Incorporated 650 2* 65%
Phase Metrics Japan Co., Ltd. 195 __** 65%
Phase Metrics Korea Co., Ltd. 6,500 __*** 65%
Phase Metrics Pacific (PTE) Ltd. 65,000 4**** 65%
</TABLE>
- ----------
*
/ Certificate No. 2 represents 660 shares of common stock of Phase
Metrics International, Incorporated, but the parties agree that only
650 shares of such stock are pledged pursuant to this Security
Agreement.
**
/ Certificate No. __ represents 300 shares of common stock of Phase
Metrics Japan Co., Ltd., but the parties agree that only 195 shares of
such stock are pledged pursuant to this Security Agreement.
***
/ Certificate No. __ represents 10,000 shares of common stock of Phase
Metrics Korea Co., Ltd., but the parties agree that only 6,500 shares
of such stock are pledged pursuant to this Security Agreement.
****
/ Certificate No. __ represents 99,998 shares of common stock of Phase
Metrics Pacific (PTE) Ltd., but the parties agree that only 65,000 shares
of such stock are pledged pursuant to this Security Agreement.
-C-17-
<PAGE> 142
-C-18-
<PAGE> 143
ATTACHMENT 1
to
Pledge Agreement
(continued)
Item B. Pledged Notes
Pledged Note Issuer Notes
- ------------------- -----
-C-19-
<PAGE> 144
EXHIBIT I
FORM OF ASSIGNMENT AGREEMENT
Reference is made to the Amended and Restated Credit Agreement dated as of
January 30, 1998 (as it may be amended, supplemented or otherwise modified from
time to time, the "Agreement") among Phase Metrics, Inc., a Delaware corporation
(the "Borrower"), the Lenders named therein and Fleet National Bank, as Agent
for the Lenders. Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to such terms in the Agreement.
____________________ ("Assignor") and ____________________ ("Assignee")
agree as follows:
1. Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, a _% interest in and to all Assignor's
rights and obligations under the Agreement and the Loan Documents as of the
Assignment Effective Date (as defined below) (including such percentage interest
in the pro rata share of the Commitment of Assignor on the Assignment Effective
Date, and such percentage interest in the Loans owing to the Assignor
outstanding on the Assignment Effective Date, together with such percentage
interest in all unpaid interest and fees accrued to the Assignment Effective
Date).
2. Assignor (i) represents that as of the date hereof, its pro rata share
of the Commitment (without giving effect to assignments thereof which have not
yet become effective) is $__________, and the outstanding balance of its
Revolving Loans (not reduced by any assignments thereof which have not yet
become effective is $____________; (ii) represents that this Assignment
Agreement is entered into in accordance with the provisions of Section 9.6 of
the Agreement; (iii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Agreement or the Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Agreement or the Loan Documents or any other instrument or document
furnished pursuant thereto, other than that it is the legal and beneficial owner
of the interest being assigned by it hereunder and that such interest is free
and clear of any adverse claim created by it and that it is legally authorized
to enter into this Assignment Agreement; (iv) represents that no amendments or
waivers to the Agreement have been entered into other than those that have been
provided to Assignee; and (v) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or its
Subsidiaries or the performance or observance by the Borrower or any of its
Subsidiaries of any of its or their obligations under the Agreement or any other
instrument or document furnished pursuant thereto.
3. Assignee (i) represents and warrants that it is legally authorized to
enter into this Assignment Agreement; (ii) confirms that it has received a copy
of the financial statements delivered pursuant to Sections 5.1(e) and 6.1(a) of
the Agreement and such other documents and
<PAGE> 145
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment Agreement; (iii) agrees that it will,
independently and without reliance upon the Administrative Agent, Assignor or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Agreement; (iv) appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers under the Agreement as are delegated to the Administrative Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto; (v) agrees that it will perform in accordance with their terms all the
obligations which by the terms of the Agreement and the Loan Documents are
required to be performed by it as a Lender; and (vi) agrees that it will keep
confidential all information with respect to the Borrower furnished to it by the
Borrower or Assignor as set forth in Section 9.6(e) of the Agreement.
4. The effective date for this Assignment Agreement shall be __________
__, ____, but in no event prior to the recording of this Assignment Agreement on
the Register as provided in Section 9.6 of the Credit Agreement (the "Assignment
Effective Date"). On the Assignment Effective Date, Assignee will pay to
Assignor in immediately available funds the sum of $__________ representing the
purchase price of the assignment under this Assignment Agreement. On the
Assignment Effective Date, the Borrower shall deliver to each of Assignor and
Assignee new Revolving Notes in the principal amount of each of their respective
Commitments and Assignor shall return the Revolving Note currently in its
possession.
5. From and after the Assignment Effective Date, (i) Assignee shall be a
party to the Agreement, and to the extent provided in this Assignment Agreement,
have the rights and obligations of a Lender, and (ii) Assignor shall, to the
extent provided in this Assignment Agreement, relinquish its rights and be
released from its obligations under the Agreement.
6. From and after the Assignment Effective Date, the Administrative Agent
shall make all payments in respect of any interest assigned hereby (including
payments of principal, interest, fees and other amounts) to Assignee. Assignor
and Assignee shall make all appropriate adjustments for payments made and
periods prior to the Assignment Effective Date by the Administrative Agent and
with respect to the making of this assignment directly between themselves.
Assignee's address for notices is set forth on the signature page hereof.
7. After giving effect to the assignment set forth herein and all
assignments which will become effective on the Assignment Effective Date, the
respective Commitments under the Revolving Loans of each Lender will be set
forth on the attached Annex I, which shall be annexed to the Credit Agreement.
-I-2-
<PAGE> 146
8. This Assignment Agreement shall be governed by, and construed in
accordance with, the laws of the state of New York without giving effect to its
choice of law doctrine.
[NAME OF ASSIGNOR]
By:
Title:
[NAME OF ASSIGNEE]
By:
Title:
Address:
Telephone:
Telecopier:
Attention:
Accepted this _____ day of
_________________,____
FLEET NATIONAL BANK, as AGENT
By:
Title:
PHASE METRICS, INC.
