<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------------------------------------------------------------
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 333-33121
LEINER HEALTH PRODUCTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------------------------------------------------
DELAWARE 95-3431709
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
901 EAST 233rd STREET, CARSON, CALIFORNIA 90745
(310) 835-8400
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
--------------------------------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
------- -------
COMMON STOCK, $1.00 PAR VALUE, OUTSTANDING AT FEBRUARY 10, 2000
1,000 SHARES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LEINER HEALTH PRODUCTS INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
PART I. Financial Information....................................................... 3
ITEM 1. Financial Statements .................................................. 3
Condensed Consolidated Statements of Operations (Unaudited) -
For the three and nine months ended December 31, 1999 and 1998 ........ 3
Condensed Consolidated Balance Sheets -
As of December 31, 1999 (Unaudited) and March 31, 1999 ............... 4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
For the nine months ended December 31, 1999 and 1998 ................. 5
Notes to Condensed Consolidated Financial Statements (Unaudited) .......... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................ 12
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ........... 19
PART II. Other Information ........................................................ 20
SIGNATURE .......................................................................... 21
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-2-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Condensed Consolidated Statements of Operations
Unaudited
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- -----------------------------
1999(A) 1998 1999(A) 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 182,687 $ 162,151 $ 448,085 $ 433,888
Cost of sales 137,459 121,206 340,913 323,116
----------- ----------- ------------ ------------
Gross profit 45,228 40,945 107,172 110,772
Marketing, selling and distribution expenses 22,616 19,161 61,403 56,327
General and administrative expenses 9,476 7,679 27,476 26,205
Amortization of goodwill 425 417 1,260 1,253
Closure of facilities (375) 143 493 464
Other charges (income) 383 460 1,133 (228)
----------- ----------- ------------ ------------
Operating income 12,703 13,085 15,407 26,751
Interest expense, net 7,809 7,581 22,847 21,472
----------- ----------- ------------ ------------
Income (loss) before income taxes 4,894 5,504 (7,440) 5,279
Provision (benefit) for income taxes 1,868 2,316 (3,579) 2,244
----------- ----------- ------------ ------------
Net income (loss) $ 3,026 $ 3,188 $ (3,861) $ 3,035
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
(A) These financial statements include the operating results of the acquired
operations of Granutec, Inc. and Stanley Pharmaceuticals Ltd. for the two
weeks ended December 31, 1999.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-3-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 (A) 1999
-------------- ------------
UNAUDITED NOTE 1
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,160 $ 77
Accounts receivable, net 131,038 127,127
Inventories 185,807 151,605
Prepaid expenses and other current assets 17,172 10,738
-------------- ------------
Total current assets 336,177 289,547
Property, plant and equipment, net 78,890 61,241
Goodwill, net 53,574 54,334
Deferred financing charges 10,797 10,565
Other noncurrent assets 21,308 9,851
-------------- ------------
Total assets $ 500,746 $ 425,538
-------------- ------------
-------------- ------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Bank checks outstanding, less cash on deposit $ 9,259 $ 6,539
Current portion of long-term debt 6,033 4,068
Accounts payable 113,572 82,244
Customer allowances payable 8,310 9,603
Accrued compensation and benefits 10,529 11,120
Other accrued expenses 10,341 9,350
-------------- ------------
Total current liabilities 158,044 122,924
Long-term debt 341,508 317,859
Other noncurrent liabilities 4,452 4,253
Commitments and contingent liabilities
Shareholder's deficit:
Common stock 1 1
Capital in excess of par value 21,851 1,851
Accumulated deficit (25,158) (21,297)
Accumulated other comprehensive income (loss) 48 (53)
-------------- ------------
Total shareholder's deficit (3,258) (19,498)
-------------- ------------
Total liabilities and shareholder's deficit $ 500,746 $ 425,538
-------------- ------------
-------------- ------------
</TABLE>
(A) These financial statements include the balances of the acquired operations
of Granutec, Inc. and Stanley Pharmaceuticals Ltd. as of December 31, 1999.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-4-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------------------
1999 (A) 1998
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (3,861) $ 3,035
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation 6,850 5,834
Amortization 7,017 6,164
Deferred income taxes - (20)
Translation adjustment (101) 30
Changes in operating assets and liabilities net of
effects of acquisition of business:
Accounts receivable 16,411 3,028
Inventories (2,903) (46,498)
Bank checks outstanding, less cash on deposit 2,641 5,292
Accounts payable 13,321 (7,425)
Customer allowances payable (1,283) (1,869)
Accrued compensation and benefits (3,443) (3,017)
Other accrued expenses 2,611 1,054
Income taxes payable/receivable (7,460) (2,559)
Other (576) (563)
------------- ------------
Net cash provided by (used in) operating activities 29,224 (37,514)
INVESTING ACTIVITIES:
Acquisition of business (51,949) -
Additions to property, plant and equipment, net (4,295) (9,812)
Increase in other noncurrent assets (4,943) (3,357)
------------- ------------
Net cash used in investing activities (61,187) (13,169)
FINANCING ACTIVITIES:
Net payments under bank revolving credit facility (11,593) (3,296)
Borrowings under bank term credit facility 30,000 59,763
Payments under bank term credit facility (1,235) (998)
Capital contribution from parent 20,000 26
Repurchase of minority interest - (947)
Increase in deferred financing charges (1,614) (995)
Payments on other long-term debt (1,454) (870)
------------- ------------
Net cash provided by financing activities 34,104 52,683
Effect of exchange rate changes (58) (67)
------------- ------------
Net increase in cash and cash equivalents 2,083 1,933
Cash and cash equivalents at beginning of period 77 1,026
------------- ------------
Cash and cash equivalents at end of period $ 2,160 $ 2,959
------------- ------------
------------- ------------
</TABLE>
(A) These financial statements include the operating results and the balances
of the acquired operations of Granutec, Inc. and Stanley Pharmaceuticals
Ltd. as of and for the two weeks ended December 31, 1999.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-5-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for
the three and nine months ended December 31, 1999 include the accounts of
Leiner Health Products Inc. (the "Company") and its subsidiaries, including
Vita Health Products Inc. ("Vita Health"). Such financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals and adjustments
recorded in connection with the acquisition of assets accounted for under the
purchase method - Note 2 and adjustments recorded for the closure of
facilities - Note 9) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended
December 31, 1999 are not necessarily indicative of the results that may be
expected for the year ended March 31, 2000.
The balance sheet at March 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended March 31, 1999.
Certain reclassifications have been made to the fiscal 1999 condensed
consolidated financial statements to conform with the fiscal 2000
presentation.
2. ACQUISITION
The Company purchased substantially all of the assets of Granutec, Inc.
("Granutec") and Stanley Pharmaceuticals Ltd. ("Stanley"), both of which are
subsidiaries of Novopharm Limited of Ontario, Canada, as well as certain
related assets of Novopharm Limited, as of December 17, 1999 (the
"Acquisition"). Granutec manufactures and distributes private label,
over-the-counter pharmaceutical drugs in the United States, with facilities
located in Wilson, North Carolina and Largo, Florida. Stanley manufactures
and distributes private label, over-the-counter pharmaceutical drugs and
vitamin supplement products in Canada and is headquartered in Vancouver,
British Columbia.
The company acquired these assets for a purchase price consisting of (i)
$50,000,000 in cash, subject to a net working capital adjustment, (ii) the
assumption by the Company of all liabilities, obligations and commitments of
Granutec relating to certain outstanding industrial development revenue
bonds, including, without limitation, the obligation to repay the outstanding
principal amount of approximately $7,100,000 on such bonds, and (iii) the
assumption by the Company of certain other liabilities of Granutec and
Stanley including trade accounts payable incurred in the ordinary course of
business, but excluding trade accounts payable that have been outstanding for
more than 90 days. The purchase price allocation recorded in connection with
the Acquisition was based on preliminary estimates of fair values and will be
finalized by March 31, 2000 based on the completion of a valuation of the
assets acquired and the completion and approval of a formal plan of
integration. The purchase price was funded in part by a $20,000,000
subscription by affiliates of certain existing shareholders to the capital of
the Company's ultimate parent, Leiner Health Products Group Inc. ("Leiner
Group"), which in turn made a capital contribution in the same amount to the
Company, through PLI Holdings Inc., the Company's direct parent. The balance
of the purchase price was funded from the Company's revolving credit facility.
The following unaudited pro forma financial information presents the
consolidated results of operations as if the Acquisition had occurred at the
beginning of the year presented, and does not purport to be indicative of the
results that would have occurred had the Acquisition occurred at such date or
of results which may occur in the future (in thousands).
<TABLE>
<CAPTION>
Nine months ended
December 31,
---------------------------
1999 1998
------------ ----------
<S> <C> <C>
Net sales................................ $545,905 $510,283
Operating income......................... 26,696 28,957
Net income............................... 718 1,540
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------- --------------
<S> <C> <C>
Raw materials, bulk vitamins and packaging materials ... $ 125,292 $ 86,925
Work-in-process ........................................ 16,330 12,717
Finished products ...................................... 44,185 51,963
------------- --------------
$ 185,807 $ 151,605
------------- --------------
------------- --------------
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-6-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
4. LONG-TERM DEBT
On May 15, 1998, the Company entered into an Amended and Restated Credit
Agreement (together with the amendments described below, the "Credit
Agreement"), which was amended on June 30, 1999 to include an additional U.S.
term loan in the amount of $30,000,000 as described below and on December 16,
1999 (the "Second Amendment") to waive certain limitations that would have
prohibited the Acquisition and to raise the applicable margins (as defined in
the Credit Agreement). Additionally, the Credit Agreement was amended on
February 11, 2000, effective December 16, 1999, principally to adjust the
calculations of the Company's debt covenants to properly account for the
Acquisition. The Credit Agreement provided for one U.S. term loan due
December 30, 2004 in the amount of $68,000,000, two U.S. term loans due
December 30, 2005 in the amounts of $65,000,000 and $30,000,000,
respectively, and a Canadian dollar denominated term loan due December 30,
2004 in the amount of approximately U.S. $12,000,000 (collectively, the "Term
Facility"), and a revolving credit facility in the amount of U.S.
$125,000,000 (the "Revolving Facility") a portion of which is made available
to Vita Health in Canadian dollars. The unpaid principal amount outstanding
on the Revolving Facility is due and payable on June 30, 2003.
Borrowings under the Credit Agreement bear interest at floating rates that
are based on the agent lender's base rate (8.5% at December 31, 1999), the
agent lender's Canadian prime rate (6.5% at December 31, 1999), LIBOR (6.0%
at December 31, 1999) or the lender's banker's acceptance rate (5.1% at
December 31, 1999), as the case may be, plus an applicable margin, as amended
under the Second Amendment, based on the Company's leverage ratio (as defined
in the Credit Agreement). The leverage ratio is defined generally as the
ratio of total funded indebtedness to the consolidated earnings before
interest, taxes, depreciation, amortization expense and other special charges
and its effect on the applicable margin varies as follows: (a) for U.S. and
Canadian revolving credit borrowings, from 1.0% to 2.5% for LIBOR- or
banker's acceptance-based loans, and from zero to 1.5% for alternate base
rate- or Canadian prime rate-based loans, (b) for the two Term B loans under
the Term Facility, from 2.625% to 3.125% for LIBOR-based loans, and from
1.625% to 2.125% for alternate base rate-based loans and (c) for the one Term
C loan and the one Term D loan under the Term Facility, from 2.75% to 3.25%
for LIBOR-based loans, and from 1.75% to 2.25% for alternate base rate-based
loans. As of December 31, 1999, the Company's weighted average interest rates
under the Credit Agreement were 9.04% for U.S. borrowings and 7.48% for
Canadian borrowings under the Credit Agreement. In addition to certain agent
and up-front fees, the Credit Agreement requires a commitment fee of up to
0.5% of the average daily unused portion of the Revolving Facility based on
the Company's leverage ratio.
The Company has entered into an interest protection arrangement effective
July 30, 1997 with respect to $29,460,000 of its indebtedness under the
Credit Agreement that provides a fixed rate of 6.17% on LIBOR rates plus
applicable margin on the interest rates payable thereon. On October 8, 1999,
the Company entered into an interest protection agreement with respect to
$54,000,000 of its indebtedness under the Credit Agreement, whereby the
Company will not pay any lower than 5.94% on LIBOR rates plus applicable
margin on the interest rates payable thereon. In connection with this
transaction, the Company received $229,500 that is being recorded as a
reduction of interest expense over the period of the agreement, which
terminates October 8, 2001.
The Credit Agreement contains financial covenants that require, among other
things, the Company to comply with certain financial ratios and tests,
including those that relate to the maintenance of specified levels of cash
flow and shareholder's equity. The Company was in compliance with all such
financial covenants as of December 31, 1999. As of December 31, 1999, the
Company had $33,290,000 available under its Revolving Facility.
In connection with the Acquisition, the Company assumed an industrial
development revenue bond loan ("IRB Loan") with an outstanding principal
amount of $7,100,000. The IRB Loan bore interest at the rate of 5.85% as of
December 31, 1999. The interest rate on the IRB Loan is variable and
fluctuates on a weekly basis. The principal amount of the IRB Loan is due and
payable in annual installments of $500,000, with the remaining outstanding
principal amount due and payable May 1, 2014.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-7-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
4. LONG-TERM DEBT (CONTINUED)
Principal payments on long-term debt as of December 31, 1999 through fiscal
2004 and thereafter are (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000 .................................. $ 1,871
2001 .................................. 5,421
2002 .................................. 3,342
2003 .................................. 2,620
2004 .................................. 115,395
Thereafter .................................. 218,892
-------------
Total ................................ $ 347,541
-------------
-------------
</TABLE>
5. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for the three and nine months
ended December 31, 1999 and 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net income (loss) ....................... $ 3,026 $ 3,188 $ (3,861) $ 3,035
Foreign currency translation adjustment.. 112 24 101 (30)
----------- ----------- ----------- ------------
Comprehensive income (loss) ............. $ 3,138 $ 3,212 $ (3,760) $ 3,005
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
6. RELATED PARTY TRANSACTIONS
On June 30, 1997, Leiner Group, the Company's sole shareholder, and the
Company entered into a consulting agreement with North Castle Partners,
L.L.C. (the "Sponsor") to provide the Company with certain business,
financial and managerial advisory services. Mr. Charles F. Baird, Jr.,
Chairman of Leiner Group's Board of Directors, acts as the managing member of
the Sponsor through Baird Investment Group, L.L.C. In exchange for such
services, Leiner Group and the Company have agreed to pay the Sponsor an
annual fee of $1,500,000, payable semi-annually in advance, plus the
Sponsor's reasonable out-of-pocket expenses. This fee may be reduced upon
completion of an initial public offering of Leiner Group's shares. The
agreement terminates if Baird Investment Group, L.L.C. ceases to be the
managing member of North Castle Partners I, L.L.C., or upon the earliest of
June 30, 2007 or the date that North Castle Partners I, L.L.C. terminates
before that date.
In connection with the Acquisition, the Company received a capital
contribution of approximately $20,000,000 from Leiner Group, through its
direct parent, PLI Holdings Inc.
7. CONTINGENT LIABILITIES
The Company has been named in numerous actions brought in federal or state
courts seeking compensatory and, in some cases, punitive damages for alleged
personal injuries resulting from the ingestion of certain products containing
L-Tryptophan. As of January 27, 2000, the Company and/or certain of its
customers, many of whom have tendered their defense to the Company, had been
named in 674 lawsuits, of which 671 have been settled.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-8-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
7. CONTINGENT LIABILITIES (CONTINUED)
The Company entered into an agreement (the "Agreement") with the Company's
supplier of bulk L-Tryptophan, under which the supplier agreed to assume the
defense of all claims and to pay all settlements and judgements, other than
for certain punitive damages, against the Company arising out of the
ingestion of L-Tryptophan products. To date, the supplier has funded all
settlements and paid all legal fees and expenses incurred by the Company
related to these matters. No punitive damages have been awarded or paid in
any settlement.
Of the remaining three cases, management does not expect that the Company
will be required to make any material payments in connection with their
resolution by virtue of the Agreement, or, in the event that the supplier
ceases to honor the Agreement, by virtue of the Company's product liability
insurance, subject to deductibles with respect to the three currently pending
claims not to exceed $750,000 in the aggregate. Accordingly, no provision has
been made in the Company's consolidated financial statements for any loss
that may result from these remaining actions.
The Company is subject to other legal proceedings and claims which arise in
the normal course of business. While the outcome of these proceedings and
claims cannot be predicted with certainty, management does not believe the
outcome of any of these matters will have a material adverse effect on the
Company's consolidated financial position, results of operations or cash
flows.
8. BUSINESS SEGMENT INFORMATION
The Company operated in two reportable segments. One represents the Company's
U.S. operations, including Granutec ("Leiner U.S.") and the other represents
the Company's Canadian operations, including Stanley ("Vita Health"). The
Company's operating segments manufacture a range of vitamins, minerals and
nutritional supplements and over-the-counter pharmaceutical drugs and
distribute their products primarily through mass market retailers. The
Company evaluates segment performance based on operating profit, before the
effect of non-recurring charges and gains, and inter-segment profit.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-9-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
8. BUSINESS SEGMENT INFORMATION (CONTINUED)
Selected financial information for the Company's reportable segments for the
three and nine months ended December 31, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
Leiner Vita Consolidated
U.S. Health totals
----------- ---------- ---------------
<S> <C> <C> <C>
THREE MONTHS ENDED DECEMBER 31, 1999 (A):
External sales $ 169,497 $ 13,190 $ 182,687
Intersegment sales 449 45 494
Segment operating income 11,735 968 12,703
Depreciation and amortization 4,927 272 5,199
Interest expense, net 7,377 432 7,809
Income tax expense 1,608 260 1,868
Segment assets 448,324 52,422 500,746
Expenditures for long-lived assets 1,343 1,285 2,628
THREE MONTHS ENDED DECEMBER 31, 1998:
External sales $ 152,020 $ 10,131 $ 162,151
Intersegment sales 309 31 340
Segment operating income 11,941 1,144 13,085
Depreciation and amortization 4,127 193 4,320
Interest expense, net 7,209 372 7,581
Income tax expense 2,062 254 2,316
Segment assets 388,580 26,735 415,315
Expenditures for long-lived assets (505) 58 (447)
</TABLE>
(A) Includes the operating results and the balances for the acquired operations
of Granutec and Stanley as of and for the two weeks ended December 31,
1999.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-10-
<PAGE>
PART I ITEM 1
- -------------------------------------------------------------------------------
Leiner Health Products Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited
(continued)
8. BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Leiner Vita Consolidated
U.S. Health totals
----------- ----------- --------------
<S> <C> <C> <C>
NINE MONTHS ENDED DECEMBER 31, 1999 (A):
External sales $ 412,580 $ 35,505 $ 448,085
Intersegment sales 1,068 72 1,140
Segment operating income 12,654 2,753 15,407
Depreciation and amortization 13,176 691 13,867
Interest expense, net 21,594 1,253 22,847
Income tax (benefit) expense (3,958) 379 (3,579)
Segment assets 448,324 52,422 500,746
Expenditures for long-lived assets 2,057 2,238 4,295
NINE MONTHS ENDED DECEMBER 31, 1998:
External sales $ 406,617 $ 27,271 $ 433,888
Intersegment sales 1,439 48 1,487
Segment operating income 24,500 2,251 26,751
Depreciation and amortization 11,450 548 11,998
Interest expense, net 20,451 1,021 21,472
Income tax expense 1,787 457 2,244
Segment assets 388,580 26,735 415,315
Expenditures for long-lived assets 8,775 1,037 9,812
</TABLE>
(A) Includes the operating results and the balances for the acquired operations
of Granutec and Stanley as of and for the two weeks ended December 31,
1999.
