<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1997
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BURKE INDUSTRIES, INC.
AND OTHER REGISTRANTS
(See Table of Other Registrants Below)
(Exact name of each registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3069 94-3081144
(State of Incorporation or (Primary standard industrial (I.R.S. employer
organization) classification code number) identification number)
</TABLE>
------------------------
2250 SOUTH TENTH STREET
SAN JOSE, CALIFORNIA 95112
(408) 297-3500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
ROCCO C. GENOVESE
BURKE INDUSTRIES, INC.
2250 SOUTH TENTH STREET
SAN JOSE, CALIFORNIA 95112
(408) 297-3500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
WITH A COPY TO:
KENNETH M. DORAN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 229-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
10% Senior Notes due 2007 $110,000,000 100% $110,000,000 $33,333.33
Guarantees of the 10% Notes due 2007 $110,000,000 None(2) None(2) None(2)
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is
payable for the Guarantees.
------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
BURKE INDUSTRIES, INC.
OFFER TO EXCHANGE ALL OUTSTANDING
10% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
(GUARANTEED BY ALL OF ITS SUBSIDIARIES)
($110,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 10% SENIOR NOTES DUE 2007
(GUARANTEED BY ALL OF ITS SUBSIDIARIES)
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1997 (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION
DATE").
Burke Industries, Inc., a California corporation (the "Company" or "Burke"),
hereby offers upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and the accompanying letter of transmittal relating to the Old
Notes (as defined) (the "Notes Letter of Transmittal", which together constitute
the "Exchange Offer"), to exchange $1,000 principal amount of its 10% Senior
Notes due 2007 (the "New Notes") for each $1,000 in principal amount of its
outstanding 10% Senior Notes due 2007 (the "Old Notes") (the Old Notes and the
New Notes are collectively referred to herein as the "Notes"). An aggregate
principal amount of $110,000,000 of Old Notes is outstanding. See "The Exchange
Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a Prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date (as
defined herein) and ending on the close of business 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
The Company will accept for exchange any and all Old Notes validly tendered
prior to 5:00 p.m., New York City time, on the Expiration Date. Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of the Old Notes being tendered for exchange. However, the
Exchange Offer is subject to the terms and provisions of the Registration Rights
Agreement, dated as of August 20, 1997 (the "Registration Rights Agreement"),
among the Company, the Subsidiary Guarantors (as defined herein), and
NationsBanc Capital Markets, Inc. (the "Initial Purchaser"). The Old Notes may
be tendered only in multiples of $1,000. See "The Exchange Offer."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 21 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
<PAGE>
, 1997
<PAGE>
The Old Notes were issued in a transaction (the "Prior Offering") pursuant
to which the Company issued an aggregate of $110,000,000 principal amount of the
Old Notes to the Initial Purchaser on August 20, 1997 (the "Closing Date")
pursuant to a Purchase Agreement, dated August 14, 1997 (the "Purchase
Agreement"), among the Company and the Initial Purchaser. The Initial Purchaser
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act of 1933, as amended (the "Securities Act"). The Company, the Subsidiary
Guarantors, and the Initial Purchaser also entered into the Registration Rights
Agreement, dated August 20, 1997, pursuant to which the Company granted certain
registration rights for the benefit for the holders of the Old Notes. The
Exchange Offer is intended to satisfy certain of the Company's obligations under
the Registration Rights Agreement with respect to the Old Notes. See "The
Exchange Offer--Purpose and Effect."
The Old Notes were, and the New Notes will be, issued under the Indenture,
dated as of August 20, 1997 (the "Indenture"), among the Company, the Subsidiary
Guarantors, and United States Trust Company of New York, as trustee (the
"Trustee"), and the New Notes and the Old Notes will constitute a single series
of debt securities under the Indenture. The terms of the New Notes are identical
in all material respects to the terms of the Old Notes except that (i) the New
Notes will have been registered under the Securities Act and thus will not bear
restrictive legends restricting their transfer pursuant to the Securities Act
and will not be entitled to registration rights, (ii) holders of New Notes will
not be entitled to liquidated damages for the Company's failure to register the
Old Notes or New Notes under the Registration Rights Agreement, and (iii)
holders of New Notes will not be, and upon the consummation of the Exchange
Offer, holders of Old Notes will no longer be, entitled to certain rights under
the Registration Rights Agreement intended for the holders of unregistered
securities. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Company to United States Trust Company of New York, as
registrar of the Old Notes (in such capacity, the "Registrar") under the
Indenture, of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes that are validly tendered by holders thereof
pursuant to the Exchange Offer. See "The Exchange Offer--Termination of Certain
Rights," "--Procedures for Tendering Old Notes" and "Description of Notes." In
the event that the Exchange Offer is consummated, any Old Notes which remain
outstanding after consummation of the Exchange Offer and the New Notes issued in
the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding principal
amount of Notes have taken certain actions or exercised certain rights under the
Indenture.
The New Notes will bear interest at a rate of 10% per annum. Interest on the
New Notes is payable semiannually, commencing February 15, 1998, on February 15
and August 15 of each year (each, an "Interest Payment Date") and shall accrue
from August 20, 1997 or from the most recent Interest Payment Date with respect
to the Old Notes to which interest was paid or duly provided for. The New Notes
will mature on August 15, 2007. See "Description of Notes."
The New Notes will not be redeemable at the Company's option prior to August
15, 2002. Thereafter, the New Notes will be redeemable by the Company at the
redemption prices and subject to the conditions set forth in "Description of
Notes--Optional Redemption." Notwithstanding the foregoing, at any time on or
before August 15, 2000, the Company may redeem up to 35% in aggregate principal
amount of (i) the initial aggregate principal amount of the New Notes and (ii)
the initial principal amount of any Additional Notes (as defined herein), on one
or more occasions, with the net cash proceeds of one or more Public Equity
Offerings (as defined herein) at a redemption price of 110% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages (as
defined herein), if any, thereon to the redemption date, PROVIDED THAT at least
65% of the sum of (i) the initial aggregate principal amount of the New Notes
and (ii) the initial aggregate principal amount of any Additional Notes remain
outstanding immediately after redemption. See "Description of
Notes--Redemption--Optional Redemption." Upon the occurrence of a Change of
Control (as defined herein), the Company (i) will be required to make an offer
to repurchase all outstanding New Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, and Liquidated Damages, if
any, to the date of repurchase and (ii) prior to August 15, 2002 will have the
option to redeem the New Notes, in
2
<PAGE>
whole or in part, at a redemption price equal to the principal amount thereof,
plus accrued and unpaid interest, if any, and Liquidated Damages (as defined
herein), if any, to the redemption date plus the Applicable Premium (as defined
herein). See "Description of Notes--Redemption--Optional Redemption Upon Change
of Control" "--Purchase of Notes Upon Change of Control or Asset Sale" and
"--Certain Covenants-- Purchase of Notes Upon Change of Control." Depending upon
the circumstances prevailing at the time of such a Change of Control, there is a
risk that the Company may be unable to satisfy such obligations. See "Risk
Factors--Potential Inability to Fund Change of Control Offer."
The New Notes will be general unsecured obligations of the Company, senior
to all existing and future subordinated indebtedness of the Company and PARI
PASSU in right of payment with all other existing and future unsubordinated
indebtedness of the Company, including indebtedness under the New Credit
Facility (as defined herein). However, the obligations of the Company under the
New Credit Facility will be secured by substantially all of the assets of the
Company. Accordingly, such secured indebtedness will effectively rank senior to
the Notes to the extent of such assets. As of July 4, 1997, on a pro forma basis
after giving effect to the Transactions, including the Prior Offering, and the
application of net proceeds therefrom, the Company would have had no secured
indebtedness which would have effectively ranked senior to the Notes. The
Indenture for the Notes restricts, but does not prohibit, the Company from
incurring additional indebtedness. See "Description of Notes--Ranking." See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The New Notes will be unconditionally guaranteed on a joint and several
basis by all subsidiaries of the Company (the "Note Guarantees"), subject to
certain exceptions (collectively the "Subsidiary Guarantors"), on an unsecured,
senior subordinated basis. The Note Guarantees will rank senior to all existing
and future subordinated indebtedness of the Subsidiary Guarantors and PARI PASSU
with all other unsubordinated indebtedness of the Subsidiary Guarantors,
including the guarantees of indebtedness under the New Credit Facility. Any
Subsidiary Guarantor's obligations under the New Credit Facility, however, will
be secured by substantially all of the assets of such Subsidiary Guarantor.
Accordingly, such secured indebtedness will rank prior to the Note Guarantees
with respect to such assets. The Indenture restricts, but does not prohibit, the
Subsidiary Guarantors from incurring additional secured indebtedness. As of the
date of this Prospectus, the Company has no significant subsidiaries. See
"Description of Notes--Note Guarantees."
Based on existing interpretations of the Securities Act by the staff of the
Securities and Exchange Commission (the "Commission") set forth in "no-action"
letters issued to third parties in other transactions, the Company believes that
New Notes issued pursuant to the Exchange Offer to any holder of Old Notes in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by such holder (other than a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such holder is not an affiliate of the Company, is
acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Holders wishing to accept the
Exchange Offer must represent to the Company, as required by the Registration
Rights Agreement, that such conditions have been met. In addition, if such
holder is not a broker-dealer, it must represent that it is not engaged in, and
does not intend to engage in, a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a Prospectus in connection
with any resale of such New Notes. See "The Exchange Offer-- Resales of the New
Notes." This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making or other trading activities.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. In
addition, the Initial Purchaser has advised the Company that it currently
intends to make a market in the New Notes; however, the Initial Purchaser is not
obligated to do so and any market
3
<PAGE>
making activities may be discontinued by the Initial Purchaser at any time.
Therefore, there can be no assurance that an active market for the New Notes
will develop. If such a trading market develops for the New Notes, future
trading prices will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on such factors, the New Notes may trade at a
discount from their face value. See "Risk Factors--Lack of Public Market."
The Old Notes were issued originally in global form (the "Global Old Note").
The Global Old Note was deposited with, or on behalf of, The Depository Trust
Company (the "Depositary") and registered in the name of Cede & Co., as nominee
of the Depositary (such nominee being referred to herein as the "Global Note
Holder"). The use of the Global Old Note to represent certain of the Old Notes
permits the Depositary's participants, and anyone holding a beneficial interest
in an Old Note registered in the name of such a participant, to transfer
interests in the Old Notes electronically in accordance with the Depositary's
established procedures without the need to transfer a physical certificate. New
Notes issued in exchange for the Global Old Note will also be issued initially
as a note in global form (the "Global New Note," and, together with the Global
Old Note, the "Global Notes") and deposited with, or on behalf of, the
Depositary. After the initial issuance of the Global New Note, New Notes in
certificated form will be issued in exchange for a holder's proportionate
interest in the Global New Note only as set forth in the Indenture.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the Holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof and the Company will
have no further obligation to such Holders (other than to certain Holders under
certain limited circumstances) to provide for registration under the Securities
Act of the Old Notes held by them. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a Holder's ability to sell untendered Old Notes
could be adversely affected. See "Risk Factors--Consequences of Failure to
Exchange" and "The Exchange Offers--Certain Consequences of a Failure to
Exchange."
This Prospectus, together with the Letter of Transmittal is being sent to
all registered Holders of Old Notes as of , 1997.
The Company will not receive any proceeds from this Exchange Offer. Pursuant
to the Registration Rights Agreement, the Company will bear certain registration
expenses.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Available Information....................................................................................... 6
Prospectus Summary.......................................................................................... 7
Risk Factors................................................................................................ 21
The Acquisition Agreement................................................................................... 28
The Exchange Offer.......................................................................................... 29
Capitalization.............................................................................................. 37
Unaudited Pro Forma Consolidated Financial Data............................................................. 38
Selected Historical Consolidated Financial Data............................................................. 45
Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 47
Business.................................................................................................... 52
Management.................................................................................................. 66
Security Ownership of Certain Beneficial Owners and Management.............................................. 71
Certain Relationships And Related Transactions.............................................................. 72
Description of Notes........................................................................................ 74
Description of New Credit Facility.......................................................................... 104
Description of Redeemable Preferred Stock and Warrants...................................................... 106
Plan of Distribution........................................................................................ 110
Legal Matters............................................................................................... 110
Experts..................................................................................................... 110
Index to Consolidated Financial Statements.................................................................. F-1
</TABLE>
5
<PAGE>
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4 (together with
any amendments thereto, the "Registration Statement") with the Commission under
the Securities Act with respect to the New Notes. This Prospectus, which
constitutes a part of the Registration Statement, omits certain information
contained in the Registration Statement and reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the New Notes offered hereby. This
Prospectus contains summaries of the material terms and provisions of certain
documents and in each instance reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.
The Company is not currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has agreed that, at all times from and after the earlier of (i) the date of
commencement of an Exchange Offer and (ii) the date 120 days after the Closing
Date, in either case, whether or not the Company is then required to file
reports with the Commission, the Company will file with the Commission (to the
extent accepted by the Commission) all such annual reports, quarterly reports
and other documents that the Company would be required to file if it were
subject to Sections 13(a) or 15(d) under the Exchange Act. The Company will also
be required (a) to supply to the Trustee and each holder of Notes, or supply to
the Trustee for forwarding to each such holder, without cost to such holder,
copies of such reports and other documents within 15 days after the date on
which the Company files such reports and documents with the Commission or the
date on which the Company would be required to file such reports and documents
if the Company were so required and (b) if filing such reports and documents
with the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder of Notes promptly upon written request. In
addition, at all times prior to the earlier of the date of the Registration and
the date 120 days after the Closing Date, the Company will, at its cost, deliver
to each holder of the Notes quarterly and annual reports substantially
equivalent to those that would be required by the Exchange Act. Furthermore, at
all times prior to the date of Registration, the Company will supply at the
Company's cost copies of such reports and documents to any prospective holder of
Notes promptly upon written request.
The Registration Statement (including the exhibits and schedules thereto)
and the periodic reports and other information filed by the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates.
Such information may also be accessed electronically by means of the
Commission's homepage on the Internet at http://www.sec.gov., which contains
reports, proxy and information statements and other information regarding
registrants, including the Company, that file electronically with the
Commission.