By:
Title:
-I-3-
<PAGE> 147
EXHIBIT J
[FORM OF BORROWING BASE CERTIFICATE]
BORROWING BASE CERTIFICATE
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ________ $_______________
2. Additions (please explain on reverse) $_______________
3. TOTAL ACCOUNTS RECEIVABLE $_______________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_______________
5. Intercompany/Employee Accounts $_______________
6. Insolvent Account Debtors $_______________
7. Conditional Accounts $_______________
8. Non-Dollar Accounts $_______________
9. Contra Accounts $_______________
10. Foreign Accounts $_______________
11. Governmental Accounts $_______________
12. Balance of 50% over 90 day accounts $_______________
13. Other (please explain on reverse) $_______________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______________
15. Eligible Accounts (#3 minus #14) $_______________
16. LOAN VALUE OF ACCOUNTS (75% of #15
so long as ratio of Consolidated Total Debt
to EBITDA >/= 3.5:1.0) $_______________
17. Eligible Inventory $_______________
18. Loan Value of Accounts and Inventory
(80% of #15 plus lesser of (i) 25% of #17
and (ii) $10,000,000) $_______________
BALANCES
19. Borrowing Base (#16 or #18) $_______________
20. Maximum Revolving Loan Amount $_______________
21. Total Funds Available [Lesser of #21 or #20] $_______________
22. Present balance owing on Revolving Facility $_______________
23. RESERVE POSITION (#22 minus #23) $_______________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Credit
Agreement.
COMMENTS:
Phase Metrics, Inc.
By:
--------------------------------------------
Authorized Signer
1
<PAGE> 148
SCHEDULE 5.1(f)
LITIGATION
1
<PAGE> 149
SCHEDULE 5.1(j)
ENVIRONMENTAL MATTERS
1
<PAGE> 150
SCHEDULE 6.2(f)
PERMITTED LIENS
1
<PAGE> 151
SCHEDULE 6.2(g)
EXISTING DEBT
1
<PAGE> 152
SCHEDULE 6.2(k)
EXISTING INVESTMENTS
1
<PAGE> 153
SCHEDULE 6.2(l)
EXISTING CONTINGENT OBLIGATIONS
1
<PAGE> 1
EXHIBIT 12.1
PHASE METRICS, INC.
STATEMENT REGARDING COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIOS)
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
---- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes and
extraordinary items.................. $361 $ 943 $ 6,193 $(19,842) $(9,812)
Fixed charges:
Interest expense..................... -- 651 5,625 8,448 11,573
Rental expense interest factor(1).... 35 60 178 1,133 1,700
---- ------ ------- -------- -------
Total fixed charges............. 35 711 5,803 9,581 13,273
---- ------ ------- -------- -------
Earnings (loss) available to cover fixed
charges................................. $396 $1,654 $11,996 $(10,261) $ 3,461
==== ====== ======= ======== =======
Combined fixed charges and preferred stock
dividend requirements................... $ 35 $1,023 $ 8,803 $ 12,581 $16,196
==== ====== ======= ======== =======
Ratio of earnings (loss) to fixed
charges(2).............................. 11.3x 1.6x 1.4x -- 0.2x
==== ====== ======= ======== =======
</TABLE>
- ---------------
(1) The portion of operating lease rental expense that is representative of the
interest factor is deemed to be one-third of total operating lease rental
expense.
(2) For the year ended December 31, 1996, earnings were inadequate to cover
Fixed Charges by $22.8 million.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF PHASE METRICS, INC.
SUBSIDIARIES
Name of Entity Organized Under Laws of
-------------- -----------------------
Air Bearings, Incorporated California
Applied Robotic Technologies, Inc. California
Helios, Incorporated California
Santa Barbara Metric, Inc. California
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of Phase Metrics, Inc.
We consent to the use in this Registration Statement of Phase Metrics, Inc.; Air
Bearings, Incorporated; Applied Robotic Technologies, Inc.; Helios,
Incorporated; and Santa Barbara Metric, Inc. on Form S-4 of our reports dated
January 30, 1998, with respect to the consolidated financial statements of Phase
Metrics, Inc. and September 6, 1996 with respect to the financial statements of
Air Bearings, Incorporated appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the heading "Experts"
in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
dated January 30, 1998 also included the consolidated financial statement
schedule of Phase Metrics, Inc., listed in Item 21(b). This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
March 24, 1998
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) [X]
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
(Exact name of trustee as specified in its charter)
United States 06-1143380
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
633 West 5th Street, 12th Floor, Los Angeles, California 90071
(Address of principal executive offices) (Zip Code)
Lynda A. Vogel, Senior Vice President and Managing Director
633 West 5th Street, 12th Floor, Los Angeles, California 90071
(213) 362-7399
(Name, address and telephone number of agent for service)
Phase Metrics, Inc.
(Exact name of obligor as specified in its charter)
Delaware 33-0328048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10260 Sorrento Valley Road
San Diego, California 92121
(Address of principal executive offices) (Zip Code)
SENIOR NOTES
10-3/4% Senior Notes due 2005
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Comptroller of the Currency, Western District Office, 50
Fremont Street, Suite 3900, San Francisco, California, 94105-2292
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Bank and Trust Company.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as Exhibits
with corresponding exhibit numbers to the Form T-1 of Oasis Residential,
Inc., filed pursuant to Section 305(b)(2) of the Act, on November 18, 1996
(Registration No. 033-90488), and are incorporated herein by reference.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A Certificate of Corporate Existence (with fiduciary powers) from
the Comptroller of the Currency, Administrator of National Banks is on
file with the Securities and Exchange Commission as Exhibits with
corresponding exhibit numbers to the Form T-1 of Oasis Residential, Inc.,
filed pursuant to Section 305(b)(2) of the Act, on November 18, 1996
(Registration No. 033-90488), and are incorporated herein by reference.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED
IN PARAGRAPH (1) OR (2), ABOVE.
Authorization of the Trustee to exercise fiduciary powers (included
in Exhibits 1 and 2; no separate instrument).