9. CLOSURE OF FACILITIES
In the second and third quarters of fiscal 2000, the Company closed its
Madison, Wisconsin and Sherburne, New York facilities, respectively. The
Company incurred approximately $1,006,000 in the first quarter of fiscal 2000
for severance and other costs related to the closure of its Madison,
Wisconsin facility, which was offset by a $248,000 reversal of excess
reserves for severance and other costs in the second quarter of fiscal year
2000 and a gain of approximately $230,000 from the sale of the facility.
Additionally, the Company had reserved approximately $340,000 in the second
quarter of fiscal 2000 for severance and other costs related to the closure
of its Sherburne, New York facility.
The Company recorded a gain of approximately $340,000 in the third quarter of
fiscal 2000 from the sale of its Chicago facility, which the Company had
previously closed and written down to fair value in fiscal 1999, and
reversed excess reserves for severance and other costs totaling $35,000
related to the closure of its Madison, Wisconsin facility.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-11-
<PAGE>
PART I ITEM 2
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion explains material changes in the consolidated
results of operations for Leiner Health Products Inc. and its subsidiaries
(the "Company") including Vita Health Products Inc. of Canada ("Vita
Health"), a wholly-owned subsidiary, for the three months ended December 31,
1999 ("third quarter of fiscal 2000") and the nine months ended December 31,
1999 and the significant developments affecting its financial condition since
March 31, 1999. The operating results of the acquired operations for
Granutec, Inc. ("Granutec") and Stanley Pharmaceuticals Ltd. ("Stanley") are
included in the Company's financial statements from December 17, 1999 (the
date of acquisition) to December 31, 1999. The following discussion should be
read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the year ended March 31, 1999, which are
included in the Company's Annual Report on Form 10-K, on file with the
Securities Exchange Commission.
ACQUISITION
As of December 17, 1999, the Company purchased substantially all of the
assets of Granutec and Stanley and certain related assets of Novopharm
Limited ("Novopharm") of Ontario, Canada (the "Acquisition"). Granutec
manufactures and distributes private label, over-the-counter pharmaceutical
drugs in the United States, with facilities located in Wilson, North Carolina
and Largo, Florida. Stanley manufactures and distributes private label,
over-the-counter drugs and vitamin supplement products in Canada and is
headquartered in Vancouver, British Columbia.
The Company made the Acquisition for a purchase price consisting of (i) $50
million in cash, subject to a net working capital adjustment, (ii) the
assumption by the Company of all liabilities, obligations and commitments of
Granutec relating to certain outstanding industrial development revenue
bonds, including, without limitation, the obligation to repay the outstanding
principal amount of approximately $7.1 million on such bonds, and (iii) the
assumption by the Company of certain other liabilities of Granutec and
Stanley including trade accounts payable incurred in the ordinary course of
business, but excluding trade accounts payable that have been outstanding for
more than 90 days. The purchase price allocation recorded in connection with
the Acquisition was based on preliminary estimates of fair values and will be
finalized by March 31, 2000 based on the completion of a valuation of the
assets acquired and completion and approval of a formal plan of integration.
The purchase price was funded in part by a $20 million subscription by
affiliates of certain existing shareholders to the capital of the Company's
ultimate parent, Leiner Health Products Group Inc. ("Leiner Group"), which in
turn made a capital contribution in the same amount to the Company, through
PLI Holdings Inc., the Company's direct parent. The balance of the purchase
price was funded from the Company's revolving credit facility.
The following unaudited pro forma financial information presents the
consolidated results of operations as if the Granutec and Stanley acquisition
had occurred at the beginning of the year presented, and does not purport to
be indicative of the results that would have occurred had the acquisition
occurred at such date or of results which may occur in the future (in
millions).
<TABLE>
<CAPTION>
Nine months ended
December 31,
---------------------------
1999 1998
------------ ----------
<S> <C> <C>
Net sales................................ $545.9 $510.3
Operating income......................... 26.7 29.0
Net income............................... 0.7 1.5
</TABLE>
SEASONALITY
The Company's business is seasonal, as increased vitamin usage corresponds
with the cough, cold and flu season. Accordingly, the Company historically
has realized a significant portion of its sales, and a more significant
portion of its operating income, in the second half of its fiscal year.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-12-
<PAGE>
PART I ITEM 2
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of operations
as a percentage of net sales for the three and nine months ended December 31,
1999 and 1998.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ -----------------------
1999 1998 1999 1998
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales .............................. 75.2 74.7 76.1 74.5
----------- ---------- --------- ----------
Gross profit ............................... 24.8 25.3 23.9 25.5
Marketing, selling and distribution expenses 12.4 11.8 13.7 13.0
General and administrative expenses ........ 5.2 4.8 6.1 6.0
Amortization of goodwill ................... 0.2 0.3 0.3 0.3
Closure of facilities ...................... (0.2) 0.1 0.1 0.1
Other charges (income) ..................... 0.2 0.2 0.3 0.0
----------- ---------- --------- ----------
Operating income ........................... 7.0 8.1 3.4 6.1
Interest expense, net ...................... 4.3 4.7 5.1 4.9
----------- ---------- --------- ----------
Income (loss) before income taxes .......... 2.7 3.4 (1.7) 1.2
Provision (benefit) for income taxes ....... 1.0 1.4 (0.8) 0.5
----------- ---------- --------- ----------
Net income (loss) .......................... 1.7% 2.0% (0.9)% 0.7%
----------- ---------- --------- ----------
----------- ---------- --------- ----------
</TABLE>
Net sales for the third quarter of fiscal 2000 were $182.7 million, an
increase of $20.5 million, or 12.7% versus the third quarter of fiscal 1999.
Granutec and Stanley accounted for $6.1 million of this $20.5 million
increase over the prior year, with most of their sales coming from
over-the-counter pharmaceutical drugs ("OTCs"). The remaining increase of
$14.4 million was caused primarily by an increase of $16.2 million or 11.9%
in the Company's vitamin product sales and an increase of $3.9 million or
114.6% in contract manufacturing sales, offset by a $4.0 million decrease in
sales of OTCs and a $1.8 million decrease in drug repackaging sales. The
increase in the Company's vitamin sales was strongest in private label herbal
products and multi-vitamins, primarily due to increased sales volumes of
these products. Contract manufacturing sales increased primarily due to the
addition of new customers, thereby increasing volumes. The decrease in sales
of private label OTCs was due to lost volume, however management expects the
decline in sales volumes for OTCs to reverse in the future as synergies from
the combined customer base with the Acquisition are realized. Drug
repackaging sales decreased in the three months ended December 31, 1999,
compared to the prior year, due to the Company exiting the drug repackaging
business in July 1999.
For the nine months ended December 31, 1999, net sales increased by $14.2
million, or 3.3% as compared to the comparable period of fiscal 1999. Of this
$14.2 million increase, Granutec and Stanley accounted for $6.1 million.
Excluding these sales from Granutec and Stanley, the Company's vitamin
product sales increased $12.7 million or 3.5% and sales from contract
manufacturing increased approximately $5.2 million or 52.5%. The Company's
increase in vitamin product sales was strongest in private label vitamins,
which grew by $15.7 million primarily due to increased volumes as the Company
acquired a new mass market customer and increased volumes with current
customers. Contract manufacturing sales also increased due to increased
volumes resulting from the addition of new customers during the nine months
ended December 31, 1999 versus the comparable period in fiscal 1999. These
increases were partially offset by a decline in the Company's non-core product
sales of hair and skin care products of $6.7 million in the nine months ended
December 31, 1999, and a decline of approximately $4.9 million in drug
repackaging sales as compared to the comparable period of fiscal 1999. The
Company closed its drug repackaging facility in July 1999.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-13-
<PAGE>
PART I ITEM 2
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
Management expects the trend of declining sales volumes for OTCs will reverse
during the remainder of the year, as compared to fiscal 1999, as it builds
these product sales and realizes the synergies from its combined customer base
with the Acquisition.
Gross profit for the third quarter of fiscal 2000 was $45.2 million, an
increase of $4.3 million, or 10.5%, from $40.9 million in the third quarter
of fiscal 1999. Granutec and Stanley accounted for $1.6 million of this
increase. The remainder of the increase in gross profit during the quarter is
primarily attributable to the higher sales volume. Gross profit margin was
24.8% for the third quarter of fiscal 2000, down from 25.3% in the third
quarter of the prior fiscal year due primarily to pricing pressures and to a
change in product mix to sales of lower margin private label products from
higher margin branded products. The pricing pressures are primarily on
vitamin C and E products as declining raw material prices have been
recognized in the sales prices prior to the cost of goods reductions cycling
through inventory. Management expects the gross profit margins to improve
during the fourth quarter of fiscal year 2000 as plant efficiencies continue
to improve, including efficiencies at the Company's new facility in Fort
Mill, South Carolina as the benefits of having completed the start-up phase
of operations are realized there, and as the benefits of reduced raw material
costs for vitamin C and E products are realized.
For the nine months ended December 31, 1999, gross profit decreased by $3.6
million, or 3.3% compared to the same period in fiscal 1999. Excluding the
Granutec and Stanley gross profit of $1.6 million, the Company's gross profit
was $105.6 million for the first nine months of fiscal 2000 versus $110.8
million in the comparable period in fiscal 1999. Gross profit margin was
23.8% excluding Granutec and Stanley, a 1.7 percentage point decrease in the
nine months ended December 31, 1999 from 25.5% in the comparable period in
fiscal 1999. The decrease in gross profit in the first nine months of the
year was primarily due to the shift in product mix, the effect of certain
product line rationalizations, including certain skin care products, liquid
herbal products, the departure from the drug repackaging business, and
certain plant inefficiencies, offset by the increase contributed by Granutec
and Stanley.
Marketing, selling and distribution expenses, together with general and
administrative expenses (collectively, "Operating Expenses") increased by
$5.3 million, or 19.6% for the third quarter of fiscal 2000 as compared to
the comparable period in fiscal 1999. Excluding Operating Expenses for
Granutec and Stanley, Operating Expenses for the Company were $31.6 million
for the third quarter of fiscal 2000, representing an increase of $4.7
million or 17.7% over the third quarter of fiscal 1999. As a percentage of
net sales without Granutec and Stanley, Operating Expenses were 17.9% for the
three months ended December 31, 1999, representing an increase over the
comparable period in fiscal 1999 when Operating Expenses were 16.6% of net
sales. These Operating Expenses for the third quarter of fiscal 2000
increased primarily as a result of increased sales volumes and infrastructure
development in support of advanced science initiatives along with increased
spending on information systems projects, including those related to the Year
2000 issue (see "Year 2000 Matters"). For the nine months ended December 31,
1999, Operating Expenses excluding Granutec and Stanley, were $88.4 million
or 20.0% of net sales versus $80.9 million or 19.0% in the prior year. The
increase in Operating Expenses for the nine months ended December 31, 1999 is
due primarily to higher fixed costs as a result of infrastructure development
in support of advanced science and product quality initiatives which began in
the first quarter of fiscal 1999 and are expected to continue throughout
fiscal 2000. In addition, the Company increased advertising spending on
branded products in the first nine months of fiscal 2000 in an effort to
better position its products in the marketplace and increased spending for
information systems projects, including those related to the Year 2000 issue
(see "Year 2000 Matters").
In the third quarter of fiscal 2000, the Company recorded a $0.3 million gain
from the sale of its Chicago facility, which was closed in fiscal 1999 and
reversed excess reserves for severance and other costs totaling $0.1 million
related to the closure of its Madison, Wisconsin facility which occurred in
the second quarter of fiscal 2000. During the nine months ended December 31,
1999, the Company incurred $0.5 million of expenses related to the closing of
its facilities in Madison, Wisconsin (thereby exiting its drug repackaging
business) and Sherburne, New York, which was partially offset by the $0.3
million gain on the sale of the Chicago facility.
During the third quarter of fiscal 2000, the Company incurred $0.4 million of
other charges which is consistent with other charges of $0.5 million in the
same period in fiscal 1999. Other charges totaled $1.1 million for the nine
months ended December 31, 1999 compared to other income of $0.2 million in
fiscal 1999. This change was primarily
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-14-
<PAGE>
PART I ITEM 2
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
attributable to other income generated by a non-recurring settlement in the
second quarter of fiscal 1999 arising from a dispute involving a service
provider and a former employee.
In the third quarter of fiscal 2000, operating income was $12.7 million, a
decrease of $0.4 million or 2.9%, compared to the third quarter of fiscal
1999. The decrease was primarily due to lower gross profit margins and higher
Operating Expenses as previously discussed. For the nine months ended
December 31, 1999, operating income was down $11.3 million or 42.4% from the
nine months ended December 31, 1998. This decrease was primarily due to lower
gross profit margins, higher Operating Expenses, and the increase in other
charges, all noted above.
In the third quarter of fiscal 2000, net interest expense of $7.8 million
represents an increase of $0.2 million from the third quarter of fiscal 1999.
Net interest expense increased by $1.4 million during the nine months ended
December 31, 1999, versus the nine months ended December 31, 1998. This
increase in the three and nine months ended December 31, 1999 was due
primarily to an increase in the average outstanding indebtedness of the
Company and, to a lesser degree, increased interest borrowing rates.
The provision for income taxes for the third quarter of fiscal 2000 was $1.9
million, which was comparable to $2.3 million in the third quarter of fiscal
1999. For the nine months ended December 31, 1999, the benefit for income
taxes was $3.6 million compared to a provision of $2.2 million in the
comparable period in fiscal 1999. Based on the latest estimates, the Company
expects its effective tax rate to be approximately 45.0% for the remainder of
fiscal 2000, and to be higher than the combined federal and state rate of 40%
primarily because of the nondeductibility for income tax purposes of goodwill
amortization.
Primarily as a result of the factors discussed above, net income of $3.0
million was recorded in the third quarter of fiscal 2000 as compared to net
income of $3.2 million in the third quarter of fiscal 1999. For the nine
months ended December 31, 1999, a net loss of $3.9 million was recorded as
compared to the $3.0 million of net income recorded in the comparable period
of fiscal 1999.
OTHER INFORMATION
Earnings before interest, taxes, depreciation, amortization, other non-cash
charges and the charges related to the closure of facilities ("EBITDA")
totaled $17.0 million for the third quarter of fiscal 2000, down slightly
from $17.1 million in the comparable period in fiscal 1999. EBITDA for the
nine months of fiscal 2000 was $28.4 million, or $9.4 million less than
EBITDA for the comparable period of fiscal 1999. EBITDA can be calculated
from the financial statements with the exception of the amortization of
deferred debt issuance costs totaling $0.5 million and $0.4 million for the
three months ended December 31, 1999 and 1998, respectively, and $1.4 million
for both the nine month periods ended December 31, 1999 and 1998, which is
included in interest expense in the statement of operations and in
amortization expense in the statement of cash flows. The Company believes
that EBITDA provides useful information regarding the Company's debt service
ability, but should not be considered in isolation or as a substitute for the
statements of operations or cash flow data.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash has historically been used to fund capital expenditures,
working capital requirements and debt service. The Company is required to
repay the $171.6 million in term loans outstanding as of December 31, 1999
under the Credit Agreement (defined below) by December 30, 2005 with
scheduled principal payments of $1.7 million for fiscal 2000 through 2003,
$37.1 million for fiscal 2004, $82.4 million for fiscal 2005, and $46.4
million for fiscal 2006. The Company is also required to apply certain asset
sale proceeds, as well as 50% of its excess cash flow (as defined in the
Credit Agreement) unless a leverage ratio test is met, to prepay the
borrowings under the Credit Agreement. All outstanding revolving credit
borrowings under the Credit Agreement will become due on June 30, 2003.
During the first nine months of fiscal 2000, net cash provided by operating
activities totaled $29.4 million. This resulted primarily from a positive net
change in operating assets and liabilities of $19.3 million. Collections on
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-15-
<PAGE>
PART I ITEM 2
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
the accounts receivable balance, excluding accounts receivables for Granutec
and Stanley, provided $16.6 million of cash during the nine months ended
December 31, 1999. Excluding the increase in inventory resulting from the
acquisition of Granutec and Stanley, inventory only increased $2.9 million in
the first nine months of fiscal 2000 compared to an increase of $46.5 million
for the comparable period in fiscal 1999. Management has focused on
optimizing the Company's inventory levels throughout fiscal 2000 and has been
successful at managing inventory levels at a minimal growth rate. The
increase in accounts payable since March 31, 1999 of $13.3 million was due
primarily to the timing of disbursements at the end of each quarter and
purchases of inventory at the end of the third quarter of fiscal 2000 in
anticipation of heavy sales volumes expected in the fourth quarter of fiscal
2000.
Net cash used in investing activities was $61.2 million in the nine months
ended December 31, 1999. This was due primarily to the acquisition of
Granutec and Stanley. Upon closing of this acquisition, the Company used
approximately $30.0 million of funds available under its Revolving Facility
and a $20.0 million capital contribution it received from its parent to fund
the purchase price. The Company also assumed approximately $7.1 million of
debt and certain other liabilities in connection with the Acquisition. Net
capital expenditures in fiscal 2000 totaled $4.3 million. The major capital
expenditures were related to investments in capacity expansion at the new
manufacturing, packaging and distribution facility in South Carolina.
Net cash provided by financing activities was $34.1 million in the first nine
months of fiscal 2000. This was primarily the result of increased net
borrowings under the Credit Agreement and a $20.0 million capital
contribution from the Company's parent. On June 30, 1999, the Company entered
into a term loan under its Credit Agreement and received $30.0 million which
it used to pay off outstanding borrowings under its Revolving Facility
(defined below).
FINANCING ARRANGEMENTS
On May 15, 1998, the Company entered into an Amended and Restated Credit
Agreement (together with the amendments described below, the "Credit
Agreement"), which was amended on June 30, 1999 to include an additional U.S.
term loan in the amount of $30,000,000 as described below and on December 16,
1999 (the "Second Amendment") to waive certain limitations that would have
prohibited the Acquisition and to raise the applicable margins (as defined in
the Credit Agreement). Additionally, the Credit Agreement was amended on
February 11, 2000, effective December 16, 1999, principally to adjust the
calculations of the Company's debt covenants to properly account for the
Acquisition. The Credit Agreement provided for one U.S. term loan due
December 30, 2004 in the amount of $68 million and two U.S. term loans due
December 30, 2005 in the amounts of $65 million and $30 million,
respectively, and a Canadian dollar denominated term loan due December 30,
2004 in the amount of approximately U.S. $12 million (collectively, the "Term
Facility"), and a revolving credit facility in the amount of U.S. $125
million (the "Revolving Facility") a portion of which is made available to
Vita Health in Canadian dollars. The unpaid principal amount outstanding on
the Revolving Facility is due and payable on June 30, 2003. As of February 7,
2000, the Company's unused availability under the Credit Agreement was
approximately $33.7 million.
The Revolving Facility includes letter of credit and swingline facilities.
Borrowings under the Credit Agreement bear interest at floating rates that
are based on LIBOR or on the applicable alternate base rate (as defined in
the Credit Agreement), and accordingly the Company's financial condition and
performance is and will continue to be affected by changes in interest rates.
The Company has entered into an interest protection arrangement effective
July 30, 1997 with respect to $29.5 million of its indebtedness under the
Credit Agreement that provides a fixed rate of 6.17% on LIBOR rates plus
applicable margin on the interest rates payable thereon. On October 8, 1999,
the Company entered into an interest protection agreement, with respect to
$54.0 million of its indebtedness under the Credit Agreement, whereby the
Company will not pay any lower than 5.94% on LIBOR rates plus applicable
margin on the interest rates payable thereon. In connection with this
transaction, the Company received approximately $0.2 million that is being
recorded as a reduction of interest expense over the period of the agreement,
which terminates October 8, 2001. The Credit Agreement imposes certain
restrictions on the Company, including restrictions on its ability to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-16-
<PAGE>
PART I ITEM 2
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
incur additional debt, enter into sale-leaseback transactions, incur
contingent liabilities, pay dividends or make distributions, incur or grant
liens, sell or otherwise dispose of assets, make investments or capital
expenditures, repurchase or prepay its senior subordinated notes due 2007
(the "Notes") or other subordinated debt, or engage in certain other
activities. The Company must also comply with certain financial ratios and
tests, including a minimum net worth requirement, a maximum leverage ratio, a
minimum interest coverage ratio and a minimum cash flow coverage ratio.