6
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the consolidated financial statements and notes thereto, included elsewhere in
this Prospectus. All references herein to "Burke" or "the Company" refer to
Burke Industries, Inc. and include its subsidiaries and JFL Merger Co.
("MergerCo"), unless the context otherwise requires. The Company's fiscal year
ends on the Friday closest to December 31. The financial information contained
herein for years prior to 1996 has been restated to exclude the financial
results of the custom-molded products unit, which was sold in 1996. Pro forma
information gives effect to the Transactions (as defined herein), including the
Prior Offering, and the application of the estimated proceeds therefrom as if
each had occurred on December 30, 1995 with respect to the pro forma
consolidated statement of income for the year ended January 3, 1997; on January
4, 1997 with respect to the pro forma consolidated statement of income for the
six months ended July 4, 1997; and on July 4, 1997 with respect to the pro forma
consolidated balance sheet as of July 4, 1997.
THE COMPANY
OVERVIEW
Burke, headquartered in San Jose, California, is a leading, diversified
manufacturer of highly engineered, rubber, silicone and vinyl-based (herein
"elastomer") products. Through its vertically integrated operations and
reputation for quality elastomer-based products, Burke has become (i) the
largest domestic producer of precision silicone seals for commercial and
military aircraft ("Aerospace Products"), (ii) the dominant west coast producer
of rubber cove base and floor covering accessories for commercial and industrial
applications ("Flooring Products") and (iii) a value-added producer of
high-performance silicone hose, roofing and membrane products for the heavy-duty
truck, commercial building and environmental industries, respectively
("Commercial Products").
The Company has grown through new product development and the successful
integration of acquired product lines and production assets. As a result, net
sales increased from $28.2 million in 1992 to $83.3 million for the twelve-month
period ended July 4, 1997 and EBITDA increased, from $3.1 million to $14.9
million, over the same time period. Net sales for the six months ended July 4,
1997 totaled $46.0 million, up 30.9% from $35.2 million for the same period in
1996 and EBITDA for the six months ended July 4, 1997 was $8.1 million, up 39.4%
from $5.8 million for the same period in 1996.
AEROSPACE PRODUCTS
Burke is the largest domestic producer of precision silicone seals used at
airframe and internal component junctures in commercial and military aircraft.
Burke seals are specified on virtually all major domestically produced
commercial aircraft, including every aircraft series manufactured by The Boeing
Company's Commercial Airplane Group ("Boeing") and on substantially all United
States military aircraft including cargo, fighter and bomber series airplanes
and several helicopter models. As a result, Burke's products have been designed
into some of the most successful commercial and military aircrafts in the world,
including the Boeing 737, 747, 757, 767 and 777, the McDonnell Douglas DC and MD
series, the Northrop Grumman F-14 and the Lockheed Martin L1011. Products are
engineered to customer specifications for selected aircraft body and engine
models and are generally made from custom tooling maintained and controlled by
Burke for use over the life of the specific aircraft program. Burke benefits
from a lengthy product-demand cycle, which can remain active for as long as 30
years, driven by new aircraft assembly and retrofit and maintenance projects.
Retrofit and maintenance projects accounted for approximately two-thirds of the
Company's 1996 Aerospace Products sales.
The Aerospace Products business also manufactures low-observable,
radar-absorbing seals and exterior tapes and coatings for stealth military
aircraft and other military applications. These products are
7
<PAGE>
currently in use on the B-2 bomber and will also be used in the F-22 Advanced
Tactical Fighter ("F-22"), which is being developed to replace the F-15 as the
premier fighter in the United States military arsenal.
Aerospace Products sales increased from $3.6 million in 1993, the year that
Burke first entered the aerospace market with its purchase of assets of Purosil,
Inc. ("Purosil"), to $24.6 million in 1996, accounting for approximately 34.0%
of the Company's total net sales in 1996. Management believes the Aerospace
Products business is well positioned to benefit from the strong increase in
commercial aircraft build rates currently occurring and projected by industry
analysts to continue, along with the associated retrofit, refurbishment,
replacement and upgrade projects that are required over the life of the
aircraft.
FLOORING PRODUCTS
Through its Flooring Products business, Burke is the dominant supplier of
rubber cove base (floor border that joins flooring or carpet to a wall),
manufactured under the name BurkeBase, and other rubber-based flooring
accessories for commercial and industrial applications in the western United
States. Its principal product offerings include vinyl cove base and rubber cove
base, tile, stair treads, corners, shapes and other flooring accessories. Demand
for the Company's cove base is driven by new commercial construction,
remodeling, redecorating and general maintenance. During periods of slower
growth in new commercial construction, remodeling and redecorating activities
tend to increase, providing stable overall demand for the Company's products.
Flooring Products sales were $20.5 million in 1996, comprising 28.4% of the
Company's total net sales in 1996. In 1996, the Company diversified its Flooring
Products offerings with the introduction of new tiling products and
photoluminescent emergency lighting products marketed under the name
BurkeEmerge, and the acquisition of vinyl cove base production assets.
Management believes that the addition of the vinyl product line will enable it
to increase revenues through the increased penetration of existing markets and
the expansion of its product line to markets where vinyl cove base is more
popular than rubber cove base, such as the midwestern and eastern United States.
COMMERCIAL PRODUCTS
Burke's expertise in the mixing, blending and formulation of silicone and
organic rubber compounds has established its Commercial Products business as a
growing, value-added supplier of elastomer products for use in both intermediate
and end products. The Commercial Products business is comprised of three primary
product lines: (i) high-performance silicone truck hoses for heavy-duty trucks
and buses marketed under the Purosil brand name, (ii) membranes for commercial
roofing and fluid containment systems marketed under the Burkeline trade name
and manufactured from DuPont's patented Hypalon polymer material and (iii)
precision-formulated custom products and sheet goods that utilize Burke's
extensive formulation and production capabilities for use in end-product
elastomer applications. Commercial Products net sales increased from $10.0
million in 1992 to $27.3 million in 1996, and represented 37.6% of the Company's
total net sales in 1996. Management believes that the Commercial Products
business has significant growth potential primarily through the expansion of the
Purosil line of high-end hoses to new customers and channels of distribution and
the development of new applications for the silicone custom product line.
COMPETITIVE STRENGTHS
Burke has secured a strong competitive position in each of its specialized
market segments. Burke is the largest provider of aerospace seals to the
domestic commercial and military aerospace industries and also maintains strong
positions in its flooring, roofing and membrane, truck hose and custom product
lines. These competitive positions are sustained through the following
strengths:
ESTABLISHED CUSTOMER RELATIONSHIPS. The Company enjoys long-term
relationships with many of its customers in each of its markets. These
relationships, whether built by Burke over its long history or assumed in recent
asset acquisitions, provide the Company with a stable base from which to pursue
future
8
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expansion and give Burke a significant advantage over potential competitors
seeking to enter the Company's markets. Several of the Burke trademarks and
trade names (BurkeBase, Burkeline, SFS, Haskon and Purosil) are widely
recognized by end users and distributors and are generally associated with
superior levels of quality and customer service in their respective markets.
DIVERSE REVENUE BASE. The Company's products are used in a wide variety of
industries and applications and a significant share of the Company's revenue is
derived from the repair and replacement market for its products, including
aerospace seals and tape, cove base, truck hoses and fluid containment membrane.
Replacement demand is typically less affected by slower economic periods.
Management believes that this diversity has and will continue to mitigate the
effect of economic fluctuations.
TECHNOLOGICAL LEADERSHIP IN ELASTOMER-BASED PRODUCTS DEVELOPMENT AND
MANUFACTURE. Burke is widely recognized as a technological leader in
elastomer-based products due to its strong engineering, design and research
capabilities. Burke has 25 specialists in its engineering, design and laboratory
departments devoted to new product development and product cost reduction.
Management believes that its aerospace technical staff is significantly larger
than those of its direct competitors, providing the Company with a competitive
advantage in pursuing and maintaining relationships in the technologically
advanced defense and commercial aerospace industries.
VERTICALLY INTEGRATED PRODUCTION CAPABILITIES. Burke has vertically
integrated production capabilities that enable it to transform raw organic
rubber and silicone gum into a diverse array of finished products. This
capability allows management more direct control over the Company's product
development, cost structure and quality requirements, providing a competitive
edge in its targeted market segments and enables Burke's Commercial Products
business to selectively participate in market segments as a value-added,
intermediate supplier to other elastomer product producers and users.
EXPERIENCED MANAGEMENT TEAM. The management team has extensive experience
both with the Company and within the industry and encompasses a balance of both
senior leadership and a strong group of young managers. This management team has
successfully orchestrated the acquisition and integration of four independent
operations since 1993, as well as the Company's ongoing vertical integration
efforts.
BUSINESS STRATEGY
Burke intends to capitalize on its aforementioned competitive strengths in a
variety of ways in each of its major businesses. Key components of this strategy
for each of the Company's businesses include:
AEROSPACE PRODUCTS
- PENETRATE INTERNATIONAL MARKET FOR AEROSPACE SEALS. Management believes
that the Company is the only domestic aerospace seal manufacturer with the
production capacity to market beyond the United States. The Company's
recent acquisitions dramatically increased production capacity and, as a
result, the Company recently sought and was successful in being designated
as a qualified parts manufacturer for a large subcontractor of Airbus
Industries ("Airbus").
- FOCUS ON VALUE-ADDED MANUFACTURING. Management intends to further increase
its participation in the trend towards integrating higher levels of
processing and finishing to products before shipping to original equipment
manufacturers ("OEMs").
- MAINTAIN STRONG RELATIONSHIPS WITH LEADING PRIME CONTRACTORS. Management
believes that its existing relationships with leading prime military
contractors have positioned the Company to continue to participate in
"next generation" stealth military programs, including the Joint Strike
Fighter currently being developed for NATO, through the sale of
low-observable seals and tape.
9
<PAGE>
FLOORING PRODUCTS
- BROADEN DOMESTIC DISTRIBUTION OF FLOORING PRODUCTS. Although the Company
is the dominant producer of rubber cove base in the western United States,
the Company believes it can successfully expand this product line into
other geographic regions by offering the full complement of its rubber and
newly acquired vinyl flooring products.
- LEVERAGE BRAND NAME RECOGNITION AND EXISTING DISTRIBUTION CHANNELS THROUGH
PRODUCT LINE EXTENSIONS. The Company intends to continue to capitalize on
the BurkeBase trademark by expanding and upgrading its existing product
line. In addition, the Company believes that it can leverage its strong
distribution network for its flooring products through the introduction of
flooring accessories. For example, the Company's new BurkeEmerge product
line of photoluminescent emergency lighting is an alternative to strip
lighting at a 70% lower cost. Emergency lighting is increasingly being
utilized due to heightened public awareness of the dangers that can result
from unlit corridors and confusing exit signs.
COMMERCIAL PRODUCTS
- INCREASE PENETRATION OF PUROSIL SILICONE HOSES. The Company believes the
growth opportunities for its Purosil silicone hoses have not yet fully
been exploited, particularly in the heavy-duty truck and bus aftermarket.
New initiatives include increasing customer share at Mack Truck, Inc.
("Mack Truck") and other targeted accounts as well as initiating
production of silicone hoses for a major new customer.
- PROMOTE ADDITIONAL HYPALON APPLICATIONS. Management is continuing to work
with DuPont to promote Hypalon as a durable and environmentally sound
liner product suitable for new water-containment applications.
In addition to these internal growth strategies, the Company intends to seek
selective acquisitions where it can expand and strengthen existing product lines
and its distribution and technological capabilities. The Company believes that
certain market niches in which it competes are highly fragmented, with a number
of manufacturers that would make attractive acquisition candidates.
The Company's principal executive offices are located at 2250 South Tenth
Street, San Jose, California 95112, telephone: (408) 297-3500.
SUMMARY OF THE TRANSACTIONS
THE INVESTORS
J.F. Lehman Equity Investors I, L.P. ("JFLEI") was formed in February 1997
by John F. Lehman, Donald Glickman and George Sawyer, the managing principals of
J.F. Lehman & Company ("Lehman"), and managing members of JFL Investors, L.L.C.,
the general partner of JFLEI. Lehman is a private investment firm with offices
in New York, NY and Washington, D.C. that has focused on purchasing defense,
aerospace, marine and other niche manufacturing and service companies since
1992. During this time, Lehman has made investments in middle market companies
that design and manufacture advanced electronic navigation and guidance systems
for marine and aerospace uses, electronic and electromechanical devices and
subsystems for military and commercial applications, and infrared decoy flares
and medium caliber ammunition.
In each of its investments, Lehman has taken an active, hands-on approach
toward portfolio company oversight. Lehman expects to provide the Company with
additional strategic opportunities utilizing its general and limited partners
with significant experience in the defense and aerospace industries. These
partners include: Mr. Oliver C. Boileau, Jr., former President of Boeing
Aerospace and General Dynamics Corporation; Mr. Thomas G. Pownall, former
Chairman and Chief Executive Officer of Martin Marietta;
10
<PAGE>
Sir Christopher Lewinton, current Chairman of TI Group plc; and General P.X.
Kelley, former Commandant of the United States Marine Corps. See "Management"
for a description of the Company's Board of Directors.
THE RECAPITALIZATION
The Company entered into an Agreement and Plan of Merger, dated as of August
13, 1997 (the "Merger Agreement"), among JFLEI, MergerCo and certain
shareholders of the Company, pursuant to which the Company was recapitalized
(the "Recapitalization") by means of a merger of MergerCo into the Company (the
"Merger"), with the Company as the surviving corporation. Pursuant to the
Merger, all shares of the Company's common stock (the "Common Stock"), other
than those shares (the "Continuing Shares") retained by certain members of
management and certain other shareholders of the Company (the "Continuing
Shareholders"), were converted into the right to receive an amount in cash equal
to approximately $9.16 per share (the "Recapitalization Consideration").