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibits with corresponding
exhibit numbers to the Form T-1 of Oasis Residential, Inc., filed pursuant
to Section 305(b)(2) of the Act, on November 18, 1996 (Registration No.
033-90488), and are incorporated herein by reference.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(b) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company of California, N.A.,
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles, and
State of California, on the February 27, 1998.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.
By: /s/ JEANIE MAR
--------------------------------------
NAME: JEANIE MAR
TITLE: ASSISTANT VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Phase Metrics,
Inc. of its 10-3/4% Senior Notes due 2005, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.
By: /s/ JEANIE MAR
--------------------------------------
NAME: JEANIE MAR
TITLE: ASSISTANT VICE PRESIDENT
DATED: FEBRUARY 27, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition and Income for A Bank With Domestic Offices
Only and Total Assess of Less Than $100 Million of State Street Bank and Trust
Company of California, a national banking association duly organized and
existing under and by virtue of the laws of the United States of America, at the
close of business December 31, 1997, published in accordance with a call made by
the Federal Deposit Insurance Corporation pursuant to the required law: 12
U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember
banks); and 12 U.S.C. Section 161 (National banks).
<TABLE>
<CAPTION>
Thousands
of Dollars
-------------
<S> <C> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .................... 5,580
Interest-bearing balances ............................................. 0
Securities ..................................................................... 38
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ................................... 0
Loans and lease financing receivables:
Loans and leases, net of unearned income .............................. 0
Allowance for loan and lease losses ................................... 0
Allocated transfer risk reserve ....................................... 0
Loans and leases, net of unearned income and allowances ............... 0
Assets held in trading accounts ................................................ 0
Premises and fixed assets ...................................................... 276
Other real estate owned ........................................................ 0
Investments in unconsolidated subsidiaries ..................................... 0
Customers' liability to this bank on acceptances outstanding ................... 0
Intangible assets .............................................................. 0
Other assets ................................................................... 726
-------------
Total assets ................................................................... 6,620
=============
LIABILITIES
Deposits:
In domestic offices . ................................................. 0
Noninterest-bearing .......................................... 0
Interest-bearing . ........................................... 0
In foreign offices and Edge subsidiary ................................ 0
Noninterest-bearing .......................................... 0
Interest-bearing ............................................. 0
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ................................... 0
Demand notes issued to the U.S. Treasury and Trading Liabilities ............... 0
Other borrowed money ........................................................... 0
Subordinated notes and debentures .............................................. 0
Bank's liability on acceptances executed and outstanding ....................... 0
Other liabilities .............................................................. 3,076
Total liabilities .............................................................. 3,076
-------------
EQUITY CAPITAL
Perpetual preferred stock and related surplus .................................. 0
Common stock ................................................................... 500
Surplus ........................................................................ 750
Undivided profits and capital reserves/Net unrealized holding gains (losses) ... 2,294
Cumulative foreign currency translation adjustments ............................ 0
Total equity capital ........................................................... 3,544
-------------
Total liabilities and equity capital ........................................... 6,620
=============
</TABLE>
4
<PAGE> 6
I, Kevin R. Wallace, Vice President and Comptroller of the above named bank do
hereby declare that this Report of Condition and Income for this report date
have been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and is true to the best of my knowledge
and belief.
Kevin R. Wallace
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
Lynda A. Vogel
Donald W. Beatty
Stephen Rivero
5
<PAGE> 7
Exhibit 1
ARTICLES OF ASSOCIATION
OF
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
NATIONAL ASSOCIATION
For the purpose of organizing an Association to carry on the business of a
limited purpose trust company under the laws of the United States, the
undersigned do enter into the following Articles of Association:
FIRST. The title of this Association shall be State Street Bank and
Trust Company of California, National Association.
SECOND. The Main Office of the Association shall be in the City of
Culver City, County of Los Angeles, State of California. The general
business of the Association shall be conducted at its main office and
its branches.
THIRD. The Board of Directors of this Association shall consist of not less than
five nor more than twenty-five shareholders, the exact number to be fixed and
determined from time to time by resolution of a majority of the full Board of
Directors or by resolution of the shareholders at any annual or special meeting
thereof. Each Director, during the full term of his directorship, shall own a
minimum of $1,000 aggregate par value of stock of this Association or a minimum
par, market value or equity interest of $1,000 of stock in the bank holding
company controlling this Association. Any vacancy in the Board of Directors may
be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders to elect Directors
and transact whatever other business may be brought before the meeting. It shall
be held at the main office or any other convenient place as the Board of
Directors may designate, on the day of each year specified therefore in the
By-laws, but if no election is held on that day, it may be held an any
subsequent day according to such lawful rules as may be prescribed by the Board
of Directors.
FIFTH. The authorized amount of capital stock of this Association shall be
1,000,000 shares of common stock of the par value of one dollar ($1) each; but
said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of this Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of this Association, whether now or hereafter authorized, or to
any obligations convertible into stock of this Association, issued, or sold, nor
any right of subscription to any thereof other than such, if any, as the Board
of Directors, in its discretion may from time to time determine and at such
price as the Board of Directors may from time to time fix. This Association, at
any time and from time to
1
<PAGE> 8
time, may authorize and issue debt obligations, whether or not subordinated,
without the approval of the shareholders.
SIXTH. The Board of Directors shall appoint one of its members President of this
Association, who shall be Chairperson of the Board, unless the Board appoints
another director to be the Chairperson. The Board of Directors shall have the
power to appoint one or more Vice Presidents; and to appoint a Cashier and such
other officers and employees as may be required to transact the business of this
Association.
The Board of Directors shall have the power to define the duties of the officers
and employees of this Association; to fix the salaries to be paid to the
officers and employees; to dismiss officers and employees; to require bonds from
officers and employees and to fix the penalty thereof; to regulate the manner in
which any increase of the capital of this Association shall be made; to manage
and administer the business and affairs of this Association; to make all By-laws
that it may be lawful for the Board of Directors to make; and generally to do
and perform all acts that it may be legal for a Board of Directors to do and
perform.