The Company may be required to purchase the Notes upon a Change of Control
(as defined in the indenture) and in certain circumstances with the proceeds
of asset sales. The Notes are subordinated to the indebtedness under the
Credit Agreement. The indenture governing the Notes imposes certain
restrictions on the Company and its subsidiaries, including restrictions on
its ability to incur additional debt, make dividends, distributions or
investments, sell or otherwise dispose of assets, or engage in certain other
activities.
A portion of the outstanding borrowings under the Credit Agreement, amounting
to approximately U.S. $28.9 million as of December 31, 1999, is denominated
in Canadian dollars. All other outstanding borrowings under the Credit
Agreement, and all of the borrowings under the Notes, are denominated in U.S.
dollars.
At December 31, 1999, borrowings under the Credit Agreement bore interest at
a weighted average rate of 8.9% per annum. The Notes bear interest at a rate
of 9.6% per annum.
In connection with the Acquisition, the Company assumed an industrial
development revenue bond loan ("IRB Loan") with an outstanding principal
amount of $7.1 million. The IRB Loan bore interest at the rate of 5.85% as of
December 31, 1999. The interest rate on the IRB Loan is variable and
fluctuates on a weekly basis. The principal amount of the IRB Loan is due and
payable in annual installments of $0.5 million, with the remaining
outstanding principal amount due and payable May 1, 2014.
The Company currently believes that cash flow from operating activities,
together with revolving credit borrowings available under the Credit
Agreement, will be sufficient to fund the Company's currently anticipated
working capital, capital spending and debt service requirements until the
maturity of the Revolving Facility (June 30, 2003), but there can be no
assurance in this regard. The Company expects that its working capital needs
will require it to obtain new revolving credit facilities at the time that
the Revolving Facility matures, by extending, renewing, replacing or
otherwise refinancing the Revolving Facility. No assurance can be given that
any such extension, renewal, replacement or refinancing can be successfully
accomplished.
YEAR 2000 MATTERS
The Company has completed the review of its internal computer systems,
including addressing the use of only two-digit date fields to identify a year
in the date field, and the correct processing of "leap year" dates, commonly
referred to as the "Year 2000 problem". The Company completed third party
inquiries and necessary due diligence to seek additional assurances from its
vendors of Year 2000 compliance. In addition, the Company developed a
Company-wide contingency plan to address various potential information system
related interruptions, including manual procedures and controls to mitigate
risk and compensate for system deficiencies.
The Company believes all its critical systems are Year 2000 compliant.
However, there is no guarantee that the Company has discovered all possible
system failures, including failure to identify all systems, and non-ready
third parties whose systems and operations impact the Company. Any internal
system failure or any failure of such third parties to identify and correct
their systems and operation could result in material disruption of the
business of the Company which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company incurred approximately $0.8 million of expenses in the first nine
months of fiscal 2000 to address its Year 2000 issues, and approximately $2.5
million since the Company began to address its Year 2000 issues in May of
1997.
As of February 10, 2000, the Company has not experienced any significant Year
2000 issues with any of its internal systems.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-17-
<PAGE>
PART I ITEM 2
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
THE EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union (the "participating countries") established fixed conversion rates
between their existing sovereign currencies (the "legacy currencies") and the
euro. The participating countries agreed to adopt the euro as their common
legal currency on that date.
As of January 1, 1999, the participating countries no longer control their
own monetary policies by directing independent interest rates for the legacy
currencies. Instead, the authority to direct monetary policy, including money
supply and official interest rates for the euro, is exercised by the new
European Central Bank.
Following introduction of the euro, the legacy currencies are scheduled to
remain legal tender in the participating countries as denominations of the
euro between January 1, 1999 and January 1, 2002 (the "transition period").
During the transition period, public and private parties may pay for goods
and services using either the euro or the participating country's legacy
currency.
The impact of the euro is not expected to materially affect the results of
operations of the Company. The Company operates primarily in U.S.
dollar-denominated purchase orders and contracts, and the Company neither has
a large customer nor vendor base within the countries participating in the
euro conversion.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Certain of the statements contained in this report (other than the financial
statements and other statements of historical fact) are forward-looking
statements, including statements regarding, without limitation, (i) the
Company's growth strategies; (ii) trends in the Company's business; and (iii)
the Company's future liquidity requirements and capital resources.
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management.
The important factors described elsewhere in this report and in the Company's
Form 10-K for the fiscal year ended March 31, 1999 (including, without
limitation, those factors discussed in the "Business - Risk Factors" section
of Item 1 thereof), on file with the Securities and Exchange Commission,
could affect (and in some cases have affected) the Company's actual results
and could cause such results to differ materially from estimates or
expectations reflected in such forward-looking statements. In light of these
factors, there can be no assurance that events anticipated by the
forward-looking statements contained in this report will in fact transpire.
The Company undertakes no obligation to republish revised forward-looking
statements to reflect the occurrence of unanticipated events.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-18-
<PAGE>
PART I ITEM 3
- -------------------------------------------------------------------------------
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that it has material exposure to interest rate,
foreign currency exchange rate or other relevant market risks. See
disclosures under Item 7a. "Quantitative and Qualitative Disclosures about
Market Risks" in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999. No significant changes have occurred during the third
quarter of fiscal 2000.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-19-
<PAGE>
PART II OTHER INFORMATION
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The information in Note 7 to the Company's Condensed Consolidated
Financial Statements included herein is hereby incorporated by
reference.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.1 Second Amendment, dated December 16, 1999, to the Amended and
Restated Credit Agreement, among Leiner Health Products Inc.,
Vita Health Products Inc., and the banks and other financial
institutions party thereto, as Lenders.
4.2 Loan Agreement, dated as of May 1, 1994, by and between The
Wilson County Industrial Facilities and Pollution Control
Financing Authority, and Granutec, Inc.
4.3 Third Amendment, dated February 11, 2000 to the Existing
Credit Agreement, among Leiner Health Products Inc., Vita
Health Products Inc., and the banks and other financial
institutions party thereto, as Lenders.
27 Financial Data Schedule - December 31, 1999
(b) Reports on Form 8-K:
(1) Form 8-K dated October 25, 1999, announcing the definitive
agreement signed by the Company and Novopharm Limited of
Ontario, Canada, to purchase substantially all of the assets
of two of its divisions, Stanley Pharmaceuticals Ltd. and
Granutec, Inc. The agreement was subject to various
conditions including regulatory approvals.
(2) Form 8-K dated December 30, 1999, announcing the purchase of
substantially all of the assets of Granutec, Inc. and Stanley
Pharmaceuticals Ltd., both of which are subsidiaries of
Novopharm Limited of Ontario, Canada, as well certain related
assets of Novopharm Limited.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-20-
<PAGE>
- -------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEINER HEALTH PRODUCTS INC.
By: /s/ STEPHEN P. MILLER
---------------------------------
Stephen P. Miller
Senior Vice President and
Chief Financial Officer
Date: February 14, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-21-
<PAGE>
EXHIBIT 4.1
[EXECUTION COPY]
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT, dated as of December 16, 1999 (this "AMENDMENT"), to
the Existing Credit Agreement (as defined below), is made among LEINER HEALTH
PRODUCTS INC., a Delaware corporation (the "U.S. BORROWER"), VITA HEALTH
PRODUCTS INC., a Manitoba corporation (the "CANADIAN BORROWER", and together
with the U.S. Borrower, the "BORROWERS") and the Lenders (such capitalized term
and other capitalized terms used in this preamble and the recitals below to have
the meanings set forth in, or as defined by reference in, ARTICLE I) signatories
hereto.
W I T N E S S E T H:
WHEREAS, the Borrowers, the U.S. Lenders, the Canadian Lenders, the U.S.
Agent, the Canadian Agent, Merrill Lynch Capital Corporation, as Documentation
Agent, and Salomon Brothers Holding Company Inc., as Syndication Agent, are
parties to a Credit Agreement, dated as of May 15, 1998 (as amended,
supplemented, amended and restated or otherwise modified prior to the date
hereof, the "EXISTING CREDIT AGREEMENT");
WHEREAS, the Borrowers have requested that the Lenders amend the Credit
Agreement as set forth below and consent to the acquisition (the
"GRANUTEC/STANLEY ACQUISITION") of the assets and properties relating to or
used or held for use in connection with the business and operations of
Granutec, Inc., a North Carolina corporation ("GRANUTEC"), and Stanley
Pharmaceuticals Ltd., a British Columbia corporation ("STANLEY", together
with Granutec, the "SELLERS"), and those assets and properties of Novopharm
Limited, an Ontario corporation ("NOVOPHARM"), principally used as a part of
the business and operations of the Sellers, for a purchase price of
$50,000,000, subject to post-closing working capital adjustments, and the
assumption of certain Indebtedness of Granutec in an amount not to exceed
$7,100,000; and
WHEREAS, the Lenders have agreed, subject to the terms and conditions
hereinafter set forth, to amend the Existing Credit Agreement in certain
respects as provided below (the Existing Credit Agreement, as so amended by
this Amendment, being referred to as the "CREDIT AGREEMENT");
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereto agree as follows:
<PAGE>
PART I
DEFINITIONS
SUBPART 1.1. CERTAIN DEFINITIONS. The following terms (whether or not
underscored) when used in this Amendment shall have the following meanings (such
meanings to be equally applicable to the singular and plural form thereof):
"AMENDMENT" is defined in the PREAMBLE.
"ASSET PURCHASE AGREEMENT" is defined in SUBPART 4.1.5.
"BORROWERS" is defined in the PREAMBLE.
"CANADIAN BORROWER" is defined in the PREAMBLE.
"CREDIT AGREEMENT" is defined in the THIRD RECITAL.
"EQUITY ISSUANCE" means the issuance by LHPG of additional capital stock of
at least $20,000,000 to finance, in part, the Purchase Price (as such term is
defined in the Asset Purchase Agreement) of the Granutec/Stanley Acquisition.
"EXISTING CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"GRANUTEC" is defined in the SECOND RECITAL.
"GRANUTEC/STANLEY ACQUISITION" is defined in the SECOND RECITAL.
"SECOND AMENDMENT" is defined in SUBPART 4.1.
"SECOND AMENDMENT EFFECTIVE DATE" is defined in SUBPART 4.1.
"SELLERS" is defined in the SECOND RECITAL.
"STANLEY" is defined in the SECOND RECITAL.
"U.S. BORROWER" is defined in the PREAMBLE.
SUBPART 1.2. OTHER DEFINITIONS. Terms for which meanings are provided in
the Existing Credit Agreement are, unless otherwise defined herein or the
context otherwise requires, used in this Amendment with such meanings.
<PAGE>
PART II
AMENDMENTS TO THE
EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Second Amendment
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with SUBPART 2.1; except as so amended, the Existing Credit Agreement shall
continue in full force and effect in accordance with its terms.
SUBPART 2.1. AMENDMENTS TO ARTICLE I. Article I of the Existing Credit
Agreement is hereby amended as follows:
SUBPART 2.1.1. Section 1.1 of the Existing Credit Agreement is hereby
amended by inserting the following definitions in such Section in the
appropriate alphabetical sequence:
"SECOND AMENDMENT" means the Second Amendment to the Credit Agreement,
dated as of December 16, 1999, among the Borrowers and the Lenders party
thereto.
"SECOND AMENDMENT EFFECTIVE DATE" is defined in Section 4.1 of the
Second Amendment.
SUBPART 2.1.2. The pricing grids contained in Section 1.1 of the Existing
Credit Agreement in the definition of "Applicable Margin" are hereby amended in
their entirety to read as follows, with the Applicable Margin being subject to
the terms of the Existing Credit Agreement for the period prior to the Second
Amendment Effective Date and the changes to the Applicable Margin becoming
effective on (and subsequent to) the Second Amendment Effective Date,
notwithstanding any terms of the Credit Agreement to the contrary:
(a) for U.S. Revolving Loans:
<TABLE>
<CAPTION>
Applicable Applicable
Margin For Margin For
U.S. Base LIBO
Leverage Ratio Rate Loans Rate Loans
-------------- ----------- -----------
<S> <C> <C>
Less than 3.0:1 0.000% 1.000%
Greater than or equal to 0.125% 1.125%
3.0:1 and less than 3.5:1
</TABLE>
<PAGE>
<TABLE>
Applicable Applicable
Margin For Margin For
U.S. Base LIBO
Leverage Ratio Rate Loans Rate Loans
-------------- ----------- -----------
<S> <C> <C>
Greater than or equal to 0.375% 1.375%
3.5:1 and less than 4.0:1
Greater than or equal to 0.750% 1.750%
4.0:1 and less than 4.5:1
Greater than or equal to 1.250% 2.250%
4.5:1 and less than 5.0:1
Greater than or equal to 1.500% 2.500%
5.0:1
</TABLE>
(b) for Term B Loans:
<TABLE>
<CAPTION>
Applicable Applicable
Margin For Margin For
U.S. Base LIBO
Leverage Ratio Rate Loans Rate Loans
-------------- ----------- -----------
<S> <C> <C>
less than 5.0:1 1.625% 2.625%
Greater than or equal to 2.125% 3.125%
5.0:1
</TABLE>
(c) for Term C Loans:
<TABLE>
<CAPTION>
Applicable Applicable
Margin For Margin For
U.S. Base LIBO
Leverage Ratio Rate Loans Rate Loans
-------------- ----------- -----------
<S> <C> <C>
less than 5.0:1 1.750% 2.750%
Greater than or equal to 2.250% 3.250%
5.0:1
</TABLE>
(d) for Term D Loans:
<TABLE>
<CAPTION>
Applicable Applicable
Margin For Margin For
U.S. Base LIBO
Leverage Ratio Rate Loans Rate Loans
-------------- ----------- -----------
<S> <C> <C>
Less than 5.0:1 1.750% 2.750%
</TABLE>
<PAGE>
<TABLE>
Applicable Applicable
Margin For Margin For
U.S. Base LIBO
Leverage Ratio Rate Loans Rate Loans
-------------- ----------- -----------
<S> <C> <C>
Greater than or equal to 2.250% 3.250%
5.0:1
</TABLE>
(e) for Canadian Revolving Loans:
<TABLE>
<CAPTION>
Applicable
Margin For Applicable
Canadian Prime Canadian BA
Leverage Ratio Rate Loans Stamping Fee
-------------- -------------- -------------
<S> <C> <C>
Less than 3.0:1 0.000% 1.000%
Greater than or equal to 0.125% 1.125%
3.0:1 and less than 3.5:1
Greater than or equal to 0.375% 1.375%
3.5:1 and less than 4.0:1
Greater than or equal to 0.750% 1.750%
4.0:1 and less than 4.5:1
Greater than or equal to 1.250% 2.250%
4.5:1 and less than 5.0:1
Greater than or equal to 1.500% 2.500%
5.0:1
</TABLE>
(f) for Canadian Term Loans:
<TABLE>
<CAPTION>
Applicable
Margin For Applicable
Canadian Prime Canadian BA
Leverage Ratio Rate Loans Stamping Fee
-------------- --------------- -------------
<S> <C> <C>
Less than 5.0:1 1.625% 2.625%
Greater than or equal to 2.125% 3.125%
5.0:1
</TABLE>
PART III
WAIVER
SUBPART 3.1. WAIVER. By its signature below, each Lender hereby waives
(i) any
<PAGE>
Default arising under Section 9.2.2 of the Credit Agreement as a result of
the Granutec/Stanley Acquisition; (ii) any Default arising under clause (f)
of Section 9.2.5 of the Credit Agreement (with respect only to the
$35,000,000 limit on Permitted Acquisitions) as a result of the
Granutec/Stanley Acquisition; (iii) the requirement that, concurrently with
the receipt by Parent or LHPG of any Net Equity Proceeds received in
connection with the Equity Issuance, an amount equal to 50% of such Net
Equity Proceeds be applied as a mandatory prepayment of the Term Loans
pursuant to clause (g) of Section 5.1.1 of the Credit Agreement; and (iv) any
Default arising under Section 9.2.3 of the Credit Agreement as a result of
the Granutec/Stanley Acquisition, PROVIDED, that any such Liens (A) attach
solely to the specific assets acquired in connection with the
Granutec/Stanley Acquisition, (B) were in existence prior to the date of the
Granutec/Stanley Acquisition, and (C) were not created in anticipation of the
Granutec/Stanley Acquisition.
PART IV
CONDITIONS TO EFFECTIVENESS
SUBPART 4.1. SECOND AMENDMENT EFFECTIVE DATE. This Amendment (and the
amendments and modifications contained herein) shall become effective, and shall
thereafter be referred to as "SECOND AMENDMENT", as of the date first above
written (the "SECOND AMENDMENT EFFECTIVE DATE") when all of the conditions set
forth in this SUBPART 4.1 have been satisfied.
SUBPART 4.1.1. EXECUTION OF COUNTERPARTS. The Agents shall have received
counterparts of this Amendment, duly executed and delivered on behalf of each of
the Borrowers and the Required Lenders.
SUBPART 4.1.2. COMPLIANCE CERTIFICATE. The Agents shall have received,
with counterparts for each Lender, a pro-forma Compliance Certificate as of the
Second Amendment Effective Date evidencing PRO FORMA compliance with the
financial covenants set forth in SECTION 9.2.4 and as to such items therein as
the Agents reasonably request, dated the Second Amendment Effective Date, duly
executed (and with all schedules thereto duly completed) and delivered by an
Authorized Officer of the U.S. Borrower.
SUBPART 4.1.3. AMENDMENT FEE. The Agents shall have received, for the
account of each Lender signatory hereto prior to or on the Second Amendment
Effective Date (i) an amendment fee equal to .25% of each such Lender's
Percentage of the Total Exposure Amount and (ii) all other fees, costs and
expenses due and payable pursuant to Sections 12.3 of the Credit Agreement, if
then invoiced.
SUBPART 4.1.4. LEGAL DETAILS, ETC. All documents executed or submitted
pursuant hereto shall be satisfactory in form and substance to the Agents and
their counsel. The Agents and their counsel shall have received all information
and such counterpart originals or such
<PAGE>
certified or other copies or such materials, as the Agents or their counsel
may reasonably request, and all legal matters incident to the transactions
contemplated by this Amendment shall be satisfactory to the Agents and their
counsel.
SUBPART 4.1.5. CLOSING. The Agents shall have received written notice
from the U.S. Borrower that the Closing contemplated by (and defined in) the
Asset Purchase Agreement, dated as of October 7, 1999, among the Borrowers, the
Sellers, Novopharm, Granutec Acquirco, Inc. and Granutec Holdings Corporation
(the "ASSET PURCHASE AGREEMENT") has occurred.
PART V
MISCELLANEOUS
SUBPART 5.1. CROSS-REFERENCES. References in this Amendment to any Part
or Subpart are, unless otherwise specified or otherwise required by the context,
to such Part or Subpart of this Amendment.
SUBPART 5.2. LOAN DOCUMENT PURSUANT TO EXISTING CREDIT AGREEMENT. This
Amendment is a Loan Document executed pursuant to the Existing Credit Agreement
and shall be construed, administered and applied in accordance with all of the
terms and provisions of the Existing Credit Agreement.
SUBPART 5.3. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Each of the
Borrowers represents and warrants on the Second Amendment Effective Date that
all of the statements contained in clauses (a) through (c) of Section 7.2.1 of
the Credit Agreement are true and correct.
SUBPART 5.4. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
SUBPART 5.5. COUNTERPARTS. This Amendment may be executed by the parties
hereto in several counterparts, each of which when executed and delivered shall
be deemed to be an original and all of which shall constitute together but one
and the same agreement.
SUBPART 5.6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
LEINER HEALTH PRODUCTS INC.
By /s/ Michael S. Yusko
-------------------------
Title: Treasurer
VITA HEALTH PRODUCTS INC.