Immediately after consummation of the Recapitalization, JFLEI and the Continuing
Shareholders owned 65% and 15%, respectively, of the issued and outstanding
shares of the Company's Common Stock, on a fully diluted basis. Warrants to
purchase an aggregate of 20% of the Company's Common Stock, on a fully diluted
basis (the "Warrants"), were issued to the purchasers of $16.0 million in Series
A and $2.0 million in Series B 11 1/2% Cumulative Redeemable Preferred Stock
(collectively, the "Redeemable Preferred Stock") of the Company. In connection
with the Recapitalization, the Company entered into certain financing
transactions, including the Prior Offering, described more fully elsewhere in
this Prospectus. The consummation of the Prior Offering, the Recapitalization
and the financing thereof (collectively, the "Transactions") were conditioned
upon each other. See "The Transactions," "Description of New Credit Facility"
and "Description of Redeemable Preferred Stock and Warrants."
11
<PAGE>
THE PRIOR OFFERING
The outstanding $110.0 million principal amount of Old Notes were sold by
the Company to the Initial Purchaser on the Closing Date pursuant to the
Purchase Agreement among the Company and the Initial Purchaser. The Initial
Purchaser subsequently resold the Old Notes in reliance on Rule 144A under the
Securities Act. The Company, the Subsidiary Guarantors and the Initial Purchaser
also entered into the Registration Rights Agreement pursuant to which the
Company granted certain registration rights for the benefit of the holders of
the Old Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement with respect to
the Old Notes. See "The Exchange Offer--Purpose and Effect."
THE EXCHANGE OFFER
<TABLE>
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The Exchange Offer........... The Company is offering upon the terms and subject to the
conditions set forth herein and in the accompanying letter
of transmittal (the "Letter of Transmittal"), to exchange
$1,000 in principal amount of its 10% Senior Notes due 2007
(the "New Notes," with the Old Notes and the New Notes
collectively referred to herein as the "Notes") for each
$1,000 in principal amount of the outstanding Old Notes (the
"Exchange Offer"). As of the date of this Prospectus, $110.0
million in aggregate principal amount of the Old Notes is
outstanding. See "The Exchange Offer--Terms of the Exchange
Offer."
Expiration Date.............. 5:00 p.m., New York City time, on , 199 as the
same may be extended. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Conditions of the Exchange
Offer...................... The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange.
The only condition to the Exchange Offer is the declaration
by the Commission of the effectiveness of the Registration
Statement of which this Prospectus constitutes a part. See
"The Exchange Offer--Conditions of the Exchange Offer."
Termination of Certain
Rights..................... Pursuant to the Registration Rights Agreement and the Old
Notes, holders of Old Notes (i) have rights to receive
Liquidated Damages and (ii) have certain rights intended for
the holders of unregistered securities. "Liquidated Damages"
means damages of $0.05 per week per $1,000 principal amount
of Old Notes (up to a maximum of $0.30 per week per $1,000
principal amount) during the period in which a Registration
Default is continuing pursuant to the terms of the
Registration Rights Agreement. Holders of New Notes will not
be and, upon consummation of the Exchange Offer, holders of
Old Notes will no longer be, entitled to (i) the right to
receive the Liquidated Damages or (ii) certain other rights
under the Registration Rights Agreement intended for holders
of unregistered securities. See "The Exchange
Offer--Termination of Certain Rights" and "--Procedures for
Tendering Old Notes."
Accrued Interest............. The New Notes will bear interest at a rate equal to 10% per
annum. Interest shall accrue from August 20, 1997 or from
the most recent
</TABLE>
12
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<TABLE>
<S> <C>
Interest Payment Date with respect to the Old Notes to which
interest was paid or duly provided for. See "Description of
Notes--Principal, Maturity and Interest."
Procedures for Tendering Old
Notes...................... Unless a tender of Old Notes is effected pursuant to the
procedures for book-entry transfer as provided herein, each
holder desiring to accept the Exchange Offer must complete
and sign the Letter of Transmittal, have the signature
thereon guaranteed if required by the Letter of Transmittal,
and mail or deliver the Letter of Transmittal, together with
the Old Notes or a Notice of Guaranteed Delivery and any
other required documents (such as evidence of authority to
act, if the Letter of Transmittal is signed by someone
acting in a fiduciary or representative capacity), to the
Exchange Agent (as defined) at the address set forth on the
back cover page of this Prospectus prior to 5:00 p.m., New
York City time, on the Expiration Date. Any Beneficial Owner
(as defined) of the Old Notes whose Old Notes are registered
in the name of a nominee, such as a broker, dealer,
commercial bank or trust company and who wishes to tender
Old Notes in the Exchange Offer, should instruct such entity
or person to promptly tender on such Beneficial Owner's
behalf. See "The Exchange Offer--Procedures for Tendering
Old Notes."
Guaranteed Delivery
Procedures................. Holders of Old Notes who wish to tender their Old Notes and
(i) whose Old Notes are not immediately available or (ii)
who cannot deliver their Old Notes or any other documents
required by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date (or complete the procedure for
book-entry transfer on a timely basis), may tender their Old
Notes according to the guaranteed delivery procedures set
forth in the Letter of Transmittal. See "The Exchange
Offer--Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes...... Upon effectiveness of the Registration Statement of which
this Prospectus constitutes a part and consummation of the
Exchange Offer, the Company will accept any and all Old
Notes that are properly tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old Notes. See
"The Exchange Offer--Acceptance of Old Notes for Exchange;
Delivery of New Notes."
Withdrawal Rights............ Tenders of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. See
"The Exchange Offer--Withdrawal Rights."
The Exchange Agent........... United States Trust Company of New York is the exchange
agent (in such capacity, the "Exchange Agent"). The address
and telephone number of the Exchange Agent are set forth in
"The Exchange Offer--The Exchange Agent; Assistance."
Fees and Expenses............ All expenses incident to the Company's consummation of the
Exchange Offer and compliance with the Registration Rights
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Agreement will be borne by the Company. The Company will
also pay certain transfer taxes applicable to the Exchange
Offer. See "The Exchange Offer--Fees and Expenses."
Resales of the New Notes..... Based on existing interpretations by the staff of the
Commission set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant
to the Exchange Offer to a holder in exchange for Old Notes
may be offered for resale, resold and otherwise transferred
by a holder (other than (i) a broker-dealer who purchased
the Old Notes directly from the Company for resale pursuant
to Rule 144A under the Securities Act or any other available
exemption under the Securities Act or (ii) a person that is
an affiliate of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that such holder is acquiring the
New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with
any person to participate, in a distribution of the New
Notes. Each broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where such Old Notes
were acquired by such broker as a result of market-making or
other trading activities, must acknowledge that it will
deliver a Prospectus in connection with any resale of such
New Notes. See "The Exchange Offer--Resales of the New
Notes" and "Plan of Distribution."
Effect of Not Tendering Old
Notes for Exchange......... Old Notes that are not tendered or that are not properly
tendered will, following the expiration of the Exchange
Offer, continue to be subject to the existing restrictions
upon transfer thereof. The Company will have no further
obligations to provide for the registration under the
Securities Act of such Old Notes and such Old Notes will,
following the expiration of the Exchange Offer, bear
interest at the same rate as the New Notes.
Certain Federal Income Tax
Consequences............... The Company believes that the exchange pursuant to the
Exchange Offer will not be a taxable event for federal
income tax purposes. See "Certain Federal Income Tax
Consequences of the Exchange Offer."
</TABLE>
DESCRIPTION OF NEW NOTES
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of the New Notes will not
be entitled to Liquidated Damages and (iii) holders of the New Notes will not
be, and upon consummation of the Exchange Offer, holders of the Old Notes will
no longer be, entitled to certain rights under the Registration Rights Agreement
intended for the holders of unregistered securities, except in limited
circumstances. See "Exchange Offer--Termination of Certain Rights." The Exchange
Offer shall be deemed consummated upon the occurrence of the delivery by the
Company to the Registrar under the Indenture of the New Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
are tendered by holders thereof pursuant to the Exchange Offer. See "The
Exchange Offer--Termination of Certain Rights" and "Procedures for Tendering Old
Note;" and "Description of Notes."
14
<PAGE>
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Securities Offered........... $110,000,000 aggregate principal amount of 10% Senior
Subordinated Notes Due 2007.
Maturity Date................ August 15, 2007.
Interest Payment Dates....... August 15 and February 15, commencing February 15, 1998.
Ranking...................... The Notes will be general unsecured obligations of the
Company, senior to all existing and future subordinated
indebtedness of the Company and PARI PASSU in right of
payment with all other existing and future unsubordinated
indebtedness of the Company, including indebtedness under
the New Credit Facility. However, the obligations of the
Company under the New Credit Facility will be secured by
substantially all of the assets of the Company. Accordingly,
such secured indebtedness will effectively rank senior to
the Notes to the extent of such assets. As of July 4, 1997,
on a pro forma basis after giving effect to the
Transactions, including the Prior Offering, and the
application of the net proceeds therefrom, the Company would
have had no secured indebtedness which would have
effectively ranked senior to the Notes. The Indenture for
the Notes (the "Indenture") restricts, but does not
prohibit, the Company from incurring additional
indebtedness. See "Description of Notes--Ranking."
Optional Redemption.......... On or after August 15, 2002, the Company may redeem the
Notes, in whole or in part, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, and
Liquidated Damages, if any, to the date of redemption.
Notwithstanding the foregoing, at any time on or before
August 15, 2000, the Company may redeem up to 35% of the sum
of (i) the initial aggregate principal amount of the Notes
and (ii) the initial aggregate principal amount of any
Additional Notes, on one or more occasions, with the net
cash proceeds of one or more Public Equity Offerings (as
defined herein) at a redemption price of 110% of the
principal amount thereof, plus accrued and unpaid interest,
if any, and Liquidated Damages, if any, to the date of
redemption provided that at least 65% of the sum of (i) the
initial aggregate principal amount of Notes and (ii) the
initial aggregate principal amount of any Additional Notes
remain outstanding immediately after redemption. See
"Description of Notes-- Redemption--Optional Redemption."
Guarantees................... The Notes will be unconditionally guaranteed on a joint and
several basis (the "Note Guarantees") by all subsidiaries of
the Company, subject to certain exceptions (collectively,
the "Subsidiary Guarantors"). The Note Guarantees will rank
senior to all existing and future subordinated indebtedness
of the Subsidiary Guarantors and PARI PASSU with all other
unsubordinated indebtedness of the Subsidiary Guarantors,
including the guarantees of indebtedness under the New
Credit Facility. Any Subsidiary Guarantor's obligations
under the New Credit Facility, however, will be secured by
substantially all of the assets of such Subsidiary
Guarantor. Accordingly, such secured indebtedness will rank
prior to the Note Guarantees with respect to such assets.
The Indenture restricts, but does not prohibit, the
Subsidiary Guarantors from incurring
</TABLE>
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<S> <C>
additional secured indebtedness. As of the date of this
Prospectus, the Company has no significant subsidiaries. See
"Description of Notes-- Note Guarantees."
Mandatory Redemption......... None.
Change of Control............ Upon a Change of Control (as defined herein), the Company
(i) will be required to make an offer to repurchase all
outstanding Notes at 101% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, and
Liquidated Damages, if any, to the date of repurchase and
(ii) prior to August 15, 2002 will have the option to redeem
the Notes, in whole or in part, at a redemption price equal
to the principal amount thereof, plus accrued and unpaid
interest, if any, and Liquidated Damages, if any, to the
redemption date plus the Applicable Premium (as defined
herein). See "Description of Notes-- Redemption--Optional
Redemption Upon Change of Control," "--Purchase of Notes
Upon Change of Control or Asset Sale" and "--Certain
Covenants--Purchase of Notes Upon Change of Control." There
can be no assurance that sufficient funds will be available
to the Company at the time of any Change of Control to make
any required repurchases of Notes. See "Risk
Factors--Potential Inability to Fund Change of Control
Offer."
Covenants.................... The Indenture will restrict, among other things, the
Company's and its subsidiaries' ability to incur additional
indebtedness, pay dividends or make certain other restricted
payments, incur liens, sell preferred stock of subsidiaries,
apply net proceeds from certain asset sales, merge or
consolidate with any other person, sell, assign, transfer,
lease, convey or otherwise dispose of substantially all of
the assets of the Company or enter into certain transactions
with affiliates. See "Description of Notes--Certain
Covenants."
Use of Proceeds.............. The proceeds of the Prior Offering and of other financing
transactions described herein were used to pay the
Recapitalization Consideration, to repay certain existing
indebtedness of the Company and to pay fees and expenses of
the Transactions, including the Prior Offering, and for
general corporate purposes. See "The Transactions."
Absence of a Public Market
for the New Notes.......... The New Notes are a new issue of securities with no
established market. Accordingly, there can be no assurance
as to the development or liquidity of any market for the New
Notes. The Initial Purchaser has advised the Company that it
currently intends to make a market in the New Notes.
However, the Initial Purchaser is not obligated to do so,
and any market making with respect to the New Notes may be
discontinued at any time without notice. The Company does
not intend to apply for listing of the New Notes on a
securities exchange.
</TABLE>
RISK FACTORS
For a discussion of certain matters that should be considered by prospective
investors in connection with the Exchange Offer, see "Risk Factors."
16
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SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following sets forth summary unaudited pro forma consolidated financial
data derived from the unaudited pro forma consolidated financial data contained
elsewhere herein (the "Pro Formas"). The following unaudited pro forma
consolidated statement of income data of the Company for the year ended January
3, 1997 give effect to the Transactions as if they had occurred on December 30,
1995. The following unaudited pro forma consolidated statement of income data
for the Company for the six months ended July 4, 1997 give effect to the
Transactions as if they had occurred on January 4, 1997. The following unaudited
pro forma consolidated balance sheet data of the Company give effect to the
Transactions as if they occurred on July 4, 1997. Certain management assumptions
and adjustments relating to the Transactions are described in the accompanying
notes hereto. This pro forma information is not necessarily indicative of the
results that would have occurred had the Transactions been completed on the
dates indicated or the Company's actual or future results or financial position.