SEVENTH. The Board of Directors shall have the power to change the location of
the main office to any other place within the limits of the City of Culver City,
without the approval of the shareholders, and shall have the power to establish
or change the location of any branch or branches of this Association to any
other location, without the approval of the shareholders.
EIGHTH. The corporate existence of this Association shall continue
until terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any shareholder owning, in
the aggregate, not less than ten percent of the stock of this Association, may
call a special meeting of shareholders at any time. Unless otherwise provided by
the laws of the United States, a notice of the time, place, and purpose of every
annual and special meeting of the shareholders shall be given by first-class
mail, postage prepaid, mailed at least ten days prior to the date of such
meeting to each shareholder of record at his address as shown upon the books of
this Association.
TENTH. This Association shall indemnify each person who is or was a director,
officer, employee or other agent of this Association, and each person who is or
was serving at the request of this Association as a director, trustee, officer,
employee or other agent of another organization in which it directly or
indirectly owns shares or of which it is directly or indirectly a creditor,
against all liabilities, costs and expenses, including but not limited to amount
paid in satisfaction of judgments, in settlements or as fines and penalties, and
counsel fees and disbursements, reasonably incurred by such person in connection
with the defense or disposition of or otherwise in connection with or resulting
from any action, suit or other proceeding, whether civil, criminal,
administrative or investigative, before any court or administrative or
legislative or investigative body, in which such person may be or may have been
involved as a party or otherwise or with which he may be or may have been
threatened, while in office or thereafter, by reason of his being or having been
such a director, officer, employee, agent or trustee, or by reason of any action
taken or not taken in any such capacity, except with respect to any matter as to
which he shall
2
<PAGE> 9
have been finally adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that his action was in the best
interests of this Association. Expenses, including but not limited to counsel
fees and disbursements, so incurred by any such person in defending any such
action, suit or proceeding, may be paid from time to time by this Association in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the person indemnified to repay the amount
so paid if it shall ultimately be determined that indemnification of such
expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to a
consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of this Association, after
notice that it involves such indemnification, (a) by vote of a majority of the
disinterested directors then in office (even though the disinterested directors
be less than a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested person, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such officer, director, employee, agent or trustee of any amounts paid to such
person or on his or her behalf as indemnification in accordance with the
preceding sentence if such person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that his action was in the best interests of this Association.
The right of indemnification hereby provided shall not be exclusive of or affect
any other rights to which any director, officer, employee, agent or trustee may
be entitled or which may lawfully be granted to such person. As used herein, the
terms "director," "officer," "employee," "agent" and "trustee" include their
respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending or threatened, and a "disinterested" person
is a person against whom no such action, suit or other proceeding is then or had
been pending or threatened.
By action of the Board of Directors, notwithstanding any interest of the
directors in such action, this Association may purchase and maintain insurance,
in such amounts as the Board of Directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer, employee
or other agent of this Association, or is or was serving at the request of this
Association as a director, trustee, officer, employee or other agent of another
organization in which it directly or indirectly owns shares or of which it is
directly or indirectly a creditor, against any liability incurred by such person
in any such capacity, or arising out of his or her status as such, whether or
not this Association would have the power to indemnify such person against such
liability.
ELEVENTH. These Articles of Association may be amended at any regular or special
meeting of the shareholders by the affirmative vote of the holders of a majority
of the stock of this
3
<PAGE> 10
Association, unless the vote of the holders of a greater amount of stock is
required by law, and in that case by the vote of the holders of such greater
amount.
TWELFTH. This Association may be a partner in any business or
enterprise which this Association would have power to conduct by itself.
IN WITNESS WHEREOF, we have hereunto set our hands this 25th day of July, 1985.
Peter E. Madden
- -------------------------------
Peter E. Madden
David A. Spina
- -------------------------------
David A. Spina
Charles J. Kelly
- -------------------------------
Charles J. Kelly
Richard J. Poznysz
- ------------------------------
Richard J. Poznysz
Vincent V. Grippa
- -------------------------------
Vincent V. Grippa
4
<PAGE> 11
[LOGO] Exhibit 2
- ------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- ------------------------------------------
Western District Office
50 Fremont Street, Suite 3900
San Francisco, CA. 94105-2292
CERTIFICATE OF CORPORATE EXISTENCE
(WITH FIDUCIARY POWERS)
I, NANETTE G. GOULET, on behalf of the Office of the Comptroller of the
Currency, hereby certify that:
1. The OFFICE OF THE COMPTROLLER OF THE CURRENCY, pursuant to Revised Statutes
324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession,
custody and control of all records pertaining to the chartering, regulation and
supervision of all NATIONAL BANKING ASSOCIATIONS;
2. STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION, LOS
ANGELES, CALIFORNIA, CHARTER NO. 18607, is a National Banking Association formed
under the laws of the United States and authorized hereunder and continues to
hold authority to transact the business of banking (and to act in all fiduciary
capacities) permitted thereby on the date of this certificate.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused the
seal of office of the Office of the Comptroller of the Currency to be affixed,
in the City of San Francisco, California this 3RD DAY OF FEBRUARY, 1995.
Nanette G. Goulet
- --------------------------
Nanette G. Goulet
Director for Bank Analysis
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1997 AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,977
<SECURITIES> 0
<RECEIVABLES> 30,393
<ALLOWANCES> (1,663)
<INVENTORY> 55,585
<CURRENT-ASSETS> 103,375
<PP&E> 49,103
<DEPRECIATION> (11,080)
<TOTAL-ASSETS> 154,730
<CURRENT-LIABILITIES> 37,300
<BONDS> 119,272
0
3
<COMMON> 6,090
<OTHER-SE> (23,966)
<TOTAL-LIABILITY-AND-EQUITY> 154,730
<SALES> 184,660
<TOTAL-REVENUES> 184,660
<CGS> 101,294
<TOTAL-COSTS> 101,294
<OTHER-EXPENSES> 80,200
<LOSS-PROVISION> 1,405
<INTEREST-EXPENSE> 11,573
<INCOME-PRETAX> (9,812)
<INCOME-TAX> (4,268)
<INCOME-CONTINUING> 2,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,544)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR
10 3/4% SENIOR NOTES DUE 2005
OF
PHASE METRICS, INC.