By /s/ Michael S. Yusko
-------------------------
Title: Treasurer
THE BANK OF NOVA SCOTIA, as U.S. Agent, Canadian
Agent, a U.S. Lender and a Canadian Lender
By /s/ Eric Knight
-------------------------
Title: Authorized Signatory
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
By: ING Capital Advisors, Inc.,
as Investment Advisor
By /s/ Helen Y. Rhee
-------------------------
Title: Vice President & Portfolio Manager
ARCHIMEDES FUNDING II, LTD.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By /s/ Helen Y. Rhee
-------------------------
Title: Vice President & Portfolio Manager
ARCHIMEDES FUNDING III, LTD.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By /s/ Helen Y. Rhee
-------------------------
Title: Vice President & Portfolio Manager
ING HIGH INCOME PRINCIPAL
PRESERVATION FUND HOLDINGS, LDC
By: ING Capital Advisors, Inc.,
as Investment Advisor
By /s/ Helen Y. Rhee
-------------------------
Title: Vice President & Portfolio Manager
SEQUILS-ING I (HBDGM), LTD.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By /s/ Helen Y. Rhee
-------------------------
Title: Vice President & Portfolio Manager
<PAGE>
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By /s/ Payson F. Swaffield
-------------------------
Title: Vice President
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management,
as Investment Advisor
By /s/ Payson F. Swaffield
-------------------------
Title: Vice President
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
By: Eaton Vance Management,
as Investment Advisor
By /s/ Payson F. Swaffield
-------------------------
Title: Vice President
<PAGE>
SOCIETE GENERALE
By /s/ J. Staley Stewart
-------------------------
Title: Director
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By /s/ Clifford L. Wells
-------------------------
Title: Vice President
By /s/ William W. Hunter
-------------------------
Title: Vice President
<PAGE>
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (E)
By: TCW Asset Management Company, as
Attorney-in-Fact
By /s/ Mark L. Gold
-------------------------
Title: Managing Director
By /s/ Justin L. Driscoll
-------------------------
Title: Senior Vice President
SEQUILS I, LTD.
By: TCW Advisors, Inc.,
as its Collateral Manager
By /s/ Mark L. Gold
-------------------------
Title: Managing Director
By /s/ Justin L. Driscoll
-------------------------
Title: Senior Vice President
UNITED OF OMAHA LIFE
INSURANCE COMPANY
By: TCW Asset Management Company,
as its Investment Advisor
By /s/ Mark L. Gold
-------------------------
Title: Managing Director
By /s/ Justin L. Driscoll
-------------------------
Title: Senior Vice President
<PAGE>
SOVEREIGN BANK
By /s/ Stephen P. Kanarian
-------------------------
Title: Senior Vice President
<PAGE>
KZH CRESCENT LLC
By /s/ James J. Fevola
-------------------------
Title: Authorized Agent
KZH CRESCENT-2 LLC
By /s/ James J. Fevola
-------------------------
Title: Authorized Agent
KZH CRESCENT-3 LLC
By /s/ James J. Fevola
-------------------------
Title: Authorized Agent
KZH ING-2 LLC
By /s/ James J. Fevola
-------------------------
Title: Authorized Agent
KZH III LLC
By /s/ James J. Fevola
-------------------------
Title: Authorized Agent
KZH CNC LLC
By /s/ James J. Fevola
-------------------------
Title: Authorized Agent
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
By /s/ Jerry D. Zinkula
-------------------------
Title: Authorized Signatory
By /s/ Patricia W. Wilson
-------------------------
Title: Authorized Signatory
<PAGE>
CERES FINANCE LTD.
By /s/ David Dyer
-------------------------
Title: Director
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By /s/ Gina M. West
-------------------------
Title: Vice President
<PAGE>
CITICORP U.S.A., INC.
By /s/ Michael M. Leyland
-------------------------
Title: Vice President
<PAGE>
IMPERIAL BANK, a California Banking
Corporation
By /s/ Charles D. Wilmot
-------------------------
Title: Assistant Vice President
<PAGE>
BANK OF AMERICA NT & SA
By /s/ Andrea Anast Tunks
-------------------------
Title: Vice President Credit Products Officer
<PAGE>
FLOATING RATE PORTFOLIO
By: INVESCO Senior Secured
Management Inc., as attorney in fact
By /s/ Gregory Stoeckle
-------------------------
Title: Authorized Signatory
<PAGE>
LASALLE BANK N.A.
By /s/ Susan Kaminski
-------------------------
Title: Vice President
<PAGE>
COMERICA BANK
By /s/ Emmanuel M. Skevofilax
--------------------------
Title: Vice President
<PAGE>
MERRILL LYNCH CAPITAL CORPORATION
By /s/ Carol J.E. Feely
-------------------------
Title: Vice President
<PAGE>
EXHIBIT 4.2
- -------------------------------------------------------------------------------
THE WILSON COUNTY INDUSTRIAL FACILITIES
AND POLLUTION CONTROL FINANCING AUTHORITY
and
GRANUTEC, INC.
---------------------
LOAN AGREEMENT
<PAGE>
---------------------
Dated as of May 1, 1994
- -------------------------------------------------------------------------------
All right, title and interest of The Wilson County Industrial
Facilities and Pollution Control Financing Authority (the "Issuer") in
this Loan Agreement has been pledged and assigned to Norwest Bank
Minnesota, National Association, as Trustee under an Indenture of
Trust dated as of May 1, 1994 between the Issuer and the Trustee.
<PAGE>
TABLE OF CONTENTS
(THIS TABLE OF CONTENTS IS NOT A PART OF THE LOAN AGREEMENT AND IS ONLY FOR
CONVENIENCE OF REFERENCE.)
Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. Use of Words and Phrases . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
REPRESENTATIONS
Section 2.1. Representations and Warranties of the Issuer . . . . . . . . . 4
Section 2.2. Representations by Company . . . . . . . . . . . . . . . . . . 6
ARTICLE III
THE PROJECT
Section 3.1. Loan of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2. Agreement to Acquire, Construct and Equip Project. . . . . . . 7
Section 3.3. Agreement to Issue Bonds . . . . . . . . . . . . . . . . . . . 7
Section 3.4. Establishment of Completion Date . . . . . . . . . . . . . . . 7
Section 3.5. Company Required to Complete Project . . . . . . . . . . . . . 8
Section 3.6. Limitation of Issuer's Liability . . . . . . . . . . . . . . . 8
Section 3.7. Disclaimer of Warranties . . . . . . . . . . . . . . . . . . . 8
Section 3.8. Taxes, Other Governmental Charges, Utility Charges . . . . . . 8
Section 3.9. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.10. Maintenance of the Project . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
PAYMENT PROVISIONS
Section 4.1. Repayment of Bonds and Payment of Other Amounts Payable. . . . 9
Section 4.2. No Defense or Set-off -- Unconditional Obligation. . . . . . . 11
Section 4.3. Assignment of Issuer's Rights. . . . . . . . . . . . . . . . . 11
Section 4.4. Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . 11
(1)
<PAGE>
ARTICLE V
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 5.1. Parties to Give Notice . . . . . . . . . . . . . . . . . . . . 12
Section 5.2. Damage and Destruction . . . . . . . . . . . . . . . . . . . . 12
Section 5.3. Condemnation and Loss of Title . . . . . . . . . . . . . . . . 12
ARTICLE VI
SPECIAL COVENANTS AND AGREEMENTS
Section 6.1. Maintenance of Corporate Existence . . . . . . . . . . . . . . 13
Section 6.2. LGC Report . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.3. Project List . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.4. Inspection of Project. . . . . . . . . . . . . . . . . . . . . 13
Section 6.5. Use of Proceeds; Other Matters with Respect to Project, Bonds
and Tax Exemption. . . . . . . . . . . . . . . . . . . . . . 13
Section 6.6. Indemnification by Company . . . . . . . . . . . . . . . . . . 16
Section 6.7. Qualification of Company in North Carolina . . . . . . . . . . 18
Section 6.8. Permits or Licenses. . . . . . . . . . . . . . . . . . . . . . 18
Section 6.9. Issuer's and Trustee's Access to Project . . . . . . . . . . . 18
Section 6.10. Arbitrage Covenant . . . . . . . . . . . . . . . . . . . . . . 18
Section 6.11. Reference to Bonds Ineffective after Bonds Paid. . . . . . . . 19
Section 6.12. Notification of a Bankruptcy Filing or Event of Default. . . . 19
Section 6.13. Obligations Under Indenture. . . . . . . . . . . . . . . . . . 19
ARTICLE VII
ASSIGNMENT, LEASING AND SELLING
Section 7.1. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 7.2. Instrument Furnished to Trustee. . . . . . . . . . . . . . . . 19
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.2. Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.3. Remedies on Default. . . . . . . . . . . . . . . . . . . . . . 21
Section 8.4. No Remedy Exclusive. . . . . . . . . . . . . . . . . . . . . . 21
Section 8.5. Agreement to Pay Attorneys' Fees and Expenses. . . . . . . . . 22
Section 8.6. Waiver of Breach . . . . . . . . . . . . . . . . . . . . . . . 22
(2)
<PAGE>
ARTICLE IX
REDEMPTION OF BONDS
Section 9.1. Optional Redemption of Bonds . . . . . . . . . . . . . . . . . 22
Section 9.2. Extraordinary Optional Redemption of Bonds . . . . . . . . . . 22
Section 9.3. Mandatory Prepayment of Bonds Upon a Determination
of Taxability . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.4. Mandatory Prepayment of Bonds upon Cessation of Operation. . . 24
Section 9.5. Amounts Payable by Company . . . . . . . . . . . . . . . . . . 25
Section 9.6. Procedure for Exercise of Options. . . . . . . . . . . . . . . 25
ARTICLE X
MISCELLANEOUS
Section 10.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 10.2. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 10.3. Execution of Counterparts . . . . . . . . . . . . . . . . . . 27
Section 10.4. Amounts Remaining in Bond Fund. . . . . . . . . . . . . . . . 27
Section 10.5. Amendments, Changes and Modifications . . . . . . . . . . . . 27
Section 10.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10.7. Authorized Company Representatives. . . . . . . . . . . . . . 27
Section 10.8. Term of the Agreement . . . . . . . . . . . . . . . . . . . . 27
Section 10.9. No Personal Liability . . . . . . . . . . . . . . . . . . . . 27
Section 10.10. Parties in Interest . . . . . . . . . . . . . . . . . . . . . 28
Signatures and Seals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Exhibit A -- Description of Project. . . . . . . . . . . . . . . . . . . . . 30
Exhibit B -- Form of Promissory Note . . . . . . . . . . . . . . . . . . . . 31
(3)
<PAGE>
EXHIBIT 4.2
LOAN AGREEMENT
This Loan Agreement, dated as of May 1, 1994, by and between THE WILSON
COUNTY INDUSTRIAL FACILITIES AND POLLUTION CONTROL FINANCING AUTHORITY, a
political subdivision and body corporate and politic of the State of North
Carolina (the "Issuer"), and GRANUTEC, INC., a corporation organized and
existing under the laws of the State of North Carolina (the "Company");
W I T N E S S E T H:
WHEREAS, the Industrial and Pollution Control Facilities Financing Act,
Chapter 159C of the General Statutes of North Carolina, as amended (the "Act"),
authorizes the creation of industrial facilities and pollution control financing
authorities by the several counties in North Carolina and empowers such
authorities to acquire, construct, own, repair, maintain, extend, improve,
rehabilitate, renovate, furnish, equip and sell, lease, exchange, transfer or
otherwise dispose of industrial or manufacturing facilities to the end that such
authorities may be able to promote the right to gainful employment opportunity
and private industry and thereby promote the general welfare of the inhabitants
of North Carolina by exercising such powers to aid in financing industrial or
manufacturing facilities for the purpose of alleviating unemployment or raising
below average manufacturing wages and further authorizes such authorities to
loan to others the proceeds of bonds issued for the purpose of paying for all or
any part of an industrial or manufacturing facility, to mortgage and pledge any
or all of such facilities, whether then owned or thereafter acquired, as
security for the payment of the principal of, premium, if any, and interest on
any such bonds and any agreements made in connection therewith and to pledge or
assign the revenues and receipts from such facilities or loan or from any other
source to the payment of such bonds; and
WHEREAS, the Issuer has been duly organized pursuant to the Act; and
WHEREAS, in order to further the purposes of the Act, the Issuer proposes
to undertake the financing of the acquisition, construction and installing of
drug manufacturing facility (the "Project") in Wilson County, North Carolina,
which constitutes an industrial project under the Act, and to obtain the funds
therefor by the issuance of its Bonds (as hereinafter defined) under an
Indenture of Trust securing such Bonds, between the Issuer and Norwest Bank
Minnesota, National Association, Minneapolis, Minnesota, as Trustee, dated as of
the date hereof (the "Indenture"); and
WHEREAS, the Issuer proposes to loan the proceeds from the sale of the
Bonds, as hereinafter defined, to the Company to acquire, construct and equip
the Project upon the terms and conditions hereinafter set forth; and
WHEREAS, the Company and Branch Banking and Trust Company will enter
into a Reimbursement Agreement (the "Reimbursement Agreement") dated as of
the date hereof pursuant to which the Bank will issue an irrevocable letter
of credit in an amount not to exceed $8,638,595 to the Trustee at the request
and for the account of the Company upon the terms set
<PAGE>
forth in the Reimbursement Agreement; and
WHEREAS, it has been determined that the financing of the acquisition,
construction and installing of the Project will require the issuance, sale and
delivery by the Issuer of a series of bonds in the aggregate principal amount of
Eight Million One Hundred Thousand and no/100 Dollars ($8,100,000) (the
"Bonds"); and
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein made, and subject to the conditions herein set forth, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS. In addition to the words and terms elsewhere
defined in this Agreement or in the Indenture, the following words and terms as
used in this Agreement shall have the following meanings unless the context or
use indicates another or different meaning:
"Agreement" shall mean this Loan Agreement and any amendments and
supplements hereto.
"Authorized Company Representative" shall mean the person or persons at
the time designated to act on behalf of the Company, such designation in each
case to be evidenced by a certificate furnished to the Issuer and the Trustee
containing the specimen signature of such person or persons and signed on behalf
of the Company by its President, any Vice President, Treasurer or Assistant
Treasurer, or Secretary or Assistant Secretary. Such certificate may designate
an alternate or alternates.
"Bonds" shall mean The Wilson County Industrial Facilities and Pollution
Control Financing Authority Industrial Development Revenue Bonds (Granutec, Inc.
Project), Series 1994, in the aggregate principal amount of $8,100,000, issued
under and secured by the Indenture, and any Additional Bonds issued under
Section 213 of the Indenture.
"Bond Counsel" shall mean any firm of nationally recognized municipal
bond counsel selected by the Company and acceptable to the Issuer and the
Trustee.
"Bond Fund" shall mean the fund by that name created and established in
Section 501 of the Indenture.
"Closing Date" shall mean the date on which the Bonds are issued and
delivered.
"Company" shall mean Granutec, Inc., a corporation organized and
operating under the laws of the State of North Carolina, and its permitted
successors and assigns under this Agreement.
2
<PAGE>
"Conversion Date" shall mean the date specified by the Company pursuant
to Section 202(d) of the Indenture, on which the variable rate feature borne by
the Bonds shall be terminated and the Bonds shall thereafter bear interest at a
fixed rate.
"Event of Default" shall mean any event of default specified in Section
8.1 hereof.
"Indenture" shall mean the Indenture of Trust dated as of May 1, 1994, by
and between Issuer and Trustee, securing the Bonds, and any amendments and
supplements thereto.
"Issuer" shall mean The Wilson County Industrial Facilities and Pollution
Control Financing Authority, a political subdivision and body corporate and
politic of the State of North Carolina and its successors and assigns.
"Letter of Credit" shall mean the irrevocable letter of credit in an
amount not to exceed $8,638,595 dated the date of the issuance of the Bonds and
issued by the Bank to the Trustee at the request and for the account of the
Company pursuant to the Reimbursement Agreement, including any permitted
amendments thereto and any renewals or substitutes therefor, or any Substitute
Letter of Credit.
"LGC" shall mean the North Carolina Local Government Commission within
the North Carolina Department of State Treasurer.
"Net Proceeds", when used with respect to any insurance recovery or
condemnation award with respect to the Project, shall mean the gross proceeds
from such insurance recovery or condemnation award less payment of attorneys'
fees, fees and expenses of the Trustee and all other expenses properly incurred
in the collection of such gross proceeds.
"Note" shall mean the promissory note of the Company in the principal
amount of $8,100,000, dated May 5, 1994, in the form attached hereto as Exhibit
B, issued pursuant hereto and delivered to the Issuer as consideration for the
loan of the proceeds of the Bonds for the undertaking of the Project, and any
amendment or supplement thereto or substitution therefor.
"Payment of the Bonds" shall mean payment in full of principal of and
interest and premium, if any, on the Bonds, or provision for such payment
sufficient to discharge the Indenture.
"Project" shall mean the industrial manufacturing facility to be
constructed by the Company with the proceeds of the Bonds in Wilson County,
North Carolina, all as more particularly described in Exhibit A attached to this
Loan Agreement.
"Reimbursement Agreement" shall mean the Reimbursement Agreement dated
as of the date of this Loan Agreement between the Company and the Bank,
including any supplements or amendments thereto, and any similar agreement
between the Company and the issuer of a
3
<PAGE>
Substitute Letter of Credit.
"Trustee" shall mean Norwest Bank Minnesota, National Association,
Minneapolis, Minnesota, a national banking corporation or association, and its
successor or successors.
Section 1.2. USE OF WORDS AND PHRASES. "Herein," "hereby," "hereunder,"
"hereof," "hereinabove," "hereinafter," and other equivalent words and phrases
refer to this Agreement and not solely to the particular portion thereof in
which any such word is used. The definitions set forth in Section 1.1 hereof
include both singular and plural. Whenever used herein, any pronoun shall be
deemed to include both singular and plural and to cover all genders. All
capitalized terms used but not defined herein shall have the meaning given to
them in the Indenture.
ARTICLE II
REPRESENTATIONS
Section 2.1. REPRESENTATIONS AND WARRANTIES OF THE ISSUER. The Issuer
makes the following representations as the basis for the undertakings herein
contained:
(a) The Issuer is duly organized, existing and in good standing
under the Act.
(b) The Issuer has the power to finance the acquisition,
construction and installing of the Project from the proceeds of the sale of the
Bonds and to loan the Company the proceeds from the sale of the Bonds pursuant
to the provisions of this Loan Agreement, such loan being in furtherance of the
purposes for which the Issuer was organized.
(c) The Issuer proposes to issue its Bonds in the aggregate
principal amount of $8,100,000 to provide amounts necessary to finance the Cost
of the Project under the Indenture pursuant to which the Issuer's interest in
this Loan Agreement and the revenues and receipts therefrom, including the Note
and the payments thereon by the Company, will be assigned and pledged by the
Issuer to the Trustee as security for payment of the principal of, premium, if
any, and interest on the Bonds.
(d) The Issuer has the power to enter into this Loan Agreement
and the Indenture and to carry out its obligations hereunder and thereunder and
to issue the Bonds to finance the Cost of the Project; by proper action has duly
authorized the execution and delivery of this Loan Agreement and the Indenture,
the performance of its obligations hereunder and thereunder and the issuance of
the Bonds; and, simultaneously with the execution and delivery of this Loan
Agreement, has duly executed and delivered the Indenture and issued the Bonds.
(e) The Issuer hereby finds that the financing of the
Project will serve the purposes of the Act.
(f) The Issuer is not in default in the payment of the
principal of or interest on
4
<PAGE>
any of its indebtedness for borrowed money and is not in default under any
instrument under or subject to which any indebtedness for borrowed money has
been incurred, and no event has occurred and is continuing under the
provisions of any such instrument that with the lapse of time or the giving
of notice, or both, would constitute an event of default thereunder.