The summary pro forma consolidated financial data should be read in conjunction
with the information contained in the financial statements of the Company and
the notes thereto, "Unaudited Pro Forma Consolidated Financial Statements,"
"Selected Historical Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
17
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SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA (CONTINUED)
(DOLLARS IN THOUSANDS)
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PRO FORMA
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SIX MONTHS
ENDED
FISCAL JULY 4,
YEAR 1996 1997
----------- -----------
OPERATING DATA:
Net sales................................................................................. $ 72,466 $ 46,011
Cost of sales............................................................................. 49,689 32,467
----------- -----------
Gross profit.............................................................................. 22,777 13,544
Selling, general and administrative expenses.............................................. 11,318 5,970
----------- -----------
Income from operations.................................................................... 11,459 7,574
Interest expense, net..................................................................... 11,000 5,500
----------- -----------
Income before income tax provision and discontinued operation............................. 459 2,074
Income tax provision...................................................................... 187 829
----------- -----------
Income from continuing operations before discontinued operation........................... $ 272 $ 1,245
----------- -----------
----------- -----------
OTHER DATA:
EBITDA(1)................................................................................. $ 12,878 $ 8,272
EBITDA margin(1).......................................................................... 17.8% 18.0%
Depreciation and amortization............................................................. 1,419 698
Capital expenditures(2)................................................................... 1,684 565
Cash interest expense..................................................................... 11,000 5,500
Ratio of EBITDA to cash interest expense.................................................. 1.2x 1.5x
Ratio of earnings to fixed charges(3)..................................................... 1.0x 1.3x
Ratio of earnings to combined fixed charges(4)............................................ -- 1.0x
BALANCE SHEET DATA AT JULY 4, 1997:
Working capital........................................................................... $ 23,663
Total assets.............................................................................. 59,951
Long-term obligations, less current portion............................................... 110,000
Redeemable Preferred Stock(5)............................................................. 15,500
Shareholders' deficit..................................................................... (83,944)
</TABLE>
- ------------------------
(1) EBITDA is the sum of income before discontinued operation (as applicable),
income tax provision and interest, depreciation and amortization expense.
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to service indebtedness. However, EBITDA should not be
considered as an alternative to income from operations or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) and should not be construed as an indication of a
company's operating performance or as a measure of liquidity.
(2) Capital expenditures for 1996 include the acquisition of assets of Kentile
($854).
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income tax provision, discontinued operation (as applicable)
plus fixed charges (excluding capitalized interest). Fixed charges consist
of interest expense incurred (which includes amortization of deferred
financing costs) whether expensed or capitalized and a portion of rental
expense estimated to be attributable to interest.
(4) In calculating the ratio of earnings to combined fixed charges, combined
fixed charges consist of fixed charges, paid-in-kind dividends on the
Redeemable Preferred Stock and accretion of the carrying value of the
Redeemable Preferred Stock. Earnings were insufficient to cover the pro
forma combined fixed charges by $3,426 for fiscal year 1996.
(5) Net of $2,500 attributable to the value of the Warrants. Dividends on the
Redeemable Preferred Stock are cumulative, accrue quarterly at the rate of
11 1/2% per annum on the stated value of $18,000 and are paid-in-kind
through July 15, 2000. See "Description of Redeemable Preferred Stock and
Warrants."
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data below for the three years ended
January 3, 1997 and as of December 29, 1995 and January 3, 1997 have been
derived from the Consolidated Financial Statements of the Company which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Prospectus. The summary consolidated financial data below for
the years ended January 1, 1993 and December 31, 1993 and as of January 1, 1993,
December 31, 1993 and December 30, 1994 have been derived from the Consolidated
Financial Statements of the Company which have also been audited by Ernst &
Young LLP, but which are not included elsewhere herein. The summary financial
data for the six months ended June 28, 1996 and as of and for the six months
ended July 4, 1997 have been derived from the Company's Unaudited Consolidated
Financial Statements for those periods included elsewhere in the Prospectus and
the summary financial data as of June 28, 1996 have been derived from the
Company's Unaudited Consolidated Financial Statements for that period, but are
not included elsewhere herein and, in each case, include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results for the unaudited interim
periods. Results for the six months ended July 4, 1997 are not necessarily
indicative of the results that may be expected for the entire year. The
information presented below is qualified in its entirety by, and should be read
in conjunction with, "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and related
notes included elsewhere in this Prospectus. The data below reflect the
acquisition by the Company of certain assets of Purosil in March 1993; of
Silicone Fabrication Specialists, Inc. ("SFS") in February 1995; of Haskon
Corporation ("Haskon") in June 1995 and of Kentile Corporation ("Kentile") in
April 1996.
<TABLE>
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SIX MONTHS
ENDED
-----------
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR
----------------------------------------------------- JUNE 28,
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- -----------
OPERATING DATA: (DOLLARS IN THOUSANDS)
Net sales................................................. $ 28,195 $ 36,431 $ 44,370 $ 68,411 $ 72,466 $ 35,159
Cost of sales............................................. 18,714 25,355 29,998 49,226 49,689 24,520
--------- --------- --------- --------- --------- -----------
Gross profit.............................................. 9,481 11,076 14,372 19,185 22,777 10,639
Selling, general and administrative expenses(1)........... 8,630 9,215 8,152 10,212 11,610 5,513
--------- --------- --------- --------- --------- -----------
Income from operations.................................... 851 1,861 6,220 8,973 11,167 5,126
Interest expense, net..................................... 2,828 2,897 2,812 3,007 2,668 1,406
--------- --------- --------- --------- --------- -----------
Income (loss) before income tax provision (benefit),
cumulative effect of accounting change, extraordinary
loss and discontinued operation(2)...................... (1,977) (1,036) 3,408 5,966 8,499 3,720
Income tax provision (benefit)............................ (3) 146 1,395 3,393 3,466 1,488
--------- --------- --------- --------- --------- -----------
Income (loss) from continuing operations before cumulative
effect of accounting change, extraordinary loss and
discontinued operation(2)............................... $ (1,974) $ (1,182) $ 2,013 $ 2,573 $ 5,033 $ 2,232
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Net income (loss)(2)...................................... $ (2,180) $ (657) $ 1,502 $ 1,094 $ 4,101 $ 1,300
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
OTHER DATA:
EBITDA(3)................................................. $ 3,068 $ 3,831 $ 7,367 $ 10,368 $ 12,586 $ 5,829
EBITDA margin(3).......................................... 10.9% 10.5% 16.6% 15.2% 17.4% 16.6%
Depreciation and amortization............................. 2,217 1,970 1,147 1,395 1,419 703
Capital expenditures(4)................................... 702 530 415 4,647 1,684 1,064
Cash interest expense..................................... 2,519 2,500 2,438 2,683 1,950 1,085
Ratio of EBITDA to cash interest expense.................. 1.2x 1.5x 3.0x 3.9x 6.5x 5.4x
Ratio of earnings to fixed charges(5)..................... -- -- 2.1x 2.8x 3.7x 3.4x
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................................... $ 2,096 $ 4,932 $ 4,766 $ 5,402 $ 5,328 $ 6,523
Total assets.............................................. 24,469 30,535 28,551 39,729 40,673 38,922
Long-term obligations, less current portion............... 19,406 20,011 16,937 21,803 18,126 19,476
Shareholders' equity (deficit)............................ (4) (654) 849 340 4,283 1,666
<CAPTION>
<S> <C>
JULY 4,
1997
---------
OPERATING DATA:
Net sales................................................. $ 46,011
Cost of sales............................................. 32,467
---------
Gross profit.............................................. 13,544
Selling, general and administrative expenses(1)........... 6,116
---------
Income from operations.................................... 7,428
Interest expense, net..................................... 1,013
---------
Income (loss) before income tax provision (benefit),
cumulative effect of accounting change, extraordinary
loss and discontinued operation(2)...................... 6,415
Income tax provision (benefit)............................ 2,565
---------
Income (loss) from continuing operations before cumulative
effect of accounting change, extraordinary loss and
discontinued operation(2)............................... $ 3,850
---------
---------
Net income (loss)(2)...................................... $ 3,850
---------
---------
OTHER DATA:
EBITDA(3)................................................. $ 8,126
EBITDA margin(3).......................................... 17.7%
Depreciation and amortization............................. 698
Capital expenditures(4)................................... 565
Cash interest expense..................................... 1,363
Ratio of EBITDA to cash interest expense.................. 6.0x
Ratio of earnings to fixed charges(5)..................... 5.7x
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................................... $ 10,035
Total assets.............................................. 45,464
Long-term obligations, less current portion............... 19,048
Shareholders' equity (deficit)............................ 8,135
</TABLE>
- ------------------------------
(1) Selling, general and administrative expenses include amortization of
acquisition costs of $1,161 and $850 in 1992 and 1993, respectively.
(2) Net income reflects (i) benefit of cumulative effect of change in accounting
method for income taxes of $551 in 1993, (ii) extraordinary loss on debt
settlement, net of income tax benefit, of $815 in 1995 and (iii) losses, net
of income tax benefit, of $206, $26, $511, $664 and $308 in 1992, 1993,
1994, 1995 and through June 28, 1996, respectively, incurred by the
Company's
19
<PAGE>
custom-molded organic rubber products manufacturing operations, the assets
of which were disposed of in June 1996, and loss, net of income tax benefit,
of $624 in 1996 on disposal of those assets.
(3) EBITDA is the sum of income before cumulative effect of changes in
accounting principles, extraordinary loss and discontinued operation (as
applicable), income tax provision and interest, depreciation and
amortization expense. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service indebtedness. However,
EBITDA should not be considered as an alternative to income from operations
or to cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity.
(4) Capital expenditures include the acquisition of assets of Purosil for $297
in 1993; of SFS for $1,578 and Haskon for $2,081 in 1995 and of Kentile for
$854 in 1996.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income tax provision (benefit), cumulative effect of
accounting change, extraordinary loss and discontinued operation plus fixed
charges (excluding capitalized interest). Fixed charges consist of interest
incurred (which includes amortization of deferred financing costs) whether
expensed or capitalized and a portion of rental expense estimated to be
attributable to interest. Earnings were insufficient to cover fixed charges
by $2,004 and $1,048 for the fiscal years 1992 and 1993, respectively.
20
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, holders
of Notes should consider carefully the following Risk Factors affecting the
business of the Company, as well as the other information set forth elsewhere in
this Prospectus.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
After consummation of the Transactions, the Company and its subsidiaries
incurred significant outstanding indebtedness and became highly leveraged. As of
July 4, 1997, after giving effect to the Transactions, the Company has
outstanding consolidated indebtedness of approximately $110.0 million. See
"Capitalization." In addition, subject to the limitations set forth in the
Indenture, the Company and its subsidiaries may incur additional indebtedness,
including up to $15.0 million under the New Credit Facility.
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including (i) the Company's
vulnerability to adverse general economic and industry conditions, (ii) the
Company's ability to obtain additional financing for future capital
expenditures, general corporate or other purposes and (iii) the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal and interest on indebtedness, thereby reducing the funds available for
operations and future business opportunities.
The Company's ability to make scheduled payments on the principal of, or
interest on, or to refinance, its indebtedness will depend on its future
operating performance and cash flow, which are subject to prevailing economic
conditions, prevailing interest rate levels, and financial, competitive,
business and other factors, many of which are beyond its control, as well as the
availability of borrowings under the New Credit Facility or successor
facilities. However, based upon the current and anticipated level of operations,
the Company believes that its cash flow from operations, together with amounts
available under the New Credit Facility and its other sources of liquidity, will
be adequate to meet its anticipated cash requirements for the foreseeable future
for working capital, capital expenditures, interest payments and principal
payments. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels. If the Company is
unable to generate sufficient cash flow from operations in the future to service
its indebtedness, it may be required to refinance all or a portion of its
existing indebtedness, including the Notes, or to obtain additional financing.
There can be no assurance that any such refinancing would be possible or that
any additional financing could be obtained. The inability to obtain additional
financing could have a material adverse effect on the Company. Finally, in order
to pay the principal balance of the Notes due at maturity, the Company may have
to obtain alternative financing.
RANKING OF NOTES; ASSET ENCUMBRANCE
The Notes and Note Guarantees will be senior unsecured obligations and will
rank PARI PASSU in right of payment with all other existing and future senior
obligations of the Company and the Subsidiary Guarantors, respectively. Loans
under the New Credit Facility will be secured by substantially all of the
Company's assets and will be guaranteed by the Company's domestic subsidiaries,
which guarantees will be secured by substantially all of the assets of the
Company's domestic subsidiaries. Accordingly, the Notes and the Note Guarantees
are effectively subordinated to all secured indebtedness to the extent of the
collateral and will rank PARI PASSU in right of payment with all other existing
and future senior obligations of the Company or the Subsidiary Guarantors,
respectively. Upon an event of default under any such secured indebtedness, the
lenders could elect to declare all amounts outstanding, together with accrued
and unpaid interest thereon, to be immediately due and payable. If the Company
or the Subsidiary Guarantors were unable to repay those amounts, the lenders
could proceed against the collateral granted them to secure that indebtedness.
There can be no assurance that the assets of the Company or the relevant
subsidiary would be sufficient to repay in full any such secured indebtedness.
21
<PAGE>
RESTRICTIVE COVENANTS
The New Credit Facility and the Indenture will contain numerous restrictive
covenants, which limit the discretion of the management of the Company with
respect to certain business matters. These covenants will place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to pay dividends
or make other restricted payments, to make investments, loans and guarantees and
to sell or otherwise dispose of a substantial portion of assets to, or merge or
consolidate with, another entity. The New Credit Facility also contains a number
of financial covenants that will require the Company to meet certain financial
ratios and tests and provide that a "change of control" will constitute an event
of default. See "Description of Notes--Certain Covenants" and "Description of
New Credit Facility." A failure to comply with the obligations contained in the
New Credit Facility or the Indenture, if not cured or waived, could permit
acceleration of the related indebtedness and acceleration of indebtedness under
other instruments that contain cross-acceleration or cross-default provisions.
In the case of an event of default under the New Credit Facility, the lenders
under the New Credit Facility would be entitled to exercise the remedies
available to a secured lender under applicable law. If the Company were
obligated to repay all or a significant portion of its indebtedness, there can
be no assurance that the Company would have sufficient cash to do so or that the
Company could successfully refinance such indebtedness. Other indebtedness of
the Company that may be incurred in the future may contain financial or other
covenants more restrictive than those applicable to the New Credit Facility or
the Notes.
IMPORTANCE OF KEY CUSTOMERS TO THE AEROSPACE PRODUCTS BUSINESS
Certain customers are material to the business and operations of the
Company. Boeing accounted for $7.9 million, or 11.0% of the Company's total net
sales and 32.3% of the Aerospace Products business' net sales in 1996, and for
$6.4 million, or 9.4%, of the Company's total net sales and 27.5% of the
Aerospace Products division's net sales in 1995. In 1996, the top five customers
of the Aerospace Products division accounted for $16.5 million in net sales,
representing 22.8% and 67.1%, respectively, of the Company's total and the
Aerospace Product business' net sales in that year.