PURSUANT TO THE EXCHANGE OFFER IN RESPECT OF
ALL OF ITS OUTSTANDING 10 3/4% SENIOR NOTES DUE 2005
FOR
10 3/4% SENIOR NOTES DUE 2005
---------------------------
PURSUANT TO THE PROSPECTUS DATED _________, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON ______
__, 1998 UNLESS THE EXCHANGE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS
OF NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 12:00 MIDNIGHT ON THE EXPIRATION
DATE.
TO: STATE STREET BANK AND TRUST OF CALIFORNIA, N.A., EXCHANGE AGENT
<TABLE>
<S> <C>
By Mail, Hand or Overnight Carrier: The Exchange Agent
State Street Bank and Trust Company of California, N.A State Street Bank and Trust Company of California, N.A.
633 West 5th Street, 12th Floor By Facsimile:
Los Angeles, California 90071 (For Eligible Institutions Only)
Attn: Jeanie Mar (213) 362-7357
Confirm by Telephone:
(213) 362-7338
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION
VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR NOTES
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR
NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
By execution hereof, the undersigned acknowledges receipt of the
Prospectus dated _______ ___, 1998 (the "Prospectus") of Phase Metrics, Inc., a
Delaware corporation (the "Company"), which, together with this Letter of
Transmittal and the instructions hereto (the "Letter of Transmittal"),
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its new 10 3/4% Senior Notes Due 2005 (the "New Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
constitutes a part, for each $1,000 principal amount of its outstanding 10 3/4%
Senior Notes Due 2005 (the "Notes"), upon the terms and subject to the
conditions set forth in the Prospectus.
<PAGE> 2
DESCRIPTION OF NOTES TENDERED HEREBY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Aggregate
Principal
Name(s) and Address(es) of Certificate Amount Principal
Registered Owner(s) or Registration Represented Amount
(Please Fill In) Numbers* by Notes Tendered**
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------- -------------------- ---------------------- --------------------
- ---------------------------------------- -------------------- ---------------------- --------------------
- ---------------------------------------- -------------------- ---------------------- --------------------
- ---------------------------------------- -------------------- ---------------------- --------------------
- ---------------------------------------- -------------------- ---------------------- --------------------
- ---------------------------------------- -------------------- ---------------------- --------------------
Total
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by Book-entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered
the full aggregate principal amount represented by such Notes. All
tenders must be in integral multiples of $1,000.
This Letter of Transmittal is to be used (i) if certificates of Notes
are to be forwarded herewith, (ii) if delivery of Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company (the "Depository") pursuant to the procedures set forth
in "The Exchange Offer -- Procedures for Tendering" in the Prospectus or
(iii) tender of the Notes is to be made according to the guaranteed delivery
procedures described in the Prospectus under the caption "The Exchange Offer --
Guaranteed Delivery Procedures." See Instruction 2. Delivery of documents to a
book-entry transfer facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Notes are registered on the books of the Company or Trustee, or any
other person who has obtained a properly completed bond power from the
registered holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Notes must
complete this letter in its entirety.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
-------------------------------------------
Account Number
----------------------------------------------------------
Transaction Code Number
-------------------------------------------------
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date must tender their Notes according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
<PAGE> 3
[ ] CHECK HERE IF NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s)
--------------------------------------------
Window Ticket (if any)
--------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------
Name of Institution which guaranteed delivery
---------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number
----------------------------------------------------------
Transaction Code Number
-------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-------------------------------------------------------------------
Address:
----------------------------------------------------------------
Telephone Number:
-------------------------------------------------------
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Notes tendered hereby, the undersigned hereby exchanges, assigns and
transfers to, or upon the order of, the Company all right, title in and interest
in and to such Notes as are being tendered hereby, including all rights to
accrued and unpaid interest thereon as of the Expiration Date. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of the undersigned (with full knowledge that
said Exchange Agent acts as the agent of the Company in connection with the
Exchange Offer) to cause the Notes to be assigned, transferred and exchanged.
The undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Notes and to acquire New Notes
issuable upon the exchange of such tendered Notes, and that when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim.
The undersigned represents to the Company that (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, whether or not such
person is the undersigned, and (ii) neither the undersigned nor any such other
person has an arrangement or understanding with any person to participate in a
distribution of such New Notes. If the undersigned or the person receiving the
New Notes covered hereby is a broker-dealer that is receiving the New Notes for
its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities, the undersigned
acknowledges that it or such other person will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. The undersigned
and any such other person acknowledge that, if they are participating in the
Exchange Offer for the purpose of distributing the New Notes, (i) they cannot
rely on the position of the staff of the Securities and Exchange Commission
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989),
Morgan Stanley & Co., Inc. (available June 5, 1991) Sherman & Sterling
(available July 2, 1993) or similar no-action letters and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction and
(ii) failure to comply with such requirements in such instance could result in
the undersigned or any such other person incurring liability under the
Securities Act for which such persons are not indemnified by the Company. If the
undersigned or the person receiving the New Notes covered by this letter is an
"affiliate" (as defined under Rule 405 of the Securities Act) of the Company,
the undersigned represents to the Company that the undersigned understands and
acknowledges that such New Notes may not be offered for resale, resold or
otherwise transferred by the undersigned or such other person without
registration under the Securities Act or an exemption therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Notes by the Company and the issuance of New
Notes in exchange therefor shall constitute performance in full by the Company
of its obligations under the Registration Rights Agreement and that the Company
shall have no further obligations or liabilities thereunder for the registration
of the Notes or the New Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the Notes tendered hereby
and, in such event, the Notes not exchanged will be returned to the undersigned
at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered Notes may be withdrawn at
any time prior to the Expiration Date as described in the Prospectus.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instruction" in this Letter
of Transmittal, certificates for all New Notes delivered in exchange for
tendered Notes, and any
<PAGE> 5
Notes delivered herewith but not exchanged, will be registered in the name of
the undersigned and shall be delivered to the undersigned at the address shown
below the signature of the undersigned. If a New Note is to be issued to a
person other than the person(s) signing this Letter of Transmittal, or if the
New Note is to be mailed to someone other than the person(s) signing this Letter
of Transmittal or to the person(s) signing this Letter of Transmittal at an
address different than the address shown on this Letter of Transmittal, the
appropriate boxes of this Letter of Transmittal should be completed. If Notes
are surrendered by Holder(s) that have completed either the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" in this Letter of Transmittal, signature(s) on this Letter of
Transmittal must be guaranteed by an Eligible Institution (defined in
Instruction 4).