(g) The Issuer is not, to the knowledge of its officers, (1) in
violation of the resolution creating it or any existing law, rule or regulation
applicable to it or (2) in default under any indenture, mortgage, deed of trust,
lien, lease, contract, note, order, judgment, decree or other agreement,
instrument or restriction of any kind by which it or any of its assets are or
may be bound or affected. To the best of Issuer's knowledge, the execution and
delivery by the Issuer of this Loan Agreement, the Indenture and the Bonds and
compliance with the terms and conditions hereof and thereof will not conflict
with or result in the breach of or constitute a default under any of the above
described instruments or other restrictions.
(h) To the best of Issuer's knowledge, no further approval,
consent or withholding of objection on the part of any Federal, state or local
regulatory body, is required in connection with (1) the execution, issuance,
sale and delivery of the Bonds by the Issuer or (2) the execution or delivery of
or compliance by the Issuer with the terms and conditions of this Loan Agreement
and the Indenture, or (3) the assignment by the Issuer of its rights under the
Loan Agreement and the Note. To the best of Issuer's knowledge, the
consummation by the Issuer of the transactions set forth in the manner and under
the terms and conditions as provided herein will comply with all applicable
state, local or Federal laws and any rules and regulations promulgated
thereunder by any regulatory authority or agency.
(i) To the best of Issuer's knowledge, no litigation, inquiry
or investigation of any kind in or by any judicial or administrative court or
agency is pending or threatened against the Issuer with respect to (1) the
organization and existence of the Issuer, (2) its authority to execute or
deliver this Loan Agreement, the Indenture or the Bonds, (3) the validity or
enforceability of this Loan Agreement, the Indenture or the Bonds, or the
transactions contemplated hereby or thereby, (4) the title of any officer of the
Issuer who executed this Loan Agreement, the Indenture or the Bonds, or (5) any
authority or proceedings related to the execution and delivery of this Loan
Agreement, the Indenture or the Bonds, on behalf of the Issuer, and no such
authority or proceedings have been repealed, revoked, rescinded or amended but
are in full force and effect.
(j) The Issuer authorizes the Company, subject to the terms and
conditions set forth in this Loan Agreement, which terms and conditions the
Issuer determines to be necessary, desirable and proper, to provide for the
acquisition, construction and equipping of the Project by such means as shall be
available to the Company and in the manner determined by the Company, without
any responsibility or liability of the Issuer therefore.
(k) Neither this Loan Agreement, the Note and the payments
thereon by the Company nor any of the revenues to be received hereunder or
thereunder have been pledged or
5
<PAGE>
hypothecated by the Issuer in any manner or for any purpose other than as
provided in the Indenture as security for the payment of the Bonds.
Section 2.2. REPRESENTATIONS BY COMPANY. The Company makes the
following representations as the basis for its undertakings hereunder:
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of North Carolina, has
the power to enter into this Agreement and the transactions contemplated hereby
and to perform its obligations hereunder and has duly authorized the execution
and delivery of this Agreement and the performance of its obligations hereunder.
(b) The execution and delivery of this Agreement and the Note
and the performance by the Company of its obligations hereunder do not and will
not (1) conflict with, or constitute a breach or result in a violation of, its
articles of incorporation or bylaws, (2) constitute a default under any material
agreement or other material instrument to which the Company is a party or by
which it is bound, or (3) result in a violation of any material agreement or
other material instrument to which the Company is a party or by which it is
bound or to the knowledge of the Company, any constitutional or statutory
provision or material order, rule, regulation, decree or ordinance of any court,
government or governmental authority having jurisdiction over the Company or its
property.
(c) The Company will operate the Project, or cause it to be
operated as an industrial project within the meaning of the Act and as a
manufacturing facility within the meaning of Section 144(a)(12)(c) of the Code,
until Payment of the Bonds.
(d) The Company is not in default in the payment of the
principal of or interest on any of its material indebtedness for borrowed money
and is not in default in any material respect under any instrument under and
subject to which any indebtedness has been incurred, and no event has occurred
and is continuing under the provisions of any such agreement that, with the
lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
(e) There is no litigation at law or in equity or any
proceeding before any governmental agency involving and known to the Company
pending or, to the knowledge of the Company, threatened, in which any liability
of the Company is not adequately covered by insurance or in which any judgment
or order would have a material adverse effect upon the business or assets of the
Company or which would affect its existence or authority to do business,
operation of the Project, the validity of this Agreement or the Note or the
performance of the Company's obligations hereunder or thereunder.
(f) The Company has obtained all consents, approvals,
authorizations and orders of any governmental or regulatory authority that
are required to be obtained by the
6
<PAGE>
Company as a condition precedent to the issuance of the Bonds or the
execution and delivery of this Agreement or the performance by the Company of
its obligations hereunder.
ARTICLE III
THE PROJECT
Section 3.1. LOAN OF PROCEEDS. The Issuer hereby loans the proceeds
from the sale of the Bonds pursuant to this Loan Agreement to the Company, and
the Company hereby borrows the same from the Issuer as evidenced by this Loan
Agreement and the issuance and delivery of the Note to the Issuer. The Company
covenants to use such proceeds to pay the Cost of the Project.
Section 3.2. AGREEMENT TO ACQUIRE, CONSTRUCT AND EQUIP PROJECT. The
Company shall cause the acquisition, construction and equipping of the Project
as described in Exhibit A, as such Exhibit A may be amended from time to time by
the Company, provided that in the case of any material change in such Exhibit A
there shall be filed with the Issuer and the Trustee the written approving
opinion of Bond Counsel acceptable to the Trustee to the effect that such change
shall not impair the Federal income tax exemption of interest on any of the
Bonds under Section 103 of the Code (other than interest on Bonds held by a
"substantial user" of the Project or a "related person" to a "substantial user,"
all as defined in the Code.) The Company agrees to obtain all licenses, permits
and consents required for the acquisition, construction, equipping and operation
of the Project, and the Issuer shall have no responsibility therefor.
The Company will not take any action or fail to take any action which
would adversely affect the qualification of the Project under the Act or the
exclusion of interest on the Bonds from Federal income taxation under Section
103 of the Code.
Section 3.3. AGREEMENT TO ISSUE BONDS. In order to provide funds for
payment of the Cost of the Project the Issuer shall simultaneously with the
execution and delivery hereof proceed with the issuance and sale of the Bonds
bearing interest, maturing and having the other terms and provisions set forth
in the Indenture. The obligation of the Issuer to pay for the Cost of the
Project shall be limited to the proceeds in the Construction Fund derived from
the sale of the Bonds in accordance with the Indenture.
Section 3.4. ESTABLISHMENT OF COMPLETION DATE. The Completion Date
shall be evidenced to the Issuer and the Trustee by a certificate signed by
an Authorized Representative of the Company stating (a) the Cost of the
Project, (b) that the acquisition, construction and equipping of the Project
has been completed substantially in accordance with Section 3.2 hereof, and
(c) that, except for amounts retained by the Trustee for the Cost of the
Project not then due and payable, the full Cost of the Project has been paid.
Notwithstanding the foregoing, such certificate shall state that it is given
without prejudice to any rights against third parties which exist at the date
of such certificate or which may subsequently come into being.
7
<PAGE>
Section 3.5. COMPANY REQUIRED TO COMPLETE PROJECT. If the proceeds
derived from the sale of the Bonds and any Additional Bonds issued for such
purpose are not sufficient to pay in full the Cost of the Project, the Company
shall pay so much of the cost thereof as may be in excess of the moneys
available therefor or shall pay over to the Trustee such moneys as are necessary
to provide for payment of such Cost. The Company agrees that if, after
exhaustion of the proceeds derived from the sale of the Bonds, the Company
should pay any portion of the Cost of the Project pursuant to the provisions of
this Section, it shall not be entitled to any reimbursement therefor from the
Issuer or the Trustee nor shall it be entitled to any abatement, diminution or
postponement of its payments hereunder or under the Note.
Section 3.6. LIMITATION OF ISSUER'S LIABILITY. Anything contained in
this Loan Agreement to the contrary notwithstanding, any obligation the Issuer
may incur in connection with the undertaking of the Project for the payment of
money shall not be deemed to constitute a debt or general obligation of the
Issuer or the Wilson County Board of Commissioners but shall be payable solely
from the revenues and receipts derived by it from the loan of the proceeds of
the sale of the Bonds pursuant to this Loan Agreement, including payments
received under the Note and from payments pursuant to the Letter of Credit. No
provision in this Loan Agreement or any obligation herein imposed upon the
Issuer, or the breach thereof, shall constitute or give rise to or impose upon
the Issuer a pecuniary liability or a charge upon its general credit or taxing
powers. No officer or member of the Issuer shall be personally liable on this
Loan Agreement.
Section 3.7. DISCLAIMER OF WARRANTIES. The Company recognizes that
since the Project has been or will be acquired, constructed and equipped by the
Company and by contractors and suppliers selected by the Company in accordance
with plans and specifications prepared by architects or engineers selected by
the Company, THE ISSUER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
WITH RESPECT TO THE MERCHANTABILITY, CONDITION OR WORKMANSHIP OF ANY PART OF THE
PROJECT OR ITS SUITABILITY FOR THE COMPANY'S PURPOSES OR THE EXTENT TO WHICH
PROCEEDS DERIVED FROM THE SALE OF THE BONDS WILL PAY THE COST TO BE INCURRED IN
CONNECTION THEREWITH.
Section 3.8. TAXES, OTHER GOVERNMENTAL CHARGES, UTILITY CHARGES.
The Company shall pay, as the same become due, all taxes, assessments,
impositions and governmental charges of any kind whatsoever, general and
specific, foreseen and unforeseen, and all water and sewer charges that may
be lawfully assessed, levied or imposed on the payments under the Note and
this Loan Agreement or with respect to the Project. The Company shall pay as
the same become due all utility and other charges incurred in the operation,
maintenance, use and occupancy of the Project and all assessments and charges
lawfully made by any governmental body for public improvements to the
Project. The Company may allow to exist any indebtedness for any such tax,
assessment, charge, levy or claim, provided any such tax, assessment, charge,
levy or claim is being contested in good faith by appropriate proceedings and
the Company shall have established and maintained adequate reserves for the
payment of the same. Upon the request of the Issuer, the Company shall
provide the Issuer with proof of payment of all taxes and charges
8
<PAGE>
as required under this Section 3.8.
Section 3.9. INSURANCE. The Company shall keep the Project insured
against fire and other risks to the extent usually insured against by companies
owning and operating similar property, by reputable insurance companies or, at
the Company's election, with respect to all or any element or unit of the
Project, by means of an adequate insurance fund set aside and maintained by it
out of its own earnings or in conjunction with other companies through an
insurance fund, trust or other agreement. Upon the request of the Issuer, the
Company shall provide a certificate to the Issuer indicating its insurance
coverage.
Section 3.10. MAINTENANCE OF THE PROJECT. The Company shall use,
maintain and operate the Project, or cause it to be used, maintained and
operated, in good repair, in accordance with all applicable laws, rules and
regulations, subject to ordinary wear and tear and obsolescence. The Company
may make modifications, replacements and renewals of and to the Project as the
Company shall deem necessary or desirable and that do not adversely affect the
value of the Project provided that all such additions, modifications or
improvements comply with all applicable Federal, state and local codes.
ARTICLE IV
PAYMENT PROVISIONS
Section 4.1. REPAYMENT OF BONDS AND PAYMENT OF OTHER AMOUNTS PAYABLE.
(a) On or before any date that interest on the Bonds is due as set forth in the
Indenture, or any date fixed for the redemption of any or all of the Bonds
pursuant to the Indenture, until the principal of and premium, if any, and
interest on the Bonds shall have been fully paid or provision for the payment
thereof shall have been made in accordance with the Indenture, the Company
covenants and agrees to pay or to cause to be paid in lawful money of the United
States of America to the Trustee for deposit in the Bond Fund, a sum equal to
the amount payable on such payment date as principal (whether at maturity, upon
redemption or otherwise) of and premium, if any, and interest on the Bonds as
provided in the Indenture and in the Note. All payments made pursuant to this
Section shall be made in immediately available funds at the principal corporate
trust office of the Trustee during normal banking hours. The Company covenants
to make all payments on the Note, as and when the same become due.
In the event that the payment of the principal of and accrued interest
on the Bonds is accelerated under Section 902 of the Indenture, the Company
covenants and agrees to pay, or cause to be paid, to the Trustee as provided
above a sum equal to all the principal of and premium, if any, and interest
on the Bonds then outstanding.
9
<PAGE>
Each payment pursuant to this Section shall at all times be sufficient to
pay the total amount of principal (whether at maturity, upon redemption or
otherwise) of and premium, if any, and interest payable on the Bonds on the date
that such payment is due; provided that Excess Bond Fund Moneys held by the
Trustee in the Bond Fund on such date and available to pay principal and
interest on the Bonds shall be credited against the payment due on such date.
Subject to the provisions of the next succeeding sentence, if at any time the
amount held by the Trustee in the Bond Fund should be sufficient (and remain
sufficient) to pay at the times required the principal of and premium, if any,
and interest on the Bonds then remaining unpaid, the Company shall not be
obligated to make any further payments under the provisions of this Section.
Notwithstanding the provisions of the preceding sentence, if on any date Excess
Bond Fund Moneys held by the Trustee in the Bond Fund are insufficient to make
the then required payments of principal (whether at maturity, upon redemption or
otherwise) of and premium, if any, and interest on the Bonds on such date, the
Company shall forthwith pay such deficiency as a payment hereunder.
(b) The Company agrees to pay the reasonable fees, charges and
expenses, including reasonable attorneys' fees, of the Trustee and any Paying
Agent relating to the Bonds, including but not limited to enforcing the
Indenture and the Loan Agreement. "Reasonable attorneys' fees" shall be limited
to the usual and customary hourly rate for attorneys in the attorney's
geographical area and shall be limited to the hours actually expended for those
services.
(c) The Company agrees to pay the Issuer's reasonable costs
(including reasonable attorneys' fees) in connection with (i) the authorization,
issuance and sale of the Bonds; (ii) the ownership, occupation, operation or use
of the Project; (iii) prepayment or redemption of the Bonds; and
(iv) administrative costs and expenses of the Issuer, including the fees of
attorneys, accountants, engineers, appraisers or consultants, paid or incurred
by the Issuer by reason of the Bonds being outstanding or pursuant to
requirements of this Agreement. The Company also agrees to pay the LGC's fee in
connection with its approval of the issuance of the Bonds. "Reasonable
attorneys' fees" shall be limited to the usual and customary hourly rate for
attorneys in the attorney's geographical area and shall be limited to the hours
actually expended for those services.
(d) The Company agrees to pay to the Trustee amounts equal to
the amounts to be paid by the Trustee pursuant to Section 1112 of the Indenture,
such amounts to be paid by the Company to the Trustee on the dates such payments
pursuant to Section 1112 of the Indenture are to be made; provided, however,
that the amount of any such payment hereunder shall be reduced by the amount of
moneys available for such payment under Section 1112(a) of the Indenture.
(e) In the event the Company should fail to make, or cause
to be made, any of the payments required in this Section, the item or
installment so in default shall continue as an obligation of the Company
until the amount in default shall have been fully paid.
10
<PAGE>
Section 4.2. NO DEFENSE OR SET-OFF -- UNCONDITIONAL OBLIGATION. The
obligations of the Company to make the payments required in Section 4.1 hereof
and to perform and observe the other agreements on its part contained herein
shall be absolute and unconditional, irrespective of any defense or any right of
set-off, recoupment or counterclaim it might otherwise have against the Issuer
or the Trustee, and the Company shall pay net during the term of this Agreement
the payments to be made as prescribed in Section 4.1 and all other payments
required hereunder free of any deductions and without abatement, diminution or
set-off; and until such time as the principal of and premium, if any, and
interest on the Bonds shall have been fully paid, or provision for the payment
thereof shall have been made in accordance with the Indenture, the Company:
(i) will not suspend or discontinue any payments provided for in Section 4.1
hereof; (ii) will perform and observe all of its other agreements contained in
this Agreement; and (iii) except as provided in Article VIII hereof, will not
terminate this Agreement for any cause, including, without limiting the
generality of the foregoing, failure to complete the Project, the occurrence of
any act or circumstances that may constitute failure of consideration,
destruction of or damage to the Project, commercial frustration of purpose, any
change in the tax laws of the United States of America or the State of North
Carolina or any political subdivision of either of them, or any failure of the
Issuer or the Trustee to perform or observe any agreement, whether express or
implied, or any duty, liability or obligation arising out of or connected with
this Agreement or the Indenture.
Section 4.3. ASSIGNMENT OF ISSUER'S RIGHTS. As security for the payment
of the Bonds, the Issuer will assign to the Trustee the Issuer's rights under
this Agreement (except for the Issuer's rights under Sections 4.1(c), 6.4, 6.6
and 8.5 hereof and any rights of the Issuer to receive notices, certificates, or
other communications hereunder or to give its consent hereunder) and the Note,
including the right to receive payments hereunder and the proceeds thereof, and
hereby directs the Company to make said payments, or to cause said payments to
be made, directly to the Trustee. The Company herewith assents to such
assignment and will make payments, or cause payments to be made, directly to the
Trustee.
Section 4.4. LETTER OF CREDIT. The Company shall provide for the
payment of amounts due under Section 4.1(a) by delivery to the Trustee on the
date of initial authentication and delivery of the Bonds of a Letter of Credit
in favor of the Trustee and for the benefit of the holders of the Bonds (other
than Company Bonds and Bank Bonds). The Company shall be entitled to provide a
Substitute Letter of Credit under certain circumstances as provided in the
Indenture. Any extension of the Letter of Credit shall be for at least one year
or, if less, the fifteenth day after the maturity date of the Bonds.
EXCEPT AS RESERVED IN SECTION 4.3, THIS LOAN AGREEMENT HAS BEEN
ASSIGNED TO, AND IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, AS TRUSTEE UNDER AN INDENTURE OF TRUST DATED
AS OF MAY 1, 1994, BETWEEN THE WILSON COUNTY INDUSTRIAL FACILITIES AND
POLLUTION CONTROL FINANCING AUTHORITY AND SUCH TRUSTEE, AS AMENDED OR
SUPPLEMENTED FROM TIME
11
<PAGE>
TO TIME. INFORMATION CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM
THE TRUSTEE AT ITS PRINCIPAL OFFICE IN MINNEAPOLIS, MINNESOTA.
ARTICLE V
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 5.1. PARTIES TO GIVE NOTICE. In case of any material damage to
or destruction of any part of the Project, the Company shall give prompt notice
thereof to the Issuer and the Trustee. In case of a taking of all or any part
of the Project or any right therein under the exercise of the power of eminent
domain or any loss thereof because of failure of title thereto or the
commencement of any proceedings or negotiations which might result in such a
taking or loss, the party upon which notice of such taking is served shall give
prompt notice to the other and to the Trustee. Each such notice shall describe
generally the nature and extent of such damage, destruction, taking, loss,
proceeding or negotiations.
Section 5.2. DAMAGE AND DESTRUCTION. Unless the Company terminates this
Loan Agreement and prepays the Note pursuant to Article IX, and subject to the
terms and conditions of the Reimbursement Agreement, if all or any part of the
Project is destroyed or damaged by fire or other casualty, the Company shall be
obligated to continue to make payments required under the Note and shall
promptly replace, repair, rebuild or restore the property damaged or destroyed
to substantially its same condition as prior to such damage or destruction, with
such alterations and additions as the Company may determine and as will not
impair the capacity or character of the Project for the purpose for which it is
then being used or is intended to be used.
Section 5.3. CONDEMNATION AND LOSS OF TITLE. Unless the Company
terminates this Loan Agreement and prepays the Note pursuant to Article IX, and
subject to the terms and conditions of the Reimbursement Agreement, if before
the Completion Date title to or the temporary use of all or any part of the
Project shall be taken under the exercise of the power of eminent domain, the
Company shall be obligated to continue to make the payments required under the
Note. The Company shall cause the Net Proceeds from any such condemnation award
to be applied to the restoration of the Project affected by the taking to
substantially its same condition as prior to the exercise of such power of
eminent domain with such repairs and replacements as the Company may determine
and as will not impair the capacity or character of the Project for the purpose
for which it is then being used or is intended to be used.