The Company's prospects will continue to depend on the success of these
customers whose products incorporate aerospace products manufactured by the
Company, as well as Boeing's retention of the Company as a major supplier.
Although the Company believes that it has excellent long-standing relationships
with these customers and that such relationships are mutually beneficial, the
Company does not have long-term contracts with Boeing or any of its other major
customers and the loss of any as a customer, or a significant reduction in the
Company's business with any of them would have a material adverse effect on the
Company and its business, results of operations and financial condition. See
"--Competition."
DEPENDENCE ON CUSTOMERS IN CYCLICAL INDUSTRIES
A majority of the Company's revenues were derived from customers who are in
industries and businesses that are highly cyclical in nature, such as the
commercial and military aerospace and commercial construction industries. The
world-wide market for commercial jet aircraft is predominantly driven by
long-term trends in airline passenger traffic. The principal factors underlying
long-term traffic growth are sustained economic growth in developed and emerging
countries and political stability. Demand for commercial aircraft is further
influenced by airline industry profitability, world trade policies, government-
to-government relations, technological changes and price and other competitive
factors. The military aircraft industry is highly sensitive to changes in
international political conditions, national priorities and United States
government defense budgets. The commercial construction industry is affected by
downturns in general economic conditions, raw material price fluctuations and
adverse weather conditions. Each of these industries is also subject to changes
in general economic conditions. In addition, because the Company conducts its
operations in a variety of markets, it is subject to the economic conditions in
each
22
<PAGE>
such market. General economic downturns in the commercial and military aerospace
and commercial construction industries could have a material adverse effect on
the Company and its business, results of operations and financial condition. The
Company's outlook for its aerospace business and its allocation of resources are
premised on the continued growth in the commercial aerospace industry. If this
growth fails to continue, the Company's results of operations could be adversely
affected.
COMPETITION
The Company experiences significant competition in all of the areas in which
it does business. In general, other than the aerospace seals market, the markets
in which it competes are not dominated by a single company or a small number of
companies; instead a large number of companies offer products that overlap and
are competitive with those offered by the Company. A number of the Company's
competitors are significantly larger and have greater financial resources than
the Company, and some of these competitors are divisions or subsidiaries of
large, diversified companies that have access to the financial resources of
their parent companies. The Company believes that the principal competitive
factors in the businesses in which it operates are technologically advanced
production, management capability, past performance in terms of timeliness and
quality of product and price. There can be no assurance that the Company will be
able to compete successfully. See "Business--Products and Markets--Aerospace
Products--Competition," "--Flooring Products--Competition" and "--Commercial
Products--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's operations are largely dependent on the efforts of its senior
management. There can be no assurance that the Company will be able to retain
such persons. Additionally, in order to successfully manage its growth strategy,
the Company must continue to attract qualified personnel. The Company does not
maintain "key man" life insurance policies on any of its employees. If certain
of the current key personnel should cease to be employed by the Company for any
reason, or if the Company should be unable to continue to attract and retain
qualified management personnel, the Company's business, financial condition and
results of operations could suffer a material adverse effect. See "Management."
CONTROL BY INVESTORS
Following the Recapitalization, the Company is now controlled by JFLEI,
which beneficially owns shares representing 65% of the voting interest in the
Company, on a fully diluted basis, and has the right to designate eight of the
nine directors of the Company. In addition, certain limited partners in JFLEI
own warrants representing an additional 20% of the Common Stock on a fully
diluted basis. Pursuant to the terms of the Shareholders Agreement (as defined
herein), for so long as it, together with its related transferees, owns 75% of
the Warrants initially issued to it, one of the holders of the Warrants has the
right to designate the ninth director. In addition, pursuant to the terms in the
Shareholders Agreement, for so long as it, together with its related
transferees, owns 75% of the Warrants initially issued to it, another of the
holders of the Warrants has the right to cause the number of directors of the
Company to be increased to ten and to designate the tenth director. Accordingly,
JFLEI and certain of the investors therein have the power to elect the Company's
board of directors, appoint new management and approve any action requiring the
approval of the holders of the Company's Common Stock, including adopting
amendments to the Company's Articles of Incorporation and approving mergers or
sales of substantially all of the Company's assets. The directors elected by
JFLEI have the authority to make decisions affecting the capital structure of
the Company, including the issuance of additional indebtedness and the
declaration of dividends. See "Management," "Certain Relationships and Related
Transactions" and "Security Ownership of Certain Beneficial Owners and
Management."
23
<PAGE>
GOVERNMENT PROCUREMENT POLICIES
Approximately one-third of the Company's Aerospace Products division's net
sales in 1996 were made pursuant to contracts between the United States
government, on the one hand, and the Company or a customer of the Company, on
the other hand. Management's projected growth in the Aerospace Products division
is based, in part, on management's belief that there will continue to be growth
in purchases made under United States government military aircraft contracts and
that the Company will benefit, directly or indirectly through its customers,
from such growth. There can be no assurance, however, that there will be
continued growth in such purchases. See "--Dependence on Customers in Cyclical
Industries." In addition, contracts with the United States government are
subject to cancellation for default or for convenience by the government if
deemed in its best interests. Contracts which are terminated for convenience
generally provide for payments to a contractor for its costs and a proportionate
share of profit for work accomplished through the date of termination. Contracts
which are terminated for default generally provide that the government pay only
for the work it has accepted, can require the contractor to pay the difference
between the original contract price and the cost to reprocure the contract items
net of the value of the work accepted from the original contractor, and can hold
a contractor liable for damages. There can be no assurance that any current or
prospective contract on which the Company is a primary contractor or any such
contract on which the Company is a subcontractor or supplier will not be
terminated for default or for convenience by the government or that any such
cancellation will not result in the Company realizing a loss or failing to
realize the expected profit on any such contract.
FUTURE ACQUISITIONS
The Company expects to continue a strategy of identifying and acquiring
companies with complementary products or services that may be expected to
enhance the Company's operations and profitability. There can be no assurance
that the Company will be able to identify appropriate acquisition candidates,
negotiate appropriate acquisition terms, obtain financing which may be needed to
effect such acquisitions or integrate acquisitions successfully into the
Company's operations or that any of such acquisitions will prove profitable.
RAW MATERIALS
Principal raw materials purchased by the Company for use in its products
include various custom and standard grades of rubber, silicone gum and vinyl as
well as the Hypalon polymer material. The Company has historically not
experienced any significant supply restrictions and has generally been able to
pass through increases in the price of these materials to customers. In 1995,
however, the Company experienced a significant price increase in one of the raw
materials used in the manufacture of one of its flooring products. Due to the
competitive nature of the flooring products business and the Company's
proprietary formula for this product, the Company was unable to fully pass this
price increase along to its consumers and its gross margins for this product
were adversely affected. Although the Company does not currently anticipate that
it will experience any similar price increases for this or any other raw
material used by the Company in the near future, there can be no assurance that
such price increases will not occur and that the Company's results of operations
will not be adversely affected thereby.
POTENTIAL INABILITY TO FUND CHANGE OF CONTROL OFFER
Upon a Change in Control (as defined in the Indenture), each holder will
have the right to require the Company to repurchase all or any part of such
holder's Notes at 101% of the principal amount thereof, plus accrued and unpaid
interest thereon to the date of repurchase. See "Description of Notes--Certain
Covenants--Purchase of Notes Upon Change of Control." However, there can be no
assurance that sufficient funds will be available to the Company at the time of
the Change of Control to make any required repurchases of Notes tendered.
Moreover, restrictions in the New Credit Facility prohibit the Company from
making such required repurchases; therefore, any such repurchases would
constitute an
24
<PAGE>
event of default under the New Credit Facility absent a waiver. In addition, the
holders of the Redeemable Preferred Stock may also require the Company to
repurchase their shares of Redeemable Preferred Stock upon a Change of Control,
which would also constitute a default under the New Credit Facility, absent a
waiver. Notwithstanding these provisions, the Company could enter into certain
transactions, including certain recapitalizations, that would not constitute a
Change of Control but would increase the amount of debt outstanding at such
time. See "Description of New Credit Facility."
ENVIRONMENTAL MATTERS
The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous and non-hazardous substances and wastes.
These laws and regulations provide for substantial fees and sanctions for
violations and, in many cases, could require the Company to remediate a site to
meet applicable legal requirements. In connection with the Recapitalization,
JFLEI conducted certain investigations (including, in some cases, reviewing
environmental reports prepared by others) of the Company's operations and its
compliance with applicable environmental laws. The investigations, which
included Phase I assessments (consisting generally of a site visit, records
review and non-intrusive investigation of conditions at the subject facility) by
independent consultants, found that certain facilities have had or may have had
releases of hazardous materials that may require remediation. Pursuant to the
Merger Agreement, the shareholders of the Company have agreed, subject to
certain limitations as to survival and amount, to indemnify the Company against
certain environmental liabilities incurred prior to the consummation of the
Recapitalization. See "The Transactions." Based in part on the investigations
conducted and the indemnification provisions of the Merger Agreement with
respect to environmental matters, the Company believes, although there can be no
assurance, that its liabilities relating to these environmental matters will not
have a material adverse effect on its future financial position or results of
operations. The Company does not maintain a reserve for environmental
liabilities.
FRAUDULENT CONVEYANCE AND PREFERENCE CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent conveyance law, if, among other things, the
Company or any of the Subsidiary Guarantors, at the time it incurred the
indebtedness evidenced by the Notes or its Note Guarantee, as the case may be,
(i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or
(b) was or is engaged in a business or transaction of which the assets remaining
with the Company or such Subsidiary Guarantor were unreasonably small or
constitute unreasonably small capital or (c) intended or intends to incur, or
believed, believes or should have believed that it would incur, debts beyond its
ability to repay such debts as they mature and (ii) the Company or such
Subsidiary Guarantor received or receives less than the reasonably equivalent
value or fair consideration for the incurrence of such indebtedness, the Notes
and the Note Guarantees could be invalidated or subordinated to all other debts
of the Company or such Subsidiary Guarantors, as the case may be. The Notes or
Note Guarantees could also be invalidated or subordinated if it were found that
the Company or the Subsidiary Guarantor party thereto, as the case may be,
incurred indebtedness in connection with the Notes or its Note Guarantee with
the intent of hindering, delaying or defrauding current or future creditors of
the Company or such Subsidiary Guarantor, as the case may be. In addition, the
payment of interest and principal by the Company pursuant to the Notes or the
payment of amounts by a Subsidiary Guarantor pursuant to a Note Guarantee could
be voided and required to be returned to the person making such payment, or to a
fund for the benefit of the creditors of the Company or such Subsidiary
Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Subsidiary Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
25
<PAGE>
liabilities, were greater than the sum of all of its assets at a fair valuation
or if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature or (ii) it
could not pay its debts as they become due.
Additionally, under federal bankruptcy or applicable state insolvency law,
if certain bankruptcy or insolvency proceedings were initiated by or against the
Company or any Subsidiary Guarantor within 90 days after any payment by the
Company or such Subsidiary Guarantor with respect to the Notes or a Note
Guarantee, respectively, or after the issuance of a Note Guarantee, or if the
Company or such Subsidiary Guarantor anticipated becoming insolvent at the time
of such payment or issuance, all or a portion of such payment or such Note
Guarantee could be avoided as a preferential transfer, and the recipient of any
such payment could be required to return such payment.
To the extent any Note Guarantees were voided as a fraudulent conveyance or
held unenforceable for any other reason, holders of Notes would cease to have
any claim in respect of such Subsidiary Guarantor and would be creditors solely
of the Company and any Subsidiary Guarantor whose Note Guarantee was not avoided
or held unenforceable. In such event, the claims of holders of Notes against the
issuer of an invalid Note Guarantee would be subject to the prior payment of all
liabilities and preferred stock claims of such Subsidiary Guarantor. There can
be no assurance that, after providing for all prior claims and preferred stock
interests, if any, there would be sufficient assets to satisfy the claims of
holders of Notes relating to any voided portions of any Note Guarantees. The
Company currently has no significant subsidiaries.
On the basis of its historical financial information, and recent operating
history, as discussed in "Prospectus Summary," "Unaudited Pro Forma Consolidated
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company believes that, after giving
effect to the indebtedness incurred in connection with the Transactions, it will
not be insolvent, will not have unreasonably small assets or capital for the
businesses in which it is engaged and will not incur debts beyond its ability to
pay such debts as they mature. There can be no assurance, however, as to what
standard a court would apply in making such determinations.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The New Notes are a new issue of securities, have no established trading
market and may be widely distributed. The Company does not intend to list the
New Notes on any national securities exchange or to seek the admission thereof
to trading in the Nasdaq National Market System. The Company has been advised by
the Initial Purchaser that it currently intends to make a market in the New
Notes. However, the Initial Purchaser is not obligated to do so and may
discontinue such market-making at any time without notice. In addition, such
market-making activity will be subject to the limitations imposed by the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and may be limited during the Exchange Offer. See "Plan of
Distribution." Accordingly, there can be no assurance that an active public or
other market will develop for the New Notes or as to the liquidity of or the
trading for the New Notes. If a trading market does not develop or is not
maintained,, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a public trading market
develops for the New Notes, future trading prices of the New Notes will depend
on many factors, including, among other things, prevailing interest rates, the
Company's results of operations and the market for similar securities. Depending
on prevailing interest rates, the market for similar securities and other facts,
including the financial condition of the Company, the New Notes may trade at a
discount from their principal amount.
26
<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange for New Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Old Notes as set forth in the legend thereon as a consequence of the
issuance of the Old Notes pursuant to exemptions from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act. New Notes issued pursuant to
the Exchange Offer may be offered for resale, resold, or otherwise transferred
by Holders thereof (other than any such holder which is an "affiliate" of the
Company or any Guarantor within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act provided that such New Notes are in the ordinary course of
such holders' business and such holders have no arrangement with any person to
participate in the distribution of such notes. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a Prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that, by so acknowledging and delivering
a Prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the effective date of this Prospectus, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." However, to comply with the Securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes will be adversely affected.