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF NOTES
TENDERED HEREBY" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED
THE NOTES AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if Notes for Notes not exchanged and/or New Notes are
to be issued in the name of and sent to someone other than the person(s) whose
signature(s) appear(s) on this Letter above, or if Notes delivered by book-entry
transfer which are not accepted for exchange are to be returned by credit to an
account maintained at the Book-Entry Transfer Facility other than the account
indicated above.
Issue New Notes and/or Notes to:
Name(s):
------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
(Complete accompanying Substitute Form W-9) Credit unexchanged Notes
delivered by book-entry transfer to the Book-Entry Transfer Facility account set
forth below.
- --------------------------------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if Notes for Notes not exchanged and/or New Notes are
to be sent to someone other than the person(s) whose signature(s) appear(s) on
this Letter above or to such person(s) at an address other than shown in the box
entitled "Description of Notes Tendered Hereby" on this Letter above.
Mail New Notes and/or Notes to:
Name(s):
------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
<PAGE> 6
REGISTERED HOLDER(S) OF NOTES SIGN HERE
(IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 BELOW)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S):
Must be signed by registered holder(s) exactly as name(s) appear(s) on
the Notes or on a security position listing as the owner of the Notes or by
person(s) authorized to become registered holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information.
(PLEASE PRINT OR TYPE).
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity (full title):
----------------------------------------------------------
Address (including zip code):
---------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone Number:
-----------------------
Taxpayer Identification or Social Security No.:
---------------------------------
Dated:
------------------------
SIGNATURE GUARANTEE
(IF REQUIRED - SEE INSTRUCTION 4)
Authorized Signature:
-----------------------------------------------------------
(Signature of Representative of Signature Guarantor)
Name and Title:
-----------------------------------------------------------------
Name of Plan:
-------------------------------------------------------------------
Area Code and Telephone Number:
-----------------------------
Dated:
----------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE NOTES OR A
BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 12:00 MIDNIGHT, NEW YORK TIME, ON THE EXPIRATION
DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE
<PAGE> 7
PAYOR'S NAME: PHASE METRICS, INC.
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
Please provide your social security number or other taxpayer
identification number on the following Substitute Form W-9 and certify therein
that you are subject to backup withholding.
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Business name, if different from above
Check appropriate box: [ ] Individual/Sole proprietor [ ] Corporation
[ ] Partnership [ ] Other
-----------------------------------------------------
- --------------------------------------------------------------------------------
Address (number, street, and apt. or suite no.)
- --------------------------------------------------------------------------------
City, state, and ZIP code
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN IN Social security number
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY _____________________
SIGNING AND DATING BELOW OR
Employer identification
number
_____________________
-----------------------------------------------------------------------------------
Part 2 -- Check the box if you are NOT subject to backup withholding under the
Department of the Treasury provisions of Section 2306(a)(1)(C) of the Internal Revenue Code because (1)
Internal Revenue Service you are exempt from backup withholding, (2) you have not been notified that you
are subject to backup withholding as a result of failure to report all interest or
dividends or (3) the Internal Revenue Service has notified you that you are no
longer subject to backup withholding. [ ]
-----------------------------------------------------------------------------------
PAYER'S REQUEST FOR Part 3 -- CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I
TAXPAYER IDENTIFICATION CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS
NUMBER (TIN) TRUE, CORRECT AND COMPLETE.
Awaiting TIN [ ]
SIGNATURE: DATE:
--------------------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF PAYMENTS MADE TO YOU.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable
payments made to me thereafter will be withheld, until I provide a number.
- -------------------------------- -------------------------------------
Signature Date
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Notes or confirmation of any book-entry
transfer to the Exchange Agent's account at a book-entry transfer facility of
Notes tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to the Expiration
Date. The method of delivery of this Letter of Transmittal, the Notes and any
other required documents is at the election and risk of the Holder, and except
as otherwise provided below, the delivery will be deemed made only when actually
received by the Exchange Agent. If such delivery is by mail, it is suggested
that registered mail with return receipt requested, properly insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Notes for exchange.
Delivery to an address of the Trustee other than as set forth herein, or
instructions via a facsimile number other than the ones set forth herein, will
not constitute a valid delivery.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Notes, but whose Notes are not
immediately available and thus cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if:
(a) the tender is made through a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution");
(b) prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Depository) and any other documents required by the Letter Of
Transmittal, will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal
(or facsimile thereof), as well as all tendered Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Notes into the
Exchange Agent's account at the Depository) and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within three
New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery form
will be sent to Holders who wish to tender their Notes according to the
guaranteed delivery procedures set forth above. Any Holder who wishes to tender
Notes pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery relating to
such Notes prior to the Expiration Date. Failure to complete the guaranteed
delivery procedures outlined above will not, of itself, affect the validity or
effect a revocation of any Letter of Transmittal form properly completed and
executed by a Holder who attempted to use the guaranteed delivery procedures.
<PAGE> 9
3. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Notes evidenced by a
submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the column entitled "Principal Amount Tendered" of
the box entitled "Description of Notes Tendered Hereby." A newly issued Note for
the principal amount of Notes submitted but not tendered will be sent to such
Holder as soon as practicable after the Expiration Date. All Notes delivered to
the Exchange Agent will be deemed to have been tendered in full unless otherwise
indicated.
Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date as described in the Prospectus, after which
tenders of Notes are irrevocable.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL, WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of
the Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alternation or enlargement or
any change whatsoever. If this Letter of Transmittal is signed by a participant
in the Depository, the signature must correspond with the name as it appears on
the security position listing as the owner of the Notes.
If any of the Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Notes registered in different names are tendered, it will
be necessary to complete, sign and submit as many separate copies of this Letter
of Transmittal as there are different registrations of Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution unless the Notes
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or
Holders of Notes (which term, for the purposes described herein, shall include a
participant in the Depository whose name appears on a security listing as the
owner of the Notes) listed and tendered hereby, no endorsements of the tendered
Notes or separate written instruments of transfer or exchange are required. In
any other case, the registered Holder (or acting Holder) must either properly
endorse the Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on the Notes, and, with respect to a participant in the
Depository whose name appears on a security position listing as the owner of
Notes, exactly as the name of the participant appears on such security position
listing), with the signature on the Notes or bond power guaranteed by an
Eligible Institution (except where the Notes are tendered for the account of an
Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Please contact the Company if there are any questions regarding what constitutes
proper evidence.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at the Depository) in which the New Notes or substitute
Notes for principal amounts not tendered or not accepted for exchange are to be
issued (or deposited), if different from the names and addresses or accounts of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification number or social security number of
the person named must also be indicated and the tendering Holder should complete
the applicable box.
<PAGE> 10
If no instructions are given, the New Notes (and any Notes not tendered
or not accepted) will be issued in the name of and sent to the acting Holder of
the Notes or deposited at such Holder's account at the Depository.
6. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Notes to it or its order pursuant to the Exchange
Offer. If a transfer tax is imposed for any other reason other than the transfer
and exchange of Notes to the Company or its order pursuant to the Exchange
Offer, the amount of any such transfer taxes (whether imposed on the registered
Holder or any other person) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith, the amount of such transfer taxes will be collected from the
tendering Holder by the Exchange Agent.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Notes listed in this Letter of Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the right, in its reasonable judgment, to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES.
Any Holder whose Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering as well as requests
for additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to Phase Metrics, Inc., 10260 Sorrento Valley
Road, San Diego, California, telephone (619) 646-4800.
10. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right, in its reasonable judgment, to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Notes must be cured within such time as the Company shall determine. Although
the Company intends to notify Holders of defects or irregularities with respect
to tenders of Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification. Tenders
of Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holder as soon as practicable following the Expiration
Date.
<PAGE> 11
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the tendering Holder has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future. If the Exchange
Agent is not provided with the correct TIN, the Holder may be subject to a
penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Holder with respect to tendered Notes may be subject to backup
withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9 should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-8, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to
withhold 31% of any amounts otherwise payable to the Holder. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder with
respect to Notes tendered for exchange, the Holder is required to notify the
Exchange Agent of his or her correct TIN by completing the form herein
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
Holder is awaiting a TIN) and that (i) each Holder is exempt, (ii) such Holder
has not been notified by the Internal Revenue Service that he or she is subject
to backup withholding as a result of failure to report all interest or dividends
or (iii) the Internal Revenue Service has notified such Holder that he or she is
no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the Notes.
If Notes are in more than one name or are not in the name of the actual Holder,
consult the instructions on Internal Revenue Service Form W-9, which may be
obtained from the Exchange Agent, for additional guidance on which number to
report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, write "Applied For"
in the space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 1
EXHIBIT 99.2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
- -- Social Security numbers have nine digits separated by two hyphens: e.g.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: e.g., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
=========================================================================================================
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF--
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if combined
funds, any one of the
individuals (1)
3. Husband and wife (joint account) The actual owner of the account or, if joint funds,
either person (1)
4. Custodian account of a minor (Uniform The minor (2)
Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the
minor (1)
6. Account in the name of guardian or The ward, minor, or incompetent person (3)
committee for a designated ward, minor, or
incompetent person
7. a. The usual revocable savings trust The grantor-trustee (1)
account (grantor is also trustee)
b. So-called trust account that is The actual owner (1)
not a legal or valid trust
under State law
8. Sole proprietorship account The owner (4)
9. A valid trust, estate, or Legal entity (Do not furnish
pension trust the identifying number of the
personal representative or trustee
unless the legal entity itself
is not designated in the
account title.) (5)
10. Corporate account The corporation
11. Religious, charitable, or educational The organization
organization account
12. Partnership account held in the name The partnership
of the business
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
13. Association, club, or other tax-exempt The organization
organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or
prison) that receives agricultural
program payments
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner. You may also enter your business or "doing
business as" name. Furnish the owner's social security number or the
employer identification number of the sole proprietorship.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
OBTAINING A NUMBER
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at an office of the Social Security
Administration or the Internal Revenue Service.
To complete Substitute Form W-9, if you do not have a taxpayer identification
number, write "Applied For" in the space for the taxpayer identification number
in Part I, sign and date the Form, and give it to the requester. Generally, you
will then have 60 days to obtain a taxpayer identification number and furnish it
to the requester. If the requester does not receive your taxpayer identification
number within 60 days, backup withholding, if applicable, will begin and will
continue until you furnish your taxpayer identification number to the requester.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation
- A financial institution
- An organization exempt from tax under section 501(a), or an
individual retirement plan, or a custodial account under section
403(b)(7)
- The United States or any agency or instrumentality thereof
- A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof
- A foreign government or a political subdivision, agency or
instrumentality thereof
- An international organization or any agency or instrumentality
thereof
- A registered dealer in securities or commodities registered in the
United States or a possession of the United States
- A real estate investment trust
- A common trust fund operated by a bank under section 584(a)
- An entity registered at all times during the tax year under the
Investment Company Act of 1940
- A foreign central bank of issue
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section
1441
<PAGE> 3
- Payments to partnerships not engaged in a trade or business in the
United States and which have at least one nonresident partner
- Payments of patronage dividends where the account received is not
paid in money
- Payments made by certain foreign organizations
- Payments made to a nominee
Payments of interest not generally subject to backup withholding include
the following:
- Payments of interest on obligations issued by individuals. NOTE: You
may be subject to backup withholding if (i) this interest is $600 or
more, (ii) the interest is paid in the course of the payer's trade
or business and (iii) you have not provided your correct taxpayer
identification number to the payer
- Payments of tax-exempt interest (including exempt-interest dividends
under section 852)
- Payments described in section 6049(b)(5) to nonresident aliens
- Payments on tax-free covenant bonds under section 1451
- Payments made by certain foreign organizations
- Payments made to a nominee
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE A SUBSTITUTE FORM W-9 TO AVOID
POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER. FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under 6041, 6041A(a), 6045, and
6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. Payers must be
given the numbers whether or not recipients are required to file tax returns.