12
<PAGE>
ARTICLE VI
SPECIAL COVENANTS AND AGREEMENTS
Section 6.1. MAINTENANCE OF CORPORATE EXISTENCE. The Company agrees
that it will maintain its corporate existence and will not dissolve or otherwise
dispose of all or substantially all of its assets and will not consolidate with
or merge into another corporation or permit one or more other corporations to
consolidate with or merge into it, except the Company may, without violating the
foregoing, consolidate with or merge into another corporation, or permit one or
more other corporations to consolidate with or merge into it, or transfer all or
substantially all of its assets to another corporation (and thereafter dissolve
or not dissolve as it may elect) if the corporation surviving such merger or
resulting from such consolidation, or the corporation to which all or
substantially all of the assets of the Company are transferred, as the case may
be: (i) shall be a domestic corporation organized under the laws of the United
States of America, the District of Columbia or one of the states of the United
States, and (ii) shall assume in writing all of the obligations of the Company
hereunder. Notwithstanding the foregoing, the Company may at any time permit
any wholly owned subsidiary to merge into it without violating this Section. In
the event the Company consolidates or merges with another company in accordance
with this Section it shall provide written notice of such merger or
consolidation to the Trustee and the Issuer. No transfer of all or
substantially all of the Company's assets to another corporation shall relieve
the Company of its obligations hereunder unless the Company has received prior
written consent of the Issuer, the Bank and the Trustee to such transfer. The
Company shall not sell or lease the Project or any part thereof except in
accordance with Article VII hereof.
Section 6.2. LGC REPORT. The Company shall, within thirty (30) days
following June 30 of each year, provide a written report to the LGC, the Wilson
County Finance Officer (at the Issuer's address) and the Issuer indicating the
principal amount of Bonds outstanding as of June 30 of such year. The Company
shall also, at the request of the LGC, deliver to the LGC a copy of the most
recent annual financial statement of the Company.
Section 6.3. PROJECT LIST. The Company shall maintain at the Project
site a list setting forth in reasonable detail all items constituting the
Project.
Section 6.4. INSPECTION OF PROJECT. The Issuer, the Trustee and their
duly authorized agents shall have the right at all reasonable times during
normal business hours to enter upon any part of the Project and to examine and
inspect the same as may be reasonably necessary for the purpose of determining
whether the Company is in compliance with its obligations under Section 3.10
hereof or in the event of failure of the Company to perform its obligations
under Section 3.10 hereof, and the Issuer, the Trustee and their duly authorized
agents shall also have the right at all reasonable times to examine the books
and records of the Company insofar as such books and records relate to the
installation and maintenance of the Project.
Section 6.5. USE OF PROCEEDS; OTHER MATTERS WITH RESPECT TO PROJECT,
BONDS AND TAX EXEMPTION.
13
<PAGE>
(a) USE OF PROCEEDS; PROHIBITED USES OF PROJECT, ETC.
Neither the Issuer nor the Company shall cause any proceeds of the Bonds to
be expended except pursuant to the Indenture. The Company shall not (1)
requisition or otherwise allow any payment out of proceeds of the Bonds (A)
if such payment is to be used for the acquisition of any property (or an
interest therein) unless the first use of such property is pursuant to such
acquisition, provided that this clause (A) shall not apply to any building
(and the equipment purchased as a part thereof, if any,) if the
"rehabilitation expenditures", as defined in Section 147(d) of the Code, with
respect to the building equal or exceed 15% of the portion of the cost of
acquiring the building (including such equipment) financed with the proceeds
of the Bonds, (B) if as a result of such payment, 25% or more of the proceeds
of the Bonds would be considered as having been used directly or indirectly
for the acquisition of land (or an interest therein), (C) if, as a result of
such payment, less than 95% of the net proceeds of the Bonds, expended at the
time of such requisition would be considered as having been used for costs of
the acquisition, construction, or reconstruction or improvement of land or
property of a character subject to the allowance for depreciation within the
meaning of Section 144(a)(1)(A) of the Code ("Qualifying Costs") or (D) if
such payment is used to pay issuance costs (including counsel fees and
placement fees) of the Bonds in excess of an amount equal to 2% of the
principal amount of the Bonds; (2) take or omit, or permit to be taken or
omitted, any other action with respect to the use of such proceeds the taking
or omission of which would result in the loss of exemption of interest on the
Bonds from Federal income taxation under Section 144 of the Code; or (3) take
or omit, or permit to be taken or omitted, any other action the taking or
omission of which would cause the loss of such exemption. Without limiting
the generality of the foregoing, the Issuer and the Company shall not use the
proceeds of the Bonds, or permit such proceeds to be used directly or
indirectly, for the acquisition of land (or an interest therein) to be used
for farming purposes, or to provide (x) any facility the primary purpose of
which is retail food and beverage services, automobile sales or service or
the provision of recreation or entertainment, (y) any airplane, skybox or
other private luxury box, any health club facility, any facility primarily
used for gambling, any store the principal business of which is the sale of
alcoholic beverages for consumption off premises, any private or commercial
golf course, country club, massage parlor, tennis club, skating facility
(including roller skating, skateboard and ice skating), racquet sports
facility (including any hand ball or racquet ball court), hot tub facility,
suntan facility, or race track, or (z) single or multi-family residences.
The Company shall not permit the use of the Project by any person to whom any
part of the aggregate authorized face amount of the Bond would be allocated
pursuant to Section 144(a)(10) of the Code if the amount so allocated when
increased as provided in Section 144(a)(10) of the Code would exceed
$40,000,000.
14
<PAGE>
(b) COMMENCEMENT OF CONSTRUCTION; FIRST USERS. The Company
hereby represents that neither "construction" nor "acquisition" of the
Project "commenced" prior to "official action" of the Issuer within the
meaning of Section 142 of the Code, which took place on March 31, 1992. No
person, firm or corporation who was a "substantial user" of the Project
(within the meaning described in such term under Section 144(a) of the Code)
before the date of issuance of the Bonds and who was or will be a
"substantial user" of the Project following its being placed in service, has
received or will receive, directly or indirectly, any proceeds from the
issuance and sale of the Bonds. The Project was not "first used," within the
meaning of Section 144(a) of the Code, prior to the date one year prior to
the issuance of the Bonds.
(c) ECONOMIC LIFE OF PROJECT. The Company hereby represents
that the "average reasonably expected economic life" of the components
comprising the Project, determined pursuant to Section 147(b) of the Code, is
not less than the amount set forth in the certificates or letters of
representation of the Company delivered on the Closing Date. The weighted
average maturity of the Bonds does not exceed 120% of the remaining "average
reasonably expected economic life" of the components comprising the Project,
determined pursuant to Section 147(b) of the Code. The Company agrees that it
will not make any changes in the Project which would, at the time made, cause
the "average reasonably expected economic life" of the components of the
Project, determined pursuant to Section 147(b) of the Code, to be less than the
"average reasonably expected estimated economic life" of the components set
forth in the certificates or letters of representation of the Company delivered
on the Closing Date, unless the Company shall file with the Issuer and the
Trustee an opinion of Bond Counsel that such change to the Project will not
impair the exemption of interest on the Bonds from Federal income taxation
pursuant to Section 144 of the Code.
(d) CERTIFICATE OF INFORMATION; 8038 FORM. The Company hereby
represents that the information contained in the certificates or letters of
representation of the Company with respect to the compliance with the
requirements of Section 103 of the Code, including the information in Form 8038
(excluding the issue number and the employer identification number of the
Issuer), filed by the Issuer with respect to the Bonds and the Project, is true
and correct in all material respects. The Company shall bear all expenses of
filling out and filing such form.
(e) USE BY UNITED STATES OR ITS AGENCIES. The Company shall
not permit the Project to be used or occupied, other than as a member of the
general public in any manner for compensation by the United States or an agency
or instrumentality thereof, including any entity with statutory authority to
borrow from the United States (in any case within the meaning of Section 149(b)
of the Code), unless the Company shall deliver to the Trustee an opinion of Bond
Counsel in form and substance satisfactory to the Trustee to the effect that
such use will not impair the exemption of interest on the Bonds from Federal
income taxation.
(f) OTHER BONDS TO BE ISSUED. During the period commencing
on the date of the issuance of the Bonds and ending 30 days after the date of
issuance thereof, there shall be issued no "private activity bonds," as
defined in Section 141 of the Code, which are guaranteed or otherwise
15
<PAGE>
secured by payments to be made by the Company or any "related person" (or
group of "related persons"), unless the Company shall deliver to the Trustee
an opinion of Bond Counsel in form and substance satisfactory to the Trustee
to the effect that the issuance of such "industrial development bonds" will
not impair the exemption of interest on the Bonds from Federal income
taxation. Except for the Company or any "related person" (or group of
"related persons"), no Person has (1) guaranteed, arranged, participated in,
assisted with or paid any portion of the cost of the issuance of the Bonds,
or (2) provided any property or any franchise, trademark or trade name
(within the meaning of Section 1253 of the Code) which is to be used in
connection with the Project.
(g) LIMIT ON AMOUNT OF BONDS; 144(a)(4) ELECTION; REPORTS.
The Company represents that on the date of the issuance of the Bonds
outstanding obligations do not exist that will cause the "aggregate face
amount" of the Bonds allocated to any "test-period beneficiary," as defined
in Section 144(a)(10) of the Code, when increased by such obligations as
provided in Section 144(a)(10) of the Code, to exceed $40,000,000. The
Company and, at the direction of the Company, the Issuer, shall file any
reports or statements and take any other action as may be required from time
to time with respect to the qualification of the Bonds as an exempt small
issue within the meaning of Section 144(a) of the Code. The Issuer hereby
elects to have the provisions of Section 144(a)(4) of the Code apply to the
Bonds.
Section 6.6. INDEMNIFICATION BY COMPANY. The Company shall at all
times indemnify and save harmless the Issuer, the County of Wilson, the LGC
and the Trustee from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including, without
limitation, reasonable counsel fees and expenses) imposed upon or incurred by
or asserted against the Issuer, the County of Wilson, the LGC or the Trustee
on account of (a) any failure of the Company to comply with any of the terms
of this Agreement or (b) any loss or damage to property or any injury to or
death of any Person pertaining to the Project or the use thereof, and shall
further indemnify and save harmless the Issuer, the LGC and the Trustee and
their respective past, present and future officers, commissioners, directors,
employees and agents (the " Indemnitees") from and against all liabilities,
obligations, claims, damages, penalties, fines, losses, reasonable costs and
expenses (the "Damages") including, without limitation:
(a) all amounts paid in settlement of any litigation commenced
or threatened against the Indemnitees, or any of them, if such settlement is
effected with the written consent of the Company;
(b) all expenses reasonably incurred in the investigation of,
preparation for or defense of any litigation, proceeding or investigation of any
nature whatsoever, commenced or threatened against the Company, the Project, or
any Indemnitees;
(c) any judgments, penalties, fines, damages, assessments,
indemnities or contributions; and
16
<PAGE>
(d) the reasonable fees of attorneys, auditors and
consultants; provided that the Damages arise out of:
(1) any failure by the Company or its officers,
partners, employees or agents, to comply with the terms of the Loan
Agreement, the Note, the Indenture (to the extent the Indenture makes
requirements of the Company which it expressly assumes herein) or any other
document to which the Company is a party delivered in connection with the
sale of the Bonds (the "Financing Documents") and any agreements, covenants,
obligations, or prohibitions set forth herein or therein;
(2) any action, suit, claim or demand contesting or
affecting the title of the Project;
(3) any breach of any representation or warranty of the
Company set forth in the Financing Documents or any certificate or any letter of
representation delivered by the Company pursuant thereto, and any claim that any
statement, representation or warranty of the Company contains or contained any
untrue or misleading statement of material fact or omits or omitted to state any
material facts necessary to make the statements made therein not misleading in
light of the circumstances under which they were made;
(4) any action, suit, claim, proceeding or investigation
of a judicial, legislative, administrative or regulatory nature arising from or
in connection with the financing, acquisition, installation, ownership,
operation, occupation or use of the Project; or
(5) any suit, action, administrative proceeding,
enforcement action, or governmental or private action of any kind whatsoever
commenced against the Company, the Project, or any Indemnitee which might
adversely affect the validity or enforceability of the Bonds, the Financing
Documents, or the performance by the Company or the Indemnitees of any of their
respective obligations thereunder;
provided that such indemnity shall be effective only to the extent of any loss
that may be sustained by the Indemnitees in excess of the net proceeds received
by it or them from insurance, if any, required hereunder or under any of the
Financing Documents with respect to such loss, and provided further that the
benefits of this Section shall not inure to any person other than the
Indemnitees and their successors and assigns. Nothing contained herein shall
require the Company to indemnify the Issuer for any claim or liability resulting
from the Issuer's or the LGC's willful, wrongful acts or the Trustee for any
claim or liability resulting from its negligence or its willful, wrongful acts.
The Issuer may require advance payment or assurance of payment for any fees,
expenses, or costs incurred or expected to be incurred by it in connection with
the performance of any act or thing it may be called upon to do under the term
of this Agreement. The foregoing sentence does not apply to the Issuer's
obligations set forth in Sections 3.3 or 4.3 hereof.
17
<PAGE>
If any action, suit or proceeding is brought against any Indemnitee
for any loss or damage for which the Company is required to provide
indemnification under this Section, such Indemnitee shall promptly notify the
Company and the Company shall have the sole right and duty to assume, and
shall assume, the defense thereof, with full power to litigate, compromise or
settle the same in its sole discretion. Notwithstanding the foregoing, in
the event the Indemnitee is the Issuer or the LGC, in the event the Issuer or
the LGC reasonably believes there are defenses available to it that are not
being pursued, the Issuer or the LGC, as the case may be, may, in its sole
discretion, hire independent counsel to pursue its own defense, and the
Company shall be liable for the cost of such counsel. The obligations of the
Company under this Section shall survive any termination of this Agreement.
"Reasonable attorneys' fees" shall be limited to the usual and customary
hourly rate for attorneys in the attorney's geographical area and shall be
limited to the hours actually expended for those services.
Section 6.7. QUALIFICATION OF COMPANY IN NORTH CAROLINA. The Company
agrees that throughout the term of this Agreement it will be qualified to do
business in the State of North Carolina.
Section 6.8. PERMITS OR LICENSES. In the event that it may be necessary
for the proper performance of this Agreement on the part of the Company or the
Issuer that any application or applications for any permit or license to do or
to perform certain things be made to any governmental or other agency by the
Company or the Issuer, the Company and the Issuer each shall, upon the request
of either, execute such application or applications.
Section 6.9. ISSUER'S AND TRUSTEE'S ACCESS TO PROJECT. The Issuer and
the Trustee shall have the right, upon appropriate prior notice to the Company,
to have reasonable access to the Project and the books and records of the
Company with respect to the Project during normal business hours for the purpose
of making examinations and inspections of the same.
Section 6.10. ARBITRAGE COVENANT. The Issuer and the Company covenant
that no use of the proceeds of the Bonds or the earnings thereon will be made or
directed, and no other action will be taken, which would cause the Bonds to be
"arbitrage bonds" within the meaning of Section 148 of the Code. The Company
further covenants that (a) all actions with respect to the Bonds required by
Section 148(f) of the Code shall be taken, (b) it shall make the determinations
required by Section 510 of the Indenture at its own expense and promptly notify
the Trustee and the Issuer of the same, together with supporting calculations,
and (c) it shall within forty-five (45) days after the final payment, whether
upon redemption in whole or at maturity, of the Bonds, file with the Trustee,
and, at the request of the Issuer, with the Issuer, a statement signed by the
Company to the effect that the Company is then in compliance with its covenants
contained in clauses (a) and (b) of this sentence, together with supporting
calculations; provided, however, that if the Company shall furnish an opinion of
Bond Counsel to the Trustee to the effect that no further action by the Company
is required for such compliance with respect to the Bonds, the Company shall not
thereafter be required to deliver any such statements or calculations.
Notwithstanding the foregoing, the Company shall take such steps and provide
18
<PAGE>
such information to the Issuer as may be required by the Issuer for it to meet
any requirements (relating to rebate or otherwise) required by the Code, the
Internal Revenue Service, or any other Federal or state government agency.
Section 6.11. REFERENCE TO BONDS INEFFECTIVE AFTER BONDS PAID. Upon
payment of the Bonds and upon payment of all obligations under this Loan
Agreement, all references in this Loan Agreement to the Bonds and the Trustee
shall be ineffective, and neither the Trustee, the Issuer nor the holders of
any of the Bonds shall thereafter have any rights hereunder except as
provided in Section 6.6 hereof and except with regard to payments of costs
and expenses of the Trustee and the Issuer by the Company.
Section 6.12. NOTIFICATION OF A BANKRUPTCY FILING OR EVENT OF DEFAULT.
The Issuer and the Company shall each notify the other, the Bank, the LGC and
the Trustee within two Business Days after either of them receives notice that
an Event of Bankruptcy has occurred with respect to the Company or the Issuer,
or after either of them becomes aware that an Event of Default (as defined in
Article VIII) has occurred.
Section 6.13. OBLIGATIONS UNDER INDENTURE. The Company covenants and
agrees to perform all of the obligations imposed on the Company under the
Indenture.
ARTICLE VII
ASSIGNMENT, LEASING AND SELLING
Section 7.1. CONDITIONS. (a) The Company's interest in this Agreement
may be assigned in whole or in part, and the Project may be leased or sold as a
whole or in part (whether a specific element or unit or an undivided interest),
by the Company, subject, however, to the condition that no assignment, lease or
sale (other than as described in Section 6.1 hereof) shall relieve the Company
from primary liability for its obligations hereunder, and from its obligation to
utilize of the Project as a manufacturing facility.
(b) Notwithstanding the provisions of Section 7.1(a) above, the Company
may sell or lease the Project and assign its interest in this Agreement in full,
and may be released from all liability under this Agreement, so long as the
Trustee receives consent of the Bank, the Issuer and 100% of the Holders of the
Bonds to such transfer or assignment, and the purchaser or assignee agrees in
writing to assume the Company's obligations hereunder.
Section 7.2. INSTRUMENT FURNISHED TO TRUSTEE. The Company shall, within
fifteen (15) days after the delivery thereof, furnish to the Issuer and the
Trustee a true and complete copy of the agreements or other documents
effectuating any such assignment, lease or sale.
Section 7.3. LIMITATION. This Agreement shall not be assigned nor shall
the Project be leased or sold, in whole or in part, except as provided in this
Article VII or in Section 6.1 hereof.
19
<PAGE>
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.1. EVENTS OF DEFAULT. Each of the following events shall
constitute and is referred to in this Agreement as an "Event of Default":
(a) Failure by the Company to pay when due any payment required
to be made under Section 4.1(a) or (d) hereof, which failure shall have resulted
in an "Event of Default" under clause (a), (b) or (c) of the first paragraph of
Section 901 of the Indenture.
(b) Failure by the Company to observe and perform any covenant,
condition or agreement on its part to be observed or performed in the Loan
Agreement, other than as referred to in Section 8.1(a) above, which failure
shall continue for a period of thirty (30) days after written notice, specifying
such failure and requesting that it be remedied, is given to the Company by the
Issuer or the Trustee, unless the Issuer and the Trustee shall agree in writing
to an extension of such time prior to its expiration; provided, however, if the
failure stated in the notice cannot be corrected within the applicable period,
the Issuer and the Trustee will not unreasonably withhold their consent to an
extension of such time if corrective action is instituted by the Company within
the applicable period and is being diligently pursued.