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THE ACQUISITION AGREEMENT
Pursuant to the Merger Agreement among JFLEI, MergerCo, the Company and all
of the shareholders of the Company, MergerCo merged with and into the Company
with the Company surviving the Merger. The Merger, together with the related
transactions described below are collectively referred to as the
"Recapitalization."
Pursuant to the terms of the Merger Agreement:
- All outstanding shares of the Company's Common Stock, other than those
retained by the Continuing Shareholders, were converted into the right to
receive an amount in cash equal to the Recapitalization Consideration and
all vested options to purchase the Company's Common Stock were canceled
and converted into the right to receive an amount in cash equal to the
Recapitalization Consideration less the applicable exercise price.
- The Continuing Shareholders agreed to retain an aggregate of 722,702
Continuing Shares, which represents approximately 15% of the common equity
of the Company, on a fully diluted basis, after consummation of the
Recapitalization.
- The shareholders of the Company prior to the Recapitalization made certain
customary representations, warranties and covenants to the Company and
JFLEI in connection with the Merger. These shareholders agreed to
indemnify the Company and JFLEI against any losses brought about by a
breach of these representations, warranties or covenants, up to an
aggregate maximum amount of approximately $8.8 million (except for certain
tax and title issues which are not subject to this indemnification cap).
This indemnity, excluding these tax and title issues, will expire on March
31, 1998.
The Merger was financed through a series of related transactions:
- JFLEI made a capital contribution in the amount of $20.0 million to
MergerCo (the "JFLEI Investment") and received 3,134,298 shares of common
stock of MergerCo in consideration thereof;
- Concurrently with the consummation of the Merger, in consideration for
$18.0 million, the Company issued 18,000 shares of Redeemable Preferred
Stock, together with the Warrants to purchase an aggregate of 20% of the
issued and outstanding common stock of the Company, to certain purchasers
thereof that are limited partners of JFLEI. See "Description of Redeemable
Preferred Stock and Warrants;"
- The Old Notes were issued by the Company concurrently with consummation of
the Merger; and
- The Company entered into a credit facility (the "New Credit Facility"),
which provides for revolving credit borrowings of up to $15.0 million. No
borrowings were or will be drawn under the New Credit Facility in
connection with the Transactions. See "Description of New Credit
Facility."
Immediately following the consummation of the Transactions, (i) JFLEI and
its affiliates owned approximately 65% of the common equity of the Company on a
fully diluted basis, (ii) the holders of the Warrants obtained the right to
purchase approximately 20% of the common equity of the Company, on a fully
diluted basis and (iii) the Continuing Shareholders owned approximately 15% of
the common equity of the Company, on a fully diluted basis. Accordingly, the
merger was accounted for as a recapitalization for financial reporting purposes
and the historical basis of the Company's assets and liabilities has not been
impacted by the transaction.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial Purchaser on August
20, 1997 pursuant to the Purchase Agreement. The Initial Purchaser subsequently
resold the Old Notes in reliance on Rule 144A under the Securities Act. The
Company, the Subsidiary Guarantors and the Initial Purchaser entered into the
Registration Rights Agreement, pursuant to which the Company and the Subsidiary
Guarantors agreed, for the benefit of the Holders of the Old Notes, at the
expense of the Company and the Subsidiary Guarantors, to (i) file on or prior to
the 60th calendar day following the Closing Date a registration statement (the
"Exchange Offer Registration Statement") with the Commission, (ii) use its best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act on or prior to the 120th calendar day
following the Closing Date, and (iii) use its best efforts to consummate the
Exchange Offer on or prior to the 150th calendar day following the Closing Date.
The Company will keep the Exchange Offer open for not less than 30 days and not
more than 45 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the Holders of the Old Notes. This
Exchange Offer is intended to satisfy the Company's exchange offer obligations
under the Registration Rights Agreement.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Following the expiration of the Exchange Offer, holders of Old Notes not
tendered, or not properly tendered will not have any further registration rights
and such Old Notes will continue to be subject to the existing restrictions on
transfer thereof. Accordingly, the liquidity of the market for a holder's Old
Notes could be adversely affected upon expiration of the Exchange Offer if such
holder elects to not participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the New Notes for each $1,000 in principal amount of the
outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to the terms and provisions
of the Registration Rights Agreement. See "Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, holders of Old Notes may tender less than the aggregate principal
amount represented by the Old Notes held by them, provided that they
appropriately indicate this fact on the Letter of Transmittal accompanying the
tendered Old Notes (or so indicate pursuant to the procedures for book-entry
transfer).
As of the date of this Prospectus, $110.0 million in aggregate principal
amount of the Old Notes is outstanding, the maximum amount authorized by the
Indenture for all Notes. Solely for reasons of administration (and for no other
purpose), the Company has fixed the close of business on , 1997, as the
record date (the "Record Date") for purposes of determining the persons to whom
this Prospectus and the Letter of Transmittal will be mailed initially. Only a
holder of the Old Notes (or such holder's legal representative or
attorney-in-fact) may participate in the Exchange Offer. There will be no fixed
record date for determining holders of the Old Notes entitled to participate in
the Exchange Offer. The Company believes that, as of the date of this
Prospectus, no such holder is an affiliate (as defined in Rule 405 under the
Securities Act) of the Company.
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The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes and for the purposes of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1997 at 5:00 p.m., New York City time,
unless the Company, in its sole discretion, extends the Exchange Offer, in which
case the Expiration Date shall be the latest date and time to which the Exchange
Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under "Conditions of the Exchange Offer" shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent, and (iv)
to amend the terms of the Exchange Offer in any manner. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Registration Statement of which this Prospectus constitutes a part.
TERMINATION OF CERTAIN RIGHTS
Pursuant to the Registration Rights Agreement the Company and the Subsidiary
Guarantors agreed, at their own expense, to (i) file on or prior to the 60th
calendar day following the Closing Date a registration statement (the "Exchange
Offer Registration Statement") with the Commission with respect to a registered
offer to exchange the Old Notes for a new issue of debt securities of the
Company (the "Exchange Notes") to be issued under the Indenture in the same
aggregate principal amount as and with the terms that will be identical in all
respects to the Old Notes (except that the Exchange Notes will not contain terms
that will be identical in all respects to the interest rate step-up provision
and transfer restrictions) and (ii) use its best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
on or prior to the 120th calendar day following the Closing Date and (iii) use
its best effort to consummate the Exchange Offer on or prior to the 150th
calendar day following the Closing Date. The Company agreed to keep the Exchange
Offer open for not less than 30 days and not more than 45 days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the Holders of the Old Notes.
In the event that changes in the law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer,
or if for any reason the Exchange Offer is not consummated within 150 days of
the Closing Date or in certain other circumstances, the Registration Rights
Agreement provides that the Company and the Subsidiary Guarantors will, at their
own expense,
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(i) as promptly as practicable, and in any event on or prior to 60 days after
such filing obligation arises, file with the Commission a shelf registration
statement (the Shelf Registration Statement") covering resales of the Old Notes,
(ii) use their best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act on or prior to 45 days after such
filing occurs and (iii) keep effective the Shelf Registration Statement until
two years after its effective date (or such shorter period that will terminate
when all the Old Notes covered thereby have been sold pursuant thereto or in
certain other circumstances).
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), holders
of Old Notes are entitled to receive Liquidated Damages, with respect to the
first 90-day period immediately following the occurrence of such Registration
Default, an amount equal to $0.05 per week per $1,000 principal amount of Old
Notes held by such holders. The amount of Liquidated Damages will increase by an
additional $0.05 per week per $1,000 principal amount of Old Notes with respect
to each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum of amount of Liquidated Damages of $0.30 per week per
$1,000 principal amount of Old Notes. A "Registration Default" with respect to
the Exchange Offer shall occur if: (i) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (ii) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), or (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Notes during the periods
specified in the Registration Rights Agreement. Holders of New Notes will not be
and, upon consummation of the Exchange Offer, holders of Old Notes will no
longer be, entitled to (i) the right to receive the Liquidated Damages or (ii)
certain other rights under the Registration Rights Agreement intended for
holders of Old Notes. The Exchange Offer shall be deemed consummated upon the
occurrence of the delivery by the Company to the Registrar under the Indenture
of New Notes in the same aggregate principal amount as the aggregate principal
amount of Old Notes that are tendered by holders thereof pursuant to the
Exchange Offer.
ACCRUED INTEREST
The New Notes will bear interest at a rate equal to 10% per annum, which
interest shall accrue from August 20, 1997 or from the most recent Interest
Payment Date with respect to the Old Notes to which interest was paid or duly
provided for. See "Description of Notes--Principal, Maturity and Interest."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
holder and the Company upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a holder who wishes to tender Old Notes for exchange pursuant to
the Exchange Offer must transmit such Old Notes, together with a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to the Exchange Agent at the address set
forth on the back cover page of this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS
OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
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Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility system may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedures for such
transfer. In connection with a book-entry transfer, a Letter of Transmittal need
not be transmitted to the Exchange Agent, provided that the book-entry transfer
procedure must be complied with prior to 5:00 p.m., New York City time, on the
Expiration Date.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined). In the event that a signature on a
Letter of Transmittal or a notice of withdrawal, as the case may be, is required
to be guaranteed, such guarantee must be by a firm which is a member of a
registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution, or (ii) be
accompanied by a bond power, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution. The term "registered
holder" as used herein with respect to the Old Notes means any person in whose
name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and Conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old Notes
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender Old Notes in the Exchange Offer should
contact such registered holder promptly and instruct such registered holder to
tender on such Beneficial Owner's behalf. If such Beneficial Owner wishes to
tender directly, such Beneficial Owner must, prior to completing and executing
the Letter of Transmittal and tendering Old Notes, make appropriate arrangements
to register ownership of the Old Notes in such Beneficial Owner's name.
Beneficial Owners should be aware that the transfer of registered ownership may
take considerable time.
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By tendering, each registered holder will represent to the Company that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the holder and each Beneficial Owner of the Old Notes are
being acquired by the holder and each Beneficial Owner in the ordinary course of
business of the holder and each Beneficial Owner, (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and cannot
rely on the position of the staff of the Commission set forth in no-action
letters that are discussed herein under "Resales of New Notes," (iv) that if the
holder is a broker-dealer that acquired Old Notes as a result of market making
or other trading activities, it will deliver a Prospectus in connection with any
resale of New Notes acquired in the Exchange Offer, (v) the holder and each
Beneficial Owner understand that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K of the Commission and (vi) neither the holder nor any Beneficial
Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company except as otherwise disclosed to the Company in writing. In connection
with a book-entry transfer, each participant will confirm that it makes the
representations and warranties contained in the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within four (4) business days after the date of delivery of
the Notice of Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent and (iii) such properly completed
and executed documents required by the Letter of Transmittal and the tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
of such Old Notes into the Exchange Agent's account at the Depositary) must be
received by the Exchange Agent within four (4) business days after the
Expiration Date. Any Holder who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery and Letter of Transmittal
relating to such Old Notes prior to 5:00 p.m., New York City time, on the
Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer, the
Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes, when, as,
and if the Company has given oral or written notice thereof to the Exchange
Agent.
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In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at the
Depositary); provided, however, that the Company reserves the absolute right to
waive any defects or irregularities in the tender or conditions of the Exchange
Offer. If any tendered Old Notes are not accepted for any reason, such
unaccepted Old Notes will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice to
the Exchange Agent, at its address set forth on the back cover page of this
Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by a bond power in the name of the
person withdrawing the tender, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution together with the other
documents required upon transfer by the Indenture and (iv) specify the name in
which such Old Notes are to be re-registered, if different from the Depositor,
pursuant to such documents of transfer. Any questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, in its sole discretion. The Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are withdrawn will be returned to the Holder thereof without cost to such Holder
as soon as practicable after withdrawal. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "The Exchange
Offer--Procedures for Tendering Old Notes" at any time on or prior to the
Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
United States Trust Company of New York is the Exchange Agent. All tendered
Old Notes, executed Letters of Transmittal and other related documents should be
directed to the Exchange Agent. Questions and requests for assistance and
requests for additional copies of the Prospectus, the Letter of Transmittal and
other related documents should be addressed to the Exchange Agent as follows:
BY REGISTERED OR CERTIFIED MAIL :
United States Trust Company of New York
P.O. Box 844
Cooper Station
New York, NY 10276-0844
Attn: Corporate Trust Services
BY FACSIMILE:
(212) 420-6152
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BY OVERNIGHT COURIER:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attn: Corporate Trust Services
BY HAND:
United States Trust Company of New York
111 Broadway
Lower Level
New York, New York 10006
Attn: Corporate Trust Services
Confirm by Telephone 800-548-6565
FEES AND EXPENSES
All expenses incident to the Company's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Company, including, without limitation: (i) all registration and filing fees
(including, without limitation, fees and expenses of compliance with state
securities or Blue Sky laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for the New Notes in a form
eligible for deposit with the Depositary and of printing Prospectuses), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) fees and disbursements of independent certified
public accountants, (vi) rating agency fees, (vii) internal expenses of the
Company (including, without limitation, all salaries and expenses of officers
and employees of the Company performing legal or accounting duties) and (ix)
fees and expenses incurred in connection with the listing of the New Notes on a
securities exchange.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized by the Company for accounting
purposes. The expenses of the Exchange Offer will be amortized over the term of
the New Notes.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizing federal income tax consequences of the
Exchange Offer reflects the opinion of Gibson, Dunn, & Crutcher LLP, counsel to
the Company, as to material federal income tax consequences expected to result
from the Exchange Offer. An opinion of counsel is not binding on the Internal
Revenue Service ("IRS") or the courts, and there can be no assurances that the
IRS will not take, and that a court would not sustain, a position contrary to
that described below. Moreover, the following
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discussion is for general information only and does not constitute comprehensive
tax advice to any particular Holder of Old Notes. The summary is based on the
current provisions of the Internal Revenue Code of 1986, as amended, and
applicable Treasury regulations, judicial authority and administrative
pronouncements. The tax consequences described below could be modified by future
changes in the relevant law, which could have retroactive effect. Each Holder of
Old Notes should consult its own tax adviser as to these and any other federal
income tax consequences of the Exchange Offer as well as any tax consequences to
it under foreign, state, local or other law.