Payers must generally withhold 31% of taxable interest, dividends, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE STATEMENTS WITH RESPECT TO WITHHOLDING.--If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--If you falsify certifications
or affirmations, you are subject to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR
TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE
Unless otherwise noted herein, all references to section numbers or to
regulations are references to the Internal Revenue Code of 1984, as amended, and
the regulations promulgated thereunder.
<PAGE> 1
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
FOR
10 3/4% SENIOR NOTES DUE 2005
OF
PHASE METRICS, INC.
As set forth in the Prospectus dated __________ ___, 1998 (the
"Prospectus") of Phase Metrics, Inc. (the "Company") and in the accompanying
Letter of Transmittal and instructions thereto (the "Letter of Transmittal"),
this form or one substantially equivalent hereto must be used to accept the
Company's exchange offer (the "Exchange Offer") to purchase all of its
outstanding 10 3/4% Senior Notes Due 2005 (the "Notes") if (i) certificates
representing the Notes to be tendered for purchase and payment are not lost but
are not immediately available, (ii) time will not permit the Letter of
Transmittal, certificates representing such Notes or other required documents to
reach State Street Bank and Trust Company of California, N.A. (the "Exchange
Agent") prior to the Expiration Date or (iii) the procedures for book-entry
transfer cannot be completed prior to the Expiration Date. This form may be
delivered by an Eligible Institution by mail or hand delivery or transmitted,
via facsimile (receipt confirmed by telephone) to the Exchange Agent as set
forth below. All capitalized terms used herein but not defined herein shall have
the meanings ascribed to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON __________ ___, 1998 UNLESS THE OFFER IS EXTENDED (THE
"EXPIRATION DATE").
TENDERS OF NOTES MAY BE WITHDRAWN UNDER THE PROCEDURES DESCRIBED IN THE
PROSPECTUS AT ANY TIME PRIOR TO 12:00 MIDNIGHT
ON THE EXPIRATION DATE.
By Mail, Hand or Overnight Carrier: The Exchange Agent
State Street Bank and Trust Company of State Street Bank and Trust Company of
California, N.A. California,N.A.
633 West 5th Street, 12th Floor By Facsimile:
Los Angeles, California 90071 (213) 362-7357
Attn: Jeanie Mar Confirm by Telephone:
(213) 362-7338
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Exchange Offer (as described in the
Prospectus) and the Letter of Transmittal, receipt of which is hereby
acknowledged, the aggregate principal amount of Notes set forth below pursuant
to the guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer -- Guaranteed Delivery Procedures."
The undersigned understands that tenders of Notes will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof. The undersigned
understands that tenders of Notes pursuant to the Exchange Offer may not be
withdrawn after 12:00 midnight, New York City time, on the Expiration Date.
Tenders of Notes may also be withdrawn if the Exchange Offer is terminated
without any such Notes being purchased thereunder or as otherwise provided in
the Prospectus under the caption "The Exchange Offer -- Withdrawal of Tenders."
<PAGE> 2
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned,
and every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE COMPLETE AND SIGN
SIGNATURE(S) OF REGISTERED HOLDER(S) NAME(S) OF REGISTERED HOLDER(S):
OR AUTHORIZED SIGNATORY: ________________________________
__________________________________________ ________________________________
__________________________________________
__________________________________________ ADDRESS:
__________________________________________ ________________________________
________________________________
PRINCIPAL AMOUNT OF NOTES TENDERED:
__________________________________________ AREA CODE AND TELEPHONE NO.:
__________________________________________ ________________________________
CERTIFICATE NO(S). OF NOTES (IF AVAILABLE): IF NOTES WILL BE DELIVERED BY
__________________________________________ BOOK-ENTRY TRANSFER AT THE
__________________________________________ DEPOSITORY TRUST COMPANY,
INSERT DEPOSITORY ACCOUNT NO.:
________________________________
DATE:
__________________________________________ ________________________________
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Notes exactly as its (their) name(s) appear on certificates for
Notes or on a security position listing as the owner of Notes, or by person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must
provide the following information.
Please print name(s) and address(es)
Name(s): ____________________________________________________________________
____________________________________________________________________
Capacity: ____________________________________________________________________
Address(es):____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Do not send Notes with this form. Notes should be sent to the Exchange
Agent together with a properly completed and duly executed Letter of
Transmittal.
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States,
hereby (a) represents that each holder of Notes on whose behalf this tender is
being made "own(s)" the Notes covered hereby within the meaning of Rule 14e-4
under the Securities Exchange Act of 1934, as amended, (b) represents that such
tender of Notes complies with such Rule 14e-4, and (c) guarantees that, within
five New York Stock Exchange trading days from the date of this Notice of
Guaranteed Delivery, a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof), together with certificates representing
the Notes covered hereby in proper form for transfer (or confirmation of the
book-entry transfer of such Notes into the Exchange Agent's account at The
Depository Trust Company, pursuant to the procedure for book-entry transfer set
forth in the Prospectus) and required documents will be deposited by the
undersigned with the Exchange Agent.
<PAGE> 3
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Notes tendered hereby to the Exchange Agent within the time period set forth
above and that failure to do so could result in financial loss to the
undersigned.
Name of Firm:_________________________ _______________________________________
Authorized Signature
Address:______________________________ Name:__________________________________
(Please Type or Print)
______________________________ Title:_________________________________
Area Code and Telephone No.:__________ Date:__________________________________