(c) The dissolution or liquidation of the Company or the filing
by the Company of a voluntary petition in bankruptcy, or failure by the Company
promptly to lift any execution, garnishment or attachment of such consequence as
will impair its ability to carry out its obligations under this Agreement, or
the entry of an order of relief in any involuntary bankruptcy proceedings
against the Company, or an assignment by the Company for the benefit of its
creditors, or the entry by the Company into an agreement of composition with its
creditors, or the approval by a court of competent jurisdiction of a petition
applicable to the Company in any proceeding for its reorganization instituted
under the provisions of any bankruptcy act, or under any similar act which may
hereafter be enacted. The term "dissolution or liquidation of the Company," as
used in this subsection, shall not be construed to include the cessation of the
corporate existence of the Company resulting either from a merger or
consolidation of the Company into or with another corporation or a dissolution
or liquidation of the Company following a transfer of all or substantially all
of its assets as an entirety, under the conditions permitting such actions
contained in Section 6.1 hereof.
Section 8.2. FORCE MAJEURE. The provisions of Section 8.1(b) hereof are
subject to the following limitation: if by reason of acts of God; strikes,
lockouts or other industrial disturbances; acts of public enemies; orders or
other acts of any kind of the Government of the United States or of the State of
North Carolina, or any other sovereign entity or body politic, or any
department, agency, political subdivision, court or official of any of them, or
any civil or military authority; insurrections; riots; epidemics; landslides;
lightning; earthquakes, volcanoes; fires; hurricanes; tornadoes; storms; floods;
washouts; droughts; arrests; restraint of government and people; civil
disturbances; explosions, breakage or accident to machinery; partial or entire
20
<PAGE>
failure of utilities; or any cause or event not reasonably within the control
of the Company, the Company is unable in whole or in part to carry out any
one or more of its agreements or obligations contained herein, other than its
obligations under Sections 4.1(a) and (d), 6.1, 6.2, 6.5, 9.3, 9.4 and 10.1
hereof, the Company shall not be deemed in default by reason of not carrying
out said agreement or agreements or performing said obligation or obligations
during the continuance of such inability. The Company agrees, however, to
use its best efforts to remedy with all reasonable dispatch the cause or
causes preventing it from carrying out its agreements; provided, that the
settlement of strikes, lockouts and other industrial disturbances shall be
entirely within the discretion of the Company, and the Company shall not be
required to make settlement of strikes, lockouts and other industrial
disturbances by acceding to the demands of the opposing party or parties when
such course is in the judgment of the Company unfavorable to the Company.
Section 8.3. REMEDIES ON DEFAULT. Whenever any Event of Default
hereunder shall have happened and be continuing, any one or more of the
following remedial steps may be taken:
(a) The Issuer with the prior consent of the Trustee, or the
Trustee, may at its option, and shall, if acceleration occurs or is declared
pursuant to Section 902 of the Indenture, declare all unpaid amounts payable
under this Agreement, together with interest then due thereon, to be immediately
due and payable, whereupon the same shall become due and payable.
(b) The Issuer with the prior consent of the Trustee, or the
Trustee, may take any action at law or in equity to collect the payments then
due and thereafter to come due hereunder, or to enforce performance and
observance of any obligation, agreement or covenant of the Company under this
Agreement.
Any amounts collected pursuant to action taken under this Section shall
be applied in accordance with the Indenture.
In case any proceeding taken by the Issuer or the Trustee on account of
any Event of Default shall have been discontinued or abandoned for any reason,
or shall have been determined adversely to the Issuer or the Trustee, then and
in every case the Issuer and the Trustee shall be restored to their former
positions and rights hereunder, respectively, and all rights, remedies and
powers of the Issuer and the Trustee shall continue as though no such proceeding
has been taken.
Section 8.4. NO REMEDY EXCLUSIVE. No remedy conferred upon or reserved
to the Issuer or the Trustee by this Agreement is intended to be exclusive of
any other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity or by statute. No
delay or omission to exercise any right or power accruing upon any Event of
Default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right or power may be exercised from time to time
and as often as may be deemed expedient. In order to entitle the Issuer or the
Trustee to exercise any remedy reserved to it in this Article, it
21
<PAGE>
shall not be necessary to give any notice other than such notice as may be
required in this Article.
Section 8.5. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In the
event the Company should default under any of the provisions of this Agreement
and the Issuer or the Trustee should employ attorneys or incur other expenses
for the collection of payments due hereunder or for the enforcement of
performance or observance of any obligation or agreement on the part of the
Company contained herein, the Company agrees that it will on demand therefor pay
to the Issuer or the Trustee, as the case may be, the reasonable fees of such
attorneys and such other reasonable expenses so incurred. In the event the
Company fails to pay such amount, the Trustee may, to the extent of funds
available under the Indenture, pay such fees and expenses. "Reasonable
attorneys' fees" shall be limited to the usual and customary hourly rate for
attorneys in the attorney's geographical area and shall be limited to the hours
actually expended for those services.
Section 8.6. WAIVER OF BREACH. In the event that any agreement
contained herein shall be breached by either the Company or the Issuer and such
breach shall thereafter be waived by the other party, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive any
other breach hereunder. In view of the assignment of the Issuer's rights in and
under this Agreement to the Trustee under the Indenture, the Issuer shall have
no power to waive any default hereunder by the Company without the consent of
the Trustee, and the Trustee may exercise any of the rights of the Issuer
hereunder.
ARTICLE IX
REDEMPTION OF BONDS
Section 9.1. OPTIONAL REDEMPTION OF BONDS. Prior to the Conversion
Date, the Company shall have and is hereby granted the option to prepay
installments payable hereunder for the purpose of redeeming prior to maturity
the Bonds, in whole or in part, pursuant to Section 301(c) of the Indenture, but
only after receipt of prior written consent of the Bank to such prepayment.
After the Conversion Date, the Company shall have and is hereby granted the
option to prepay installments payable hereunder for the purpose of redeeming the
Bonds prior to maturity, in whole or in part, pursuant to Section 301(e) of the
Indenture.
Section 9.2. EXTRAORDINARY OPTIONAL REDEMPTION OF BONDS. The Company
shall have and is hereby granted the option to prepay installments payable
hereunder in whole for the purpose of redeeming the Bonds prior to maturity,
pursuant to Section 301(a) of the Indenture, upon the occurrence of any of the
following, but only after receipt of prior written consent from the Bank:
22
<PAGE>
(a) The Project shall have been damaged or destroyed (i) to
such extent that it cannot be reasonably restored within a period of six
months to the condition thereof immediately preceding such damage or
destruction, or (ii) to such extent that the Company is thereby prevented, in
the Company's judgment, from carrying on its normal operation of the Project
for a period of six months, or (iii) to such extent that it would not be
economically feasible, in the Company's judgment, for the Company to repair
the Project.
(b) Title to, or the temporary use for a period of six months
or more of, all or substantially all of the Project, or such part thereof as
shall materially interfere, in the Company's judgment, with the operation of the
Project for the purpose for which the Project is designed, shall have been taken
under the exercise of the power of eminent domain by any governmental body or by
any person, firm or corporation acting under governmental authority (including
such a taking or takings as results in the Company being thereby prevented from
carrying on its normal operation of the Project for a period of six months).
(c) Changes which the Company cannot reasonably control or
overcome, in the economic availability of materials, supplies, labor, equipment
and other properties and things necessary for the efficient operation of the
Project shall have occurred, or technological or other changes shall have
occurred which in the judgment of the Company, render the continued operation of
the Project uneconomic for such purposes.
(d) As a result of any changes in the Constitution of North
Carolina or the Constitution of the United States of America or of legislative
or administrative action (whether state or Federal) or by final decree, judgment
or order of any court or administrative body (whether state or Federal) entered
after the contest thereof by the Company in good faith, this Agreement shall
have become void or unenforceable or impossible of performance in accordance
with the intent and purposes of the parties as expressed in this Agreement, or
unreasonable burdens or excessive liabilities shall have been imposed on the
Company in respect to the Project, including, without limitation, Federal, state
or other ad valorem, property, income or other taxes not being imposed on the
date of this Agreement.
Section 9.3. MANDATORY PREPAYMENT OF BONDS UPON A DETERMINATION OF
TAXABILITY. In the event that there shall occur a Determination of Taxability,
as hereinafter defined, the Company agrees to prepay in whole, or in part to the
extent prepayment of fewer than all of the Bonds would result in the interest
payable on the Bonds remaining Outstanding being excluded from gross income for
Federal income tax purposes, within thirty days after the occurrence of the
Determination of Taxability, the installments payable hereunder for the purpose
of redeeming the Bonds prior to maturity (including for such purpose Bonds
deemed to be paid in accordance with Article IX of the Indenture), plus accrued
interest to the redemption date, plus a premium equal to 3% of the principal
amount of Bonds to be redeemed, plus any reasonable expenses of redemption and
Trustee's and Paying Agent's reasonable fees and charges, but after the
deduction of the amounts, if any, then in the Bond Fund.
23
<PAGE>
The term "Determination of Taxability" shall mean any determination,
decision or decree made in regard to Section 103 of the Code, by the
Commissioner or any District Director of the Internal Revenue Service, or, if
there is an appeal from any such determination by a Commissioner or District
Director, when a final administrative or judicial determination has been
made, or by a final decision of any court of competent jurisdiction, or the
receipt by the Trustee of an opinion of Bond Counsel, that the interest paid
or payable on any Bond is or was includable in the gross income of a holder
thereof for Federal income tax purposes (other than a Holder who is a
"substantial user" of the Project or "related person" as such terms are
defined in the Code and regulations thereunder and other than a Holder who
includes such interest in gross income for purposes of any alternative
minimum income tax computations). However, no such determination, decision or
decree will be considered final for this purpose unless the Company has been
given written notice and, if it is so desired and is legally allowed, has
been afforded the opportunity to contest the same, either directly or in the
name of any Holder of a Bond. Furthermore, no opinion of Bond Counsel shall
be considered final for this purpose unless the Company has been given
written notice thereof and the opportunity (but not longer than 30 days) to
provide a second opinion of Bond Counsel. In the event the opinions provided
to the Trustee conflict, the Trustee shall, at the cost of the Company,
obtain a third opinion of Bond Counsel. If the opinion of such Bond Counsel
concurs with the original opinion delivered to the Trustee, the Trustee shall
proceed with the redemption of Bonds as described above. Notwithstanding the
foregoing provisions, if a final determination, decision, decree or opinion
has not occurred within three (3) years after the Company first receives
written notice as described above, the Company shall prepay the amounts
payable under this Agreement on such date as is three (3) years from the date
that it first received written notice and the Trustee shall proceed with the
redemption of the Bonds as described above.
The obligation of the Company under this Section 9.3 shall survive any
termination of this Agreement.
Section 9.4. MANDATORY PREPAYMENT OF BONDS UPON CESSATION OF OPERATION.
In the event of a "cessation of operation" of the Project as an "industrial
project for industry," as defined in the Act, the Company agrees to prepay the
Bonds in whole, together with accrued interest to the redemption date on the
first Interest Payment Date that is not less than 90 days after the Issuer has
notified the Company and the Bank in writing that the Company has, in the
opinion of the Issuer, ceased to operate the project as an "industrial project
for industry." A cessation of operation shall not be deemed to have occurred
until 90 days shall have elapsed after written notice has been given to the
Company by the Issuer that operations at the Project shall have ceased and the
Company shall not have demonstrated to the satisfaction of the Issuer that the
Company has resumed the operations of the Project as an "industrial project for
industry" within the meaning of the Act or that the Company is, in good faith,
seeking to arrange resumption of an economically reasonable operation of the
Project by the Company or, if permitted under this Loan Agreement, by an
assignee or purchaser of the Project as such an "industrial project for
industry;" provided that a temporary shutdown due to a strike or other labor
dispute, lack of fuel or similar occurrence shall not be deemed a cessation of
operation.
24
<PAGE>
Section 9.5. AMOUNTS PAYABLE BY COMPANY. (a) In the case of a
prepayment for the redemption of the Bonds in whole pursuant to Section 9.1,
9.2, 9.3 or 9.4 hereof, the amount to be prepaid by the Company hereunder
(which shall fully discharge the obligation of the Company to make payments
hereunder) will be a sum sufficient, together with other funds deposited with
the Trustee and available for such purpose, to pay (1) the principal of all
Bonds then outstanding, plus interest accrued and to accrue to the date upon
which the Bonds will be redeemed, plus premium, if any, pursuant to the
Indenture, (2) all reasonable and necessary fees and expenses of the Trustee
and any Paying Agent accrued and to accrue through final payment of the
Bonds, and (3) all other liabilities of the Company accrued and to accrue
under this Agreement.
(b) In case of a prepayment for the redemption of the Bonds in
part pursuant to Section 9.1 hereof, the amount to be prepaid by the Company
hereunder will be a sum sufficient, together with other funds deposited with the
Trustee and available for such purpose, to pay (1) the principal of all Bonds
then being redeemed, plus interest accrued and to accrue to the date upon which
the Bonds will be redeemed, plus premium, if any, pursuant to the Indenture,
(2) all reasonable and necessary fees and expenses of the Trustee and any Paying
Agent accrued and to accrue in connection with said redemption, and (3) all
other liabilities of the Company accrued or to accrue under this Agreement in
connection with said redemption.
(c) The Company agrees to and shall pay to the Trustee any
amount required to be paid by it under this Section 9.5, and the Trustee shall
be directed to use the moneys so paid to it to redeem the Bonds pursuant to the
provisions of the Indenture. Any amount required to be paid under this Section
9.5, shall not be deemed to be paid until it is received by the Trustee.
Section 9.6. PROCEDURE FOR EXERCISE OF OPTIONS. To exercise an option
granted in Section 9.1 or 9.2 hereof, the Company shall give written notice to
the Issuer and the Trustee, which shall specify therein the date upon which
redemption of the Bonds will be made and the applicable redemption provisions of
the Indenture. Such date shall be not less than 45 nor more than 90 days from
the date the notice is given. Upon receipt of such notice, the Issuer shall
forthwith take all steps (other than the payment of the money required for such
redemption) necessary under the applicable provisions of the Indenture to effect
redemption of all or part, as the case may be, of the Bonds on the earliest
practicable date thereafter on which such redemption may be made under the
applicable provisions of the Indenture.
ARTICLE X
MISCELLANEOUS
Section 10.1. NOTICES. Except as otherwise provided in this Agreement,
all notices, certificates or other communications shall be sufficiently given
and shall be deemed given when mailed by registered or certified mail, postage
prepaid, to the Issuer, the Company, the Trustee, the Bank, or the Remarketing
Agent. Facsimiles of each notice, certificate or other
25
<PAGE>
communication given hereunder to the Company shall, in addition to mailing,
be telecopied to the Company, and copies of each notice, certificate or other
communication given hereunder by or to the Company shall be mailed by
registered or certified mail, postage prepaid, to the Trustee and the Bank;
provided, however, that the effectiveness of any such notice shall not be
affected by the failure to telecopy any such facsimiles or to send any such
copies. Notices, certificates or other communications shall be sent to the
following addresses:
Company: Granutec, Inc.
2543 Airport Drive
Wilson, North Carolina 27893
Attention: President
Bank: Branch Banking and Trust Company
223 W. Nash Street
Wilson, North Carolina 27894
Attention: Mark Edwards
Issuer: The Wilson County Industrial Facilities and
Pollution Control Financing Authority
c/o Clerk, Wilson County Board of Commissioners
P.O. Box 1728
Wilson, North Carolina 27893
Attention: Chairman
Trustee and Paying Agent: Norwest Bank Minnesota, National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Department
Remarketing Agent: Blount Parrish & Roton, Inc.
10 Court Square
Montgomery, Alabama 36104
Attention: James D. Reynolds
Any of the foregoing may, by notice given hereunder, designate any further or
different addresses to which subsequent notices, certificates or other
communications shall be sent.
Section 10.2. SEVERABILITY. If any provision of this Agreement shall be
held or deemed to be or shall, in fact, be illegal, inoperative or
unenforceable, the same shall not affect any other provision or provisions
herein contained or render the same invalid, inoperative, or unenforceable to
any extent whatever.
26
<PAGE>
Section 10.3. EXECUTION OF COUNTERPARTS. This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument;
except that, to the extent that this Agreement shall constitute personal
property under the Uniform Commercial Code of North Carolina, no security
interest in this Agreement may be created or perfected through the transfer
or possession of any counterpart of this Agreement other than the original
counterpart, which shall be the counterpart containing the receipt therefor
executed by the Trustee following the signatures to this Agreement.
Section 10.4. AMOUNTS REMAINING IN BOND FUND. It is agreed by the
parties hereto that after payment in full of (i) the Bonds (or the provision for
payment thereof having been made in accordance with the provisions of the
Indenture), (ii) the fees, charges and expenses of the Trustee and Paying Agents
in accordance with the Indenture, (iii) all amounts owing to the Bank under the
Reimbursement Agreement, and (iv) all other amounts required to be paid under
this Agreement and the Indenture, any amounts remaining in the Bond Fund shall
belong to and be paid by the Trustee to the Company.
Section 10.5. AMENDMENTS, CHANGES AND MODIFICATIONS. Except as
otherwise provided in this Agreement or the Indenture, subsequent to the initial
issuance of Bonds and prior to payment in full of the Bonds (or the provision
for payment thereof having been made in accordance with the provisions of the
Indenture), this Agreement may not be effectively amended, changed, modified,
altered or terminated nor any provision waived, without the written consent of
the Trustee.
Section 10.6. GOVERNING LAW. This Agreement shall be governed
exclusively by and construed in accordance with the applicable laws of the State
of North Carolina.
Section 10.7. AUTHORIZED COMPANY REPRESENTATIVES. An Authorized Company
Representative shall act on behalf of the Company whenever the approval of the
Company is required or the Company requests the Issuer to take some action, and
the Issuer and the Trustee shall be authorized to act on any such approval or
request and neither party hereto shall have any complaint against the other or
against the Trustee as a result of any such action taken.
Section 10.8. TERM OF THE AGREEMENT. This Agreement shall be in full
force and effect from the date hereof and shall continue in effect so long as
any Bonds are outstanding or the Trustee shall hold any moneys under Article IX
of the Indenture, whichever is later. All representations and certifications by
the Company as to all matters affecting the tax-exempt status of the Bonds shall
survive the termination of this Agreement.
Section 10.9. NO PERSONAL LIABILITY. No covenant or agreement
contained in this Agreement shall be deemed to be the covenant or agreement
of any official, officer, agent, attorney, or employee of the Issuer or the
Company in his individual capacity, and no such person shall be subject to
any personal liability or accountability by reason of the issuance thereof.
27
<PAGE>
Section 10.10. PARTIES IN INTEREST. This Agreement shall inure to the
benefit of and shall be binding upon the Issuer, the Company and their
respective successors and assigns, and no other person, firm or corporation
shall have any right, remedy or claim under or by reason of this Agreement;
provided, however, that any obligation of the Issuer created by or arising out
of this Agreement shall be payable solely out of the revenues derived from this
Agreement or the sale of the Bonds or income earned on invested funds as
provided in the Indenture and shall not constitute, and no breach of this
Agreement by the Issuer shall impose, a pecuniary liability upon the Issuer or a
charge upon the Issuer's general credit or against its taxing powers.
-------------------------------------
IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement
to be executed in their respective corporate names by their respective duly
authorized officers, all as of the date first above written.
(Corporate Seal) THE WILSON COUNTY INDUSTRIAL FACILITIES AND
POLLUTION CONTROL FINANCING AUTHORITY
Attest:
/s/ Ruth M. McCormick
- -----------------------
Secretary By /s/ Garland D. Ricks III
------------------------------
Chairman
GRANUTEC, INC.