Exchanges of Old Notes for Notes pursuant to the Exchange Offer should be
treated as a modification of the Old Notes that does not constitute a material
change in their terms, and the Company intends to treat the exchanges in that
manner. Under that approach, a Note is treated as a continuation of the
corresponding Old Note. An exchanging Holder's holding period for a Note would
include such Holder's holding period for the Old Note. Such Holder would not
recognize any gain or loss, and such Holder's basis in the Note would be the
same as such Holder's basis in the Old Note. The Exchange Offer will result in
no federal income tax consequences to a non-exchanging Holder.
RESALES OF THE NEW NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer to a holder in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by such holder
(other than (i) a broker-dealer who purchased Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such holder is acquiring the New Notes in
the ordinary course of business and is not participating, and has no arrangement
or understanding with any person to participate, in the distribution of the New
Notes. The Company has not requested or obtained an interpretive letter from the
Commission staff with respect to this Exchange Offer, and the Company and the
holders are not entitled to rely on interpretive advice provided by the staff to
other persons, which advice was based on the facts and conditions represented in
such letters. However, the Exchange Offer is being conducted in a manner
intended to be consistent with the facts and conditions represented in such
letters. If any holder acquires New Notes in the Exchange Offer for the purpose
of distributing or participating in a distribution of the New Notes, such holder
cannot rely on the position of the staff of the Commission enunciated in MORGAN
STANLEY & CO., INCORPORATED (available June 5, 1991) and EXXON CAPITAL HOLDINGS
CORPORATION (available April 13, 1989), or interpreted in the Commission's
letter to SHEARMAN AND STERLING (available July 2, 1993), or similar no-action
or interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a Prospectus in connection with any resale of such New Notes.
See "Plan of Distribution."
It is expected that the New Notes will be freely transferable by the holders
thereof, subject to the limitations described in the immediately preceding
paragraph. Sales of New Notes acquired in the Exchange Offer by holders who are
"affiliates" of the Company within the meaning of the Securities Act will be
subject to certain limitations on resale under Rule 144 of the Securities Act.
Such persons will only be entitled to sell New Notes in compliance with the
volume limitations set forth in Rule 144, and sales of New Notes by affiliates
will be subject to certain Rule 144 requirements as to the manner of sale,
notice and the availability of current public information regarding the Company.
The foregoing is a summary only of Rule 144 as it may apply to affiliates of the
Company. Any such persons must consult their own legal counsel for advice as to
any restrictions that might apply to the resale of their Notes.
36
<PAGE>
CAPITALIZATION
The following table sets forth, as of July 4, 1997 (i) the consolidated
capitalization of the Company and (ii) the pro forma consolidated capitalization
of the Company after giving effect to the Transactions, including the Offering,
and the application of the proceeds therefrom. This table should be read in
conjunction with "The Transactions," "Description of Notes," "Description of New
Credit Facility," "Description of Preferred Stock and Warrants," the Unaudited
Pro Forma Consolidated Financial Statements and the notes thereto and the
Consolidated Financial Statements and the notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JULY 4, 1997
------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term obligations (including current maturities of long-term obligations):........... $ 2,400 $ --
----------- -----------
----------- -----------
Long-term obligations (net of current maturities):
Existing Credit Facility
Term loans.............................................................................. 8,306 --
Revolving loans......................................................................... 9,063 --
New Credit Facility....................................................................... -- --
10% Senior Notes due 2007................................................................. -- 110,000
Subordinated Debt(1)...................................................................... 1,679 --
----------- -----------
Total long-term obligations:.............................................................. 19,048 110,000
Redeemable Preferred Stock, no par value; no shares authorized; none issued and
outstanding; 30,000 shares authorized on a pro forma basis; 18,000 shares issued and
outstanding on a pro forma basis(2)..................................................... -- 15,500
Shareholders' equity:
Common stock, no par value; 25,000,000 shares authorized; 20,000,000 shares on a pro forma
basis; 9,398,900 issued and outstanding; 3,857,000 shares issued and outstanding on a
pro forma basis(3)...................................................................... 11,818 26,600
Accumulated deficit....................................................................... (3,683) (110,544)
----------- -----------
Total shareholders' equity (deficit)...................................................... 8,135 (83,944)
----------- -----------
Total capitalization...................................................................... $ 29,583 $ 41,556
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Net of unamortized original issue discount of $71.
(2) Net of $2,500 attributed to the value of the Warrants. Dividends on the
Redeemable Preferred Stock are cumulative, accrue quarterly at the rate of
11 1/2% per annum on the stated value of $18,000 and are paid in-kind
through July 15, 2000. See "Description of Redeemable Preferred Stock and
Warrants."
(3) Excludes 964,000 shares of Common Stock reserved for issuance pursuant to
the Warrants. See "The Transactions" and "Description of Preferred Stock and
Warrants."
37
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements (as
defined below) of the Company are based on the audited and unaudited financial
statements of the Company appearing elsewhere in this Prospectus, as adjusted to
illustrate the estimated effects of the Transactions. The unaudited pro forma
adjustments are based upon available information and certain assumptions that
the Company believes are reasonable. The Unaudited Pro Forma Consolidated
Financial Statements and accompanying notes should be read in conjunction with
the historical financial statements of the Company and other financial
information pertaining to the Company appearing elsewhere in this Prospectus
including "The Transactions," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Unaudited Pro Forma Consolidated Financial Statements have been prepared
to give effect to the Transactions, including the Offering, and the application
of the net proceeds therefrom, as if such transactions had occurred on December
30, 1995 for the statement of income for the year ended January 3, 1997, on
January 4, 1997 for the statement of income for the six months ended July 4,
1997 (the "Unaudited Pro Forma Consolidated Income Statements") and on July 4,
1997 for the balance sheet (the "Unaudited Pro Forma Consolidated Balance Sheet"
together with the Unaudited Pro Forma Consolidated Income Statements comprise
the "Unaudited Pro Forma Consolidated Financial Statements"). The
Recapitalization will be treated as a recapitalization for financial accounting
purposes, because the Continuing Shareholders own approximately 15% of the
common equity of the Company. Accordingly the historical basis of the Company's
assets and liabilities has not been impacted by the transaction.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
be indicative of what the Company's financial position or results of operation
would actually have been had the Transactions been completed on such date or at
the beginning of the periods indicated or to project the Company's results of
operations for any future date.
38
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JULY 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
JULY 4, PRO FORMA JULY 4,
1997 ADJUSTMENTS 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ -- $ 9,227(3) $ 9,227
Trade accounts receivable.......................................... 13,398 -- 13,398
Inventories........................................................ 8,957 -- 8,957
Prepaid expenses and other current assets.......................... 777 -- 777
Deferred income tax assets......................................... 1,014 (1,770) 10) 5,529
6,285 (10
----------- ----------- -----------
Total current assets............................................. 24,146 13,742 37,888
Property, plant and equipment...................................... 14,886 -- 14,886
Prepaid pension costs.............................................. 542 -- 542
Debt issuance costs................................................ 5,000(1) 5,000
Goodwill, net...................................................... 1,511 1,511
Note receivable from an affiliate of the principal shareholders.... 4,255 (4,255)(2) --
Other assets....................................................... 124 -- 124
----------- ----------- -----------
Total assets......................................................... $ 45,464 $ 14,487 $ 59,951
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Checks outstanding in excess of funds deposited.................... $ 1,373 $ (1,373)(3) $ --
Trade accounts payable, accrued expenses and other................. 5,949 6,285 (10 12,234
Accrued compensation and related liabilities....................... 1,991 -- 1,991
Income taxes payable............................................... 2,398 (628) (6) --
(1,770) 10)
Current portion of long-term obligations........................... 2,400 (2,400)(4) --
----------- ----------- -----------
Total current liabilities........................................ 14,111 114 14,225
Long-term obligations, net of current portion........................ 17,369 (17,369)(4) 110,000
110,000(1)
Other noncurrent liabilities......................................... 713 -- 713
Deferred income tax liabilities...................................... 3,457 -- 3,457
Subordinated debt.................................................... 1,679 (1,000)(5) --
(750)(6)
71(6)
Redeemable Preferred Stock, no par value; no shares authorized; none
issued and outstanding; 30,000 shares authorized on a pro forma
basis; 18,000 shares issued and outstanding on a pro forma basis... -- 15,500(7) 15,500
Shareholders' equity (deficit):......................................
Common stock, no par value; 25,000,000 shares authorized; 20,000,000
shares on a pro forma basis; 9,398,900 issued and outstanding;
3,857,000 shares issued and outstanding on a pro forma basis....... 11,818 (11,818)(9) 26,600
6,600(9)
20,000(8)
Accumulated deficit.................................................. (3,683) (943) (6) (110,544)
(4,255)(2)
(200)(4)
2,500(7)
(103,963)(9)
----------- ----------- -----------
Total shareholder's equity (deficit)................................. 8,135 (92,079) (83,944)
----------- ----------- -----------
Total liabilities and shareholders' equity........................... $ 45,464 $ 14,487 $ 59,951
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to the unaudited pro forma consolidated balance sheet
are an integral part of this statement.
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The pro forma financial data have been derived from the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization that will
have no impact on the historical basis of assets and liabilities. The pro forma
data assume that there are no dissenting shareholders to the Merger.
(1) The pro forma adjustments to long-term obligations, net of current portion,
and to debt issuance costs, reflect, respectively, the issuance of $110,000
of Senior Notes and $6,500 of Transaction costs, $5,000 of which will be
capitalized as debt issuance fees and $1,500 of which will be expensed in
the current year ($900, net of tax benefit).
(2) The pro forma adjustment to note receivable from an affiliate of the
principal shareholders reflects a distribution, in connection with the
Recapitalization, of the note and accrued interest to the Company's
shareholders.
(3) The pro forma adjustments to cash and cash equivalents and checks
outstanding in excess of funds deposited reflect the application of the
excess of the proceeds of the Transactions over the uses of such proceeds
to reduce checks outstanding in excess of funds deposited ($1,373) and the
remaining excess ($9,227) is classified as cash and cash equivalents.
The net effect of the Transactions, as if they occurred on July 4, 1997,
reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
Sources of Funds:
Issuance of Senior Notes........................................................ $ 110,000
JFLEI Investment................................................................ 20,000
Issuance of Redeemable Preferred Stock and Warrants............................. 18,000
Continuing Shares(A)............................................................ 6,600
Drawdown of New Credit Facility................................................. 0
--------
$ 154,600
--------
--------
Uses of Funds:
Aggregate Recapitalization Consideration(A)..................................... $ 115,781
Repayment of Existing Credit Facility and Subordinated Debt..................... 21,719
Transaction Expenses............................................................ 6,500
Working Capital................................................................. 10,600
--------
$ 154,600
--------
--------
</TABLE>
- ------------------------
(A) Pursuant to the Recapitalization, (i) 8,676,168 shares of Common Stock
of the Company, were each converted into the right to receive the
Recapitalization Consideration, (ii) options to purchase 1,542,000 shares
of Common Stock of the Company were converted into the right to receive
the Recapitalization Consideration less the applicable exercise price,
(iii) warrants to purchase 1,700,000 shares of Common Stock of the
Company were converted into the right to receive the Recapitalization
Consideration less the applicable exercise price and (iv) 722,702
Continuing Shares were retained by the Continuing Shareholders, which
will represent an aggregate of 15% of the issued and outstanding shares
of the Company on a fully diluted basis. See "The Transactions." These
line items include the value of the Continuing Shares based on the
Recapitalization Consideration.
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS)
(4) The pro forma adjustments to current portion of long-term obligations and
to long-term obligations, net of current portion, reflect the application
of $19,769 of the Recapitalization Consideration to repay $10,706 in term
loans outstanding under the Existing Credit Facility, including $2,400 in
loans due in the next twelve months, and to repay $9,063 in revolving loans
outstanding under the Existing Credit Facility and to pay a prepayment
penalty of approximately $200.
(5) The pro forma adjustments to subordinated debt reflect the application of
$1,000 of the Recapitalization Consideration to repay a $1,000 principal
amount note payable to an affiliate of the principal shareholders of the
Company.
(6) The pro forma adjustments to subordinated debt reflect the repayment or
call (as applicable) of the Subordinated Debt for $750 and the write-off of
unamortized debt discount of $71, ($43, net of tax benefit).
(7) The pro forma adjustments to preferred stock reflect the issuance of 16,000
shares of Series A Redeemable Preferred Stock to be held by two limited
partners in JFLEI, Jackson National Life Insurance Company ("Jackson
National"), Massachusetts Mutual Life Insurance Company, MassMutual
Corporate Value Partners, L.P. and MassMutual High Yield Partners, L.L.C.
(collectively, "MassMutual") and 2,000 shares of Series B Redeemable
Preferred Stock to be held by another limited partner in JFLEI, Paribas
Principal Partners ("Paribas"), net of $2,500 attributable to the value of
the Warrants. Dividends are cumulative, accrue quarterly at the rate of
11 1/2% per annum on the stated value of $18,000 and are paid-in-kind
through July 15, 2000. The terms of the Series A and Series B Redeemable
Preferred Stock are identical except that holders of the Series A
Redeemable Preferred Stock have certain voting and consent rights that
holders of the Series B Redeemable Preferred Stock do not have. See
"Description of Redeemable Preferred Stock and Warrants."
(8) The pro forma adjustments to common stock reflect the issuance of 3,134,298
shares of Common Stock to JFLEI pursuant to the Merger.
(9) The pro forma adjustments to common stock and accumulated deficit reflect
the payment of Recapitalization Consideration pursuant to the Merger.
(10) The pro forma adjustments to deferred income taxes and income taxes
payable reflect tax benefits of $6,285 related to the Transactions. Such
benefits will be distributed to the Company's continuing and former
shareholders when realized by the Company.