By /s/ Michel T. Baudet
---------------------------
Its President
28
<PAGE>
RECEIPT
Receipt of the foregoing original counterpart of the Loan Agreement dated
as of May 1, 1994, between The Wilson County Industrial Facilities and Pollution
Control Financing Authority and Granutec, Inc. is hereby acknowledged.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Trustee
/s/ Roxanne Rouleau
---------------------------------
Corporate Trust Officer
29
<PAGE>
EXHIBIT A
DESCRIPTION OF PROJECT
The Project consists of the acquisition, construction and installation of
a 62,000 square foot expansion to the Company's existing facility for the
manufacture of pharmaceuticals. The Project will consist of additional square
footage of building and installation of equipment for production, laboratory,
materials handling, and utility services connected with the process of
manufacturing pharmaceuticals. The new equipment will include tablet presses,
coating pans, imprinting, banding, encapsulation equipment, ancillary production
support equipment, and laboratory equipment and furniture.
30
<PAGE>
EXHIBIT B
Promissory Note
Granutec, Inc.
$8,100,000 May 5, 1994
Granutec, Inc., a North Carolina corporation (the "Company"), for value
received, hereby promises to pay to The Wilson County Industrial Facilities and
Pollution Control Financing Authority (the "Issuer"), or assigns, on May 1,
2014, the principal sum of EIGHT MILLION ONE HUNDRED THOUSAND DOLLARS
($8,100,000) subject to prior payment, with interest on the unpaid principal
sum, from May 5, 1994, until said principal sum shall be paid, and to the extent
permitted by law, interest on overdue installments of such interest, at the then
interest rate provided in the Bonds, as hereinafter defined. Interest hereunder
shall be payable at the time interest is payable on the Bonds.
Payments shall be made in lawful money of the United States of America in
immediately available funds on the date payment is due, at the principal
corporate trust office of Norwest Bank Minnesota, National Association (the
"Trustee"), in Minneapolis, Minnesota, or at such other place as the Trustee may
direct in writing.
Anything herein to the contrary notwithstanding, any amount held by the
Trustee in the Bond Fund referred to in the Indenture, hereinafter defined,
shall be credited against the next succeeding payment hereunder and shall reduce
the payment to be made by the Company. If the amount held by the Trustee in the
Bond Fund should be sufficient to pay at the times required the principal of,
premium, if any, and interest on the Bonds then remaining unpaid and to pay all
fees and expenses of the Trustee and the Paying Agents accrued and to accrue
through final payment of the Bonds, then the Company shall not be obligated to
make any further payments hereunder, except to the extent losses may be incurred
in connection with investment of moneys in the Bond Fund.
The Issuer, by the execution of the Indenture, as hereinafter defined,
and the assignment form at the foot of this Note, is assigning this Note and the
payments thereon to the Trustee acting pursuant to an Indenture of Trust dated
as of May 1, 1994 (the "Indenture"), between the Issuer and the Trustee as
security for the Issuer's $8,100,000 Industrial Development Revenue Bonds
(Granutec, Inc. Project), Series 1994 (the "Bonds"), as defined in the
Indenture, all as issued pursuant to the Indenture. Payments of principal of
and interest on this Note shall be made directly to the Trustee for the account
of the Issuer pursuant to such assignment and applied only to the principal of
and interest on the Bonds. All obligations of the Company hereunder shall
terminate when all sums due and to become due pursuant to the Indenture, this
31
<PAGE>
Note, the Loan Agreement, hereinafter defined, and the Bonds have been paid.
In addition to the payments of principal and interest specified in the
first paragraph hereof, the Company shall also pay such additional amounts, if
any, which, together with other moneys available therefor pursuant to the
Indenture, may be necessary to provide for payment when due of principal of
(whether at maturity, by acceleration, upon purchase, upon call for mandatory,
extraordinary or optional redemption, or otherwise), premium, if any, and
interest on the Bonds.
The Company shall have the option or may be required to prepay this Note
in whole or in part upon the terms and conditions and in the manner specified in
the Loan Agreement dated as of May 1, 1994 (the "Loan Agreement"), between the
Issuer and the Company.
This Note is issued pursuant to the Loan Agreement in satisfaction of the
Company's payment obligation in Section 4.1 thereof and is entitled to the
benefits and subject to the conditions thereof, including the provisions of
Section 4.2 thereof that the Company's obligations thereunder and hereunder
shall be unconditional as provided in such Section 4.2. All the terms,
conditions and provisions of the Loan Agreement and the applicable provisions of
the Bonds and the Indenture are, by this reference thereto, incorporated herein
as a part of this Note.
In case an Event of Default, as defined in the Loan Agreement, shall
occur, the principal of and interest on this Note may be declared immediately
due and payable as provided in the Loan Agreement. This Note shall be governed
by, and construed in accordance with, the laws of the State of North Carolina.
32
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed in
its corporate name and its seal to be hereunto affixed and attested by its duly
authorized officers, all as of the date first above written.
GRANUTEC, INC.
By /s/ Michel T. Baudet
-----------------------------
President
(SEAL)
Attest:
By /s/ Ruth M. McCormick
----------------------------
Secretary
33
<PAGE>
ASSIGNMENT
The Wilson County Industrial Facilities and Pollution Control
Financing Authority (the Issuer), hereby irrevocably assigns, without
recourse, the foregoing Note to Norwest Bank Minnesota, National Association,
Trustee under an Indenture of Trust dated as of May 1, 1994 (the Indenture),
between the Issuer and the Trustee and hereby directs Granutec, Inc. (the
Company) as the maker of the Note to make all payments of principal of and
interest thereon directly to the Trustee at its principal corporate trust
office in Minneapolis, Minnesota, or at such other place as the Trustee may
direct in writing. Such assignment is made as security for the payment of
the Issuer's $8,100,000 Industrial Development Revenue Bonds (Granutec, Inc.
Project), Series 1994 issued pursuant to the Indenture.
THE WILSON COUNTY INDUSTRIAL FACILITIES AND
POLLUTION CONTROL FINANCING AUTHORITY
By /s/ Garland D. Ricks III
--------------------------------------
Chairman
34
<PAGE>
EXHIBIT 4.3
[EXECUTION COPY]
THIRD AMENDMENT TO CREDIT AGREEMENT
This THIRD AMENDMENT, dated as of February 11, 2000 (this
"AMENDMENT"), to the Existing Credit Agreement (as defined below), is made
among LEINER HEALTH PRODUCTS INC., a Delaware corporation (the "U.S.
BORROWER"), VITA HEALTH PRODUCTS INC., a Manitoba corporation (the "CANADIAN
BORROWER", and together with the U.S. Borrower, the "BORROWERS") and the
Lenders (such capitalized term and other capitalized terms used in this
preamble and the recitals below to have the meanings set forth in, or as
defined by reference in, ARTICLE I) signatories hereto.
W I T N E S S E T H:
WHEREAS, the Borrowers, the U.S. Lenders, the Canadian Lenders, the
U.S. Agent, the Canadian Agent, Merrill Lynch Capital Corporation, as
Documentation Agent, and Salomon Brothers Holding Company Inc., as
Syndication Agent, are parties to a Credit Agreement, dated as of May 15,
1998 (as amended, supplemented, amended and restated or otherwise modified
prior to the date hereof, the "EXISTING CREDIT AGREEMENT");
WHEREAS, the Borrowers have requested that the Lenders amend the
Credit Agreement as set forth below and consent to certain waivers set forth
herein; and
WHEREAS, the Lenders have agreed, subject to the terms and
conditions hereinafter set forth, to amend the Existing Credit Agreement in
certain respects as provided below and grant such waivers (the Existing
Credit Agreement, as so amended by this Amendment, being referred to as the
"CREDIT AGREEMENT");
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. CERTAIN DEFINITIONS. The following terms (whether or
not underscored) when used in this Amendment shall have the following
meanings (such meanings to be equally applicable to the singular and plural
form thereof):
<PAGE>
"AMENDMENT" is defined in the PREAMBLE.
"BORROWERS" is defined in the PREAMBLE.
"CANADIAN BORROWER" is defined in the PREAMBLE.
"CREDIT AGREEMENT" is defined in the THIRD RECITAL.
"EXISTING CREDIT AGREEMENT" is defined in the FIRST RECITAL.
"THIRD AMENDMENT" is defined in SUBPART 4.1.
"THIRD AMENDMENT EFFECTIVE DATE" is defined in SUBPART 4.1.
"U.S. BORROWER" is defined in the PREAMBLE.
SUBPART 1.2. OTHER DEFINITIONS. Terms for which meanings are
provided in the Existing Credit Agreement are, unless otherwise defined
herein or the context otherwise requires, used in this Amendment with such
meanings.
PART II
AMENDMENTS TO THE
EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Third Amendment
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with SUBPART 2.1 through 2.4; except as so amended, the Existing Credit
Agreement shall continue in full force and effect in accordance with its
terms.
SUBPART 2.1. AMENDMENTS TO ARTICLE I. Article I of the Existing
Credit Agreement is hereby amended as follows:
SUBPART 2.1.1. Section 1.1 of the Existing Credit Agreement is
hereby amended by inserting the following definitions in such Section in the
appropriate alphabetical sequence:
"THIRD AMENDMENT" means the Third Amendment to the Credit
Agreement, dated as of February 11, 2000, among the Borrowers and the
Lenders party thereto.
"THIRD AMENDMENT EFFECTIVE DATE" is defined in Section 4.1 of
the Third Amendment.
-2-
<PAGE>
SUBPART 2.1.1. The definition of "EBITDA" contained in Section 1.1
of the Existing Credit Agreement is hereby amended by inserting the following
new sentence at the end thereof:
"For purposes of computing EBITDA (and any financial calculations or
components required to be made or included therein), EBITDA shall be
determined, with respect to the applicable period, after giving PRO
FORMA effect to each Permitted Acquisition and Permitted Disposition of
a Person, business or asset consummated during such period, together
with all transactions relating thereto consummated during such period
(including any incurrence, assumption, refinancing or repayment of
Indebtedness), as if such Permitted Acquisition, Permitted Disposition
and related transactions had been consummated on the first day of such
period."
SUBPART 2.1.1. The definition of "Adjusted Net Worth" contained in
Section 1.1 of the Existing Credit Agreement is hereby amended by deleting
the ";" at the end of the clause "of the U.S. Borrower and its Subsidiaries
that have been so delivered" and replacing it with ", plus, cumulative cash
equity contributions received after the Effective Date by the U.S. Borrower;".
SUBPART 2.2. AMENDMENTS TO ARTICLE II. Section 2.2.3 of the Existing
Credit Agreement is hereby amended by deleting the words "twelve months"
appearing in the first sentence therein and inserting the words "six months"
in replacement thereof.
SUBPART 2.3. AMENDMENTS TO ARTICLE III. Section 3.2.2 of the
Existing Credit Agreement is hereby amended by deleting the words "twelve
months" appearing in the first sentence therein and inserting the words "six
months" in replacement thereof.
SUBPART 2.4. AMENDMENTS TO ARTICLE XII. (a) Clause (a) of Section
12.11.1 of the Existing Credit is hereby amended by deleting the words
"financial institutions; and" appearing at the end of such clause and
replacing them with "funds that are regularly engaged in making, purchasing
or investing in loans, or other financial institutions; and"; (b) Clause (d)
of Section 12.11.1 of the Existing Credit Agreement is hereby amended by
adding the words "and Section 12.16" following the words "if applicable"; and
(c) Section 12.16 of the Existing Credit is hereby amended by inserting the
following sentence at the end of such Section: "Each Lender represents to
each other party hereto that it is aware that the Confidential Information
includes material non-public information and that the United States
securities laws prohibit (with certain exceptions) any Person who has
received any material, non-public information about an issuer from purchasing
or selling securities of such issuer or from communicating such information
to any other Person."
PART III
WAIVER
SUBPART 3.1. WAIVER. By its signature below, each Lender hereby
waives the requirement pursuant to Section 9.1.7 of the Existing Credit
Agreement that the U.S. Borrowers provide a leasehold Mortgage on the Real
Property acquired in connection with the Granutec Acquisition and set forth
on SCHEDULE I hereto.
PART IV
CONDITIONS TO EFFECTIVENESS
SUBPART 4.1. THIRD AMENDMENT EFFECTIVE DATE. This Amendment (and the
amendments and modifications contained herein) shall become effective as of
December 16, 1999 (the "THIRD AMENDMENT EFFECTIVE DATE"), and shall
thereafter be referred to as "THIRD AMENDMENT", when all of the conditions
set forth in this SUBPART 4.1 have been satisfied.
-3-
<PAGE>
SUBPART 4.1.1. EXECUTION OF COUNTERPARTS. The Agents shall have
received counterparts of this Amendment, duly executed and delivered on
behalf of each of the Borrowers and the Required Lenders.
SUBPART 4.1.2. LEGAL DETAILS, ETC. All documents executed or
submitted pursuant hereto shall be satisfactory in form and substance to the
Agents and their counsel. The Agents and their counsel shall have received
all information and such counterpart originals or such certified or other
copies or such materials, as the Agents or their counsel may reasonably
request, and all legal matters incident to the transactions contemplated by
this Amendment shall be satisfactory to the Agents and their counsel.
PART V
MISCELLANEOUS
SUBPART 5.1. CROSS-REFERENCES. References in this Amendment to any
Part or Subpart are, unless otherwise specified or otherwise required by the
context, to such Part or Subpart of this Amendment.
SUBPART 5.2. LOAN DOCUMENT PURSUANT TO EXISTING CREDIT AGREEMENT.
This Amendment is a Loan Document executed pursuant to the Existing Credit
Agreement and shall be construed, administered and applied in accordance with
all of the terms and provisions of the Existing Credit Agreement.
SUBPART 5.3. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Each of
the Borrowers represents and warrants on the Third Amendment Effective Date
that all of the statements contained in clauses (a) through (c) of Section
7.2.1 of the Credit Agreement are true and correct.
SUBPART 4.3. FULL FORCE AND EFFECT; LIMITED WAIVER. Except as
expressly amended hereby, all of the representations, warranties, terms,
covenants, conditions and other provisions of the Credit Agreement and the
other Loan Documents shall remain unamended and unwaived and shall continue
to be, and shall remain, in full force and effect in accordance with their
respective terms. The waiver set forth herein shall be limited precisely as
provided for herein to the provisions expressly amended herein and shall not
be deemed to be an amendment to, waiver of, consent to or modification of any
other term or provision of the Credit Agreement, any other Loan Document
referred to therein or herein or of any transaction or further or future
action on the part of any Obligor which would require the consent of the
Lenders under the Credit Agreement or any of the other Loan Documents.
SUBPART 5.4. SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
-4-
<PAGE>
SUBPART 5.5. COUNTERPARTS. This Amendment may be executed by the
parties hereto in several counterparts, each of which when executed and
delivered shall be deemed to be an original and all of which shall constitute
together but one and the same agreement.
SUBPART 5.6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
LEINER HEALTH PRODUCTS INC.
By /s/ Michael S. Yusko
-----------------------------------
Title: Treasurer
VITA HEALTH PRODUCTS INC.
By /s/ Michael S. Yusko
-----------------------------------
Title: Treasurer
THE BANK OF NOVA SCOTIA, as U.S. Agent,
Canadian Agent, a U.S. Lender and a
Canadian Lender
By /s/ John Quick
-----------------------------------
Title: Managing Director
-6-
<PAGE>
SCHEDULE I
1. 8601 Somerset Drive
Largo, Florida 33773-2714
2. 7320 Bryan Dairy Road
Suite 325
Largo, Florida 33777-1506
<PAGE>
CITICORP U.S.A., INC.
By -----------------------------------
Title:
<PAGE>
MERRILL LYNCH CAPITAL CORPORATION
By /s/ Carol J.E. Feeley
-----------------------------------
Title: Vice President
<PAGE>
FLEET NATIONAL BANK
By /s/ Kenneth R. Weber
-----------------------------------
Title: Vice President
<PAGE>
LASALLE BANK N.A.
By /s/ Susan M. Kaminski
-----------------------------------
Title: First Vice President
<PAGE>
COMERICA BANK
By -----------------------------------
Title:
<PAGE>
SOCIETE GENERALE
By -----------------------------------
Title:
By -----------------------------------
Title:
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By -----------------------------------
Title:
By -----------------------------------
Title:
<PAGE>
IMPERIAL BANK, a California Banking
Corporation
By /s/ Gah V. Huey-Andrick
-----------------------------------
Title: Vice President
<PAGE>
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By /s/ Scott H. Page
-----------------------------------
Title: Vice President
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management,
as Investment Advisor
By /s/ Scott H. Page
-----------------------------------
Title: Vice President
<PAGE>
NORTHERN LIFE INSURANCE COMPANY
By: ING Capital Advisors, Inc.,
as Investment Advisor
By /s/ Helen Y. Rhee
-----------------------------------
Title: Vice President & Portfolio Manager
ARCHIMEDES FUNDING II, LTD.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By /s/ Helen Y. Rhee
-----------------------------------
Title: Vice President & Portfolio Manager
ARCHIMEDES FUNDING III, LTD.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By /s/ Helen Y. Rhee
-----------------------------------
Title: Vice President & Portfolio Manager
ING HIGH INCOME PRINCIPAL
PRESERVATION FUND HOLDINGS, LDC
By: ING Capital Advisors, Inc.,
as Investment Advisor
By /s/ Helen Y. Rhee
-----------------------------------
Title: Vice President & Portfolio Manager
SEQUILS-ING I (HBDGM), LTD.
By: ING Capital Advisors, Inc.,
as Collateral Manager
By /s/ Helen Y. Rhee
-----------------------------------
Title: Vice President & Portfolio Manager
<PAGE>
FLOATING RATE PORTFOLIO
By: INVESCO Senior Secured
Management Inc., as attorney in fact
By /s/ Greg Stoeckle
-----------------------------------
Title:
<PAGE>
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By /s/ John B. Wheeler
-----------------------------------
Title: Managing Director
<PAGE>
KZH CRESCENT LLC
By -----------------------------------
Title:
KZH CRESCENT-2 LLC
By -----------------------------------
Title:
KZH CRESCENT-3 LLC
By -----------------------------------
Title:
KZH ING-2 LLC
By -----------------------------------
Title:
KZH III LLC
By -----------------------------------
Title:
KZH ING-1 LLC
By -----------------------------------
Title:
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
By -----------------------------------
Title:
<PAGE>
CERES FINANCE LTD.
By -----------------------------------
Title:
<PAGE>
BANK OF AMERICA NT & SA
By -----------------------------------
Title:
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By /s/ Scott Lane
-----------------------------------
Title: Vice President
<PAGE>
CONTINENTAL ASSURANCE COMPANY
SEPARATE ACCOUNT (E)
By: TCW Asset Management Company, as
Attorney-in-Fact
By /s/ Mark L. Gold
-----------------------------------
Title: Managing Director
By /s/ Jonathan R. Insull
-----------------------------------
Title: Vice President
SEQUILS I, LTD.
By: TCW Advisors, Inc.,
as its Collateral Manager
By /s/ Mark L. Gold
-----------------------------------
Title: Managing Director
By /s/ Jonathan R. Insull
-----------------------------------
Title: Vice President
UNITED OF OMAHA LIFE
INSURANCE COMPANY
By: TCW Asset Management Company,
as its Investment Advisor
By /s/ Mark L. Gold
-----------------------------------
Title: Managing Director
By /s/ Jonathan R. Insull
-----------------------------------
Title: Vice President
<PAGE>
SOVEREIGN BANK
By /s/ Stephen P. Kanarian
-----------------------------------
Title: Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,160
<SECURITIES> 0
<RECEIVABLES> 134,797
<ALLOWANCES> 3,759
<INVENTORY> 185,807
<CURRENT-ASSETS> 336,177
<PP&E> 133,676
<DEPRECIATION> 54,786
<TOTAL-ASSETS> 500,746
<CURRENT-LIABILITIES> 158,044
<BONDS> 341,508
0
0
<COMMON> 1
<OTHER-SE> (3,259)
<TOTAL-LIABILITY-AND-EQUITY> 500,746
<SALES> 448,085
<TOTAL-REVENUES> 448,085
<CGS> 340,913
<TOTAL-COSTS> 340,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,847
<INCOME-PRETAX> (7,440)
<INCOME-TAX> (3,579)
<INCOME-CONTINUING> (3,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,861)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