41
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JANUARY 3, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
FISCAL YEAR
END PRO FORMA
1996 ADJUSTMENTS PRO FORMA
-------------- ----------- -----------
<S> <C> <C> <C>
Net sales.............................................................. $ 72,466 $ -- $ 72,466
Costs and expenses:
Cost of sales........................................................ 49,689 -- 49,689
Selling.............................................................. 6,824 -- 6,824
General and administrative........................................... 4,786 (292)(1) 4,494
------- ----------- -----------
Income from operations................................................. 11,167 292 11,459
Interest expense, net.................................................. 2,668 8,332(2) 11,000
------- ----------- -----------
Income before income tax provision and discontinued operation.......... 8,499 (8,040) 459
Income tax provision................................................... 3,466 (3,279) 187
------- ----------- -----------
Income from continuing operations before discontinued operation........ 5,033 $ (4,761) $ 272
------- ----------- -----------
----------- -----------
Loss from discontinued operation, net of income tax benefit of $205.... (308)
Loss on disposal of discontinued operation, net of income tax benefit
of $356.............................................................. (624)
-------
Net Income............................................................. $ 4,101
-------
-------
</TABLE>
The accompanying notes to the unaudited pro forma consolidated statements
of income are an integral part of this statement.
42
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JULY 4, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
SIX MONTHS
ENDED
JULY 4, PRO FORMA
1997 ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................................................. $ 46,011 $ -- $ 46,011
Costs and expenses:
Cost of sales............................................................ 32,467 -- 32,467
Selling.................................................................. 3,727 -- 3,727
General and administrative............................................... 2,389 (146)(1) 2,243
----------- ----------- -----------
Income from operations..................................................... 7,428 146 7,574
Interest expense, net...................................................... 1,013 4,487(2) 5,500
----------- ----------- -----------
Income before income tax provision......................................... 6,415 (4,341) 2,074
Income tax provision....................................................... 2,565 (1,736) 829
----------- ----------- -----------
Net income................................................................. $ 3,850 $ (2,605) $ 1,245
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to the unaudited pro forma consolidated statements
of income are an integral part of this statement.
43
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
The pro forma financial data have been derived from the application of pro forma
adjustments to the Company's historical financial statements for the period
noted. The Merger has been accounted for as a recapitalization that will have no
impact on the historical basis of assets and liabilities. The pro forma data
assume that there are no dissenting shareholders to the Merger.
(1) The pro forma adjustment to general and administrative expenses reflects
elimination of annual management fee payable to a director and to an
affiliate of the principal shareholders of the Company. Upon consummation of
the Transactions, the Company will enter into a Management Agreement with
Lehman whereby the Company will agree to pay Lehman an annual management fee
equal to $500 that shall commence accruing on October 1, 1998 and shall be
payable in arrears on a quarterly basis commencing on January 1, 1999.
(2) The pro forma adjustment to interest expense, net, reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED
JAN. 3, SIX MONTHS ENDED
1997 JULY 4, 1997
----------- -----------------
<S> <C> <C>
Interest expense on the Senior Notes.......................... $ 11,000 $ 5,500
Amortization of debt issuance costs (10 years)................ 500 250
Less interest income.......................................... (500) (250)
Less historical net interest of existing debt refinanced...... (2,668) (1,013)
----------- ------
Incremental interest expense.................................. $ 8,332 $ 4,487
----------- ------
----------- ------
</TABLE>
(3) The pro forma adjustments do not include a $13,865 one time non recurring
charge and related tax benefit. The $13,865 represents the Company's cost to
cancel options outstanding under the Company's stock option plan.
44
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below for the three years ended
January 3, 1997 and as of December 29, 1995 and January 3, 1997 have been
derived from the Consolidated Financial Statements of the Company which have
been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this Prospectus. The selected consolidated financial data below for
the years ended January 1, 1993 and December 31, 1993 and as of January 1, 1993,
December 31, 1993 and December 30, 1994 have been derived from the Consolidated
Financial Statements of the Company which have also been audited by Ernst &
Young LLP, but which are not included elsewhere herein. The selected financial
data for the six months ended June 28, 1996 and as of and for the six months
ended July 4, 1997 have been derived from the Company's Unaudited Consolidated
Financial Statements for those periods included elsewhere in the Prospectus and
the selected financial data as of June 28, 1996 have been derived from the
Company's Unaudited Consolidated Financial Statements for that period, but are
not included elsewhere herein and, in each case, include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results for the unaudited interim
periods. Results for the six months ended July 4, 1997 are not necessarily
indicative of the results that may be expected for the entire year. The
information presented below is qualified in its entirety by, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and related notes included elsewhere in this Prospectus. The data
below reflect the acquisition by the Company of certain assets of Purosil in
March 1993; of SFS in February 1995; of Haskon in June 1995 and of Kentile in
April 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ----------------------
----------------------------------------------------- JUNE 28, JULY 4,
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................. $ 28,195 $ 36,431 $ 44,370 $ 68,411 $ 72,466 $ 35,159 $ 46,011
Cost of sales............................. 18,714 25,355 29,998 49,226 49,689 24,520 32,467
--------- --------- --------- --------- --------- ----------- ---------
Gross profit.............................. 9,481 11,076 14,372 19,185 22,777 10,639 13,544
Selling, general and administrative
expenses(1)............................. 8,630 9,215 8,152 10,212 11,610 5,513 6,116
--------- --------- --------- --------- --------- ----------- ---------
Income from operations.................... 851 1,861 6,220 8,973 11,167 5,126 7,428
Interest expense, net..................... 2,828 2,897 2,812 3,007 2,668 1,406 1,013
--------- --------- --------- --------- --------- ----------- ---------
Income (loss) before income tax provision
(benefit), cumulative effect of
accounting change, extraordinary loss
and discontinued operation(2)........... (1,977) (1,036) 3,408 5,966 8,499 3,720 6,415
Income tax provision (benefit)............ (3) 146 1,395 3,393 3,466 1,488 2,565
--------- --------- --------- --------- --------- ----------- ---------
Income (loss) from continuing operations
before cumulative effect of accounting
change, extraordinary loss and
discontinued operation(2)............... $ (1,974) $ (1,182) $ 2,013 $ 2,573 $ 5,033 $ 2,232 $ 3,850
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
Net income (loss)(2)...................... $ (2,180) $ (657) $ 1,502 $ 1,094 $ 4,101 $ 1,300 $ 3,850
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
OTHER DATA:
EBITDA(3)................................. $ 3,068 $ 3,831 $ 7,367 $ 10,368 $ 12,586 $ 5,829 $ 8,126
EBITDA margin(3).......................... 10.9% 10.5% 16.6% 15.2% 17.4% 16.6% 17.7%
Depreciation and amortization............. 2,217 1,970 1,147 1,395 1,419 703 698
Capital expenditures(4)................... 702 530 415 4,647 1,684 1,064 565
Number of employees at period-end......... 256 360 366 656 724 692 863
Cash interest expense..................... 2,519 2,500 2,438 2,683 1,950 1,085 1,363
Ratio of EBITDA to cash interest
expense................................. 1.2x 1.5x 3.0x 3.9x 6.5x 5.4x 6.0x
Ratio of earnings to fixed charges(5)..... -- -- 2.1x 2.8x 3.7x 3.4x 5.7x
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF FISCAL YEAR END ----------------------
----------------------------------------------------- JUNE 28, JULY 4,
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working capital........................... $ 2,096 $ 4,932 $ 4,766 $ 5,402 $ 5,328 $ 6,523 $ 10,035
Total assets.............................. 24,469 30,535 28,551 39,729 40,673 38,922 45,464
Long-term obligations, less current
portion................................. 19,406 20,011 16,937 21,803 18,126 19,476 19,048
Shareholders' equity (deficit)............ (4) (654) 849 340 4,283 1,666 8,135
</TABLE>
- --------------------------
(dollars in thousands)
(1) Selling, general and administrative expenses include amortization of
acquisition costs of $1,161 and $850 in 1992 and 1993, respectively.
(2) Net income reflects (i) benefit of cumulative effect of change in accounting
method for income taxes of $551 in 1993, (ii) extraordinary loss on debt
settlement, net of income tax benefit, of $815 in 1995 and (iii) losses, net
of income tax benefit, of $206, $26, $511, $664 and $308 in 1992, 1993,
1994, 1995 and through June 28, 1996, respectively, incurred by the
Company's custom-molded organic rubber products manufacturing operations,
the assets of which were disposed of in June 1996, and loss, net of income
tax benefit, of $624 in 1996 on disposal of those assets.
(3) EBITDA is the sum of income before cumulative effect of changes in
accounting principles, extraordinary loss and discontinued operation (as
applicable), income taxes and interest, depreciation and amortization
expense. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness. However, EBITDA
should not be considered as an alternative to income from operations or to
cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity.
(4) Capital expenditures include costs associated with the acquisition of assets
of Purosil for $297 in 1993; of SFS for $1,578 and Haskon for $2,081 in 1995
and of Kentile for $854 in 1996.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income tax provision (benefit), cumulative effect of
accounting change, extraordinary loss and discontinued operation plus fixed
charges (excluding capitalized interest). Fixed charges consist of interest
incurred (which includes amortization of deferred financing costs) whether
expensed or capitalized and a portion of rental expense estimated to be
attributable to interest. Earnings were insufficient to cover fixed charges
by $2,004 and $1,048 for the fiscal years 1992 and 1993, respectively.
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis should be read in conjunction with
"Selected Historical Consolidated Financial Data" and the audited Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus.
The Company operates within one industry segment, elastomer products, and is
organized into three product groups: Aerospace Products, which produces
precision silicone seals and other products used on commercial and military
aircraft; Flooring Products, which produces and distributes rubber and vinyl
cove base and other floor covering accessory products; and Commercial Products,
which produces various intermediate and finished silicone and organic rubber
products.
Burke entered the Aerospace Products business through the acquisition of
Purosil assets in 1993. The Company subsequently expanded its Aerospace Products
business by purchasing the assets of two of its largest competitors, SFS and
Haskon, in 1995. These acquisitions were completed in order to broaden Burke's
Aerospace Products line and to incorporate advanced military stealth capability
into this product group. Subsequent to these acquisitions, in December 1995, the
Company integrated all of its aerospace operations in anticipation of increased
demand as communicated by aircraft OEMs.
In general, Aerospace Products revenues are driven by both the building of
new aircraft by OEM manufacturers and the repair and replacement of existing
aircraft (aftermarkets). OEMs typically depend on a select group of suppliers to
provide their seal requirements, working closely with them to design the
customized tooling necessary to satisfy the industry's rigorous product testing
standards. As a result of the Company's consolidation efforts throughout the
mid-'90s, it is now positioned as the leading seals supplier for the domestic
commercial aircraft industry and is OEM-specified on virtually every existing
commercial and military aircraft platform in production.
Aircraft seal revenues for 1996 were approximately evenly split between
sales to OEM manufacturers and the aftermarket. In addition, commercial aircraft
manufacturing has resulted in 70% of 1996 seal revenues being derived from the
commercial market, compared with approximately 30% from the U.S. military.
Aerospace revenues in 1995 were approximately $3.0 million higher than might
otherwise have been expected due to the significant unfilled backlog created by
the inability of SFS and Haskon to deliver product prior to Burke's ownership.
Sales of precision silicone seals comprised approximately 89% of 1996
revenues for the Aerospace Products business. The remaining 11% was derived
primarily from the sale of low-observable seals and tape to the military for use
on stealth aircraft, cruise missiles, and armored vehicles. Revenues of low-
observable seals and tape are derived from both the retrofit of existing
aircraft, such as the B-1 bomber and the initial installation and replacement of
existing low-observable material on aircraft, such as the B-2 bomber.
Historically, revenues in the Flooring Products business have been driven by
both new commercial construction and the continuous repair and remodeling of
existing commercial space. Until recently, operations have been concentrated in
the western United States and Burke has sold primarily rubber cove base molding.
The Company has developed a well-known brand name (BurkeBase) in the western
United States by targeting the architectural community and installers of
commercial flooring. Growth in Flooring Products revenues has been moderate but
steady due to the strength of the repair and remodel market, which has offset
the depressed commercial construction market in the western United States. In
1996, the Company acquired vinyl cove base production assets, which are expected
to diversify the Flooring Products revenue base, primarily by increasing
distribution of BurkeBase in the midwest and eastern United States.
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<PAGE>
The Commercial Products business is comprised of: (i) Purosil brand
high-performance silicone truck and bus engine hoses; (ii) roofing and other
fluid barrier membrane products and (iii) various intermediate and end use
products based upon Burke's extensive elastomer manufacturing capabilities.
Revenues generated by silicone hose sales are driven by both new truck and bus
manufacturing as well as the replacement market. OEM and aftermarket customers
specify and prefer silicone hoses due to their high performance and relatively
minor absolute cost. In addition, silicone hoses are increasingly being
specified on trucks and buses due to the higher performance requirements of new
engine design. Burke roofing and fluid containment system sales have tended to
be relatively steady over time. Roofing and fluid barrier membranes are used in
numerous applications including new and replacement commercial roofs and
reservoirs. The Hypalon product provides significant wear and durability
advantages compared with less expensive products. Revenues from these products
can be materially affected on a quarter-to-quarter basis by the size and timing
of certain reservoir projects.
RESULTS OF OPERATIONS
The following table sets forth certain income statement information for the
Company for the fiscal years ended December 30, 1994, December 29, 1995, and
January 3, 1997 and the six-month periods ended June 28, 1996 and July 4, 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
---------------------------------------------------------------------------- --------------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
OF OF OF JUNE 28, OF
1994 NET SALES 1995 NET SALES 1996 NET SALES 1996 NET SALES
--------- ------------- --------- ------------- --------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales:
Aerospace Products.... $ 4,787 10.8% $ 23,254 34.0% $ 24,622 34.0% $ 12,559 35.7%
Flooring Products..... 19,507 44.0 19,693 28.8 20,546 28.4 9,640 27.4
Commercial Products... 20,076 45.2 25,464 37.2 27,298 37.6 12,960 36.9
--------- ----- --------- ----- --------- ----- ----------- -----
Total net sales..... 44,370 100.0 68,411 100.0 72,466 100.0 35,159 100.0
Cost of sales........... 29,998 67.6 49,226 72.0 49,689 68.6 24,520 69.7
--------- ----- --------- ----- --------- ----- ----------- -----
Gross profit............ 14,372 32.4 19,185 28.0 22,777 31.4 10,639 30.3
Selling, general and
administrative
expenses.............. 8,152 18.4 10,212 14.9 11,610 16.0 5,513 15.7
--------- ----- --------- ----- --------- ----- ----------- -----
Income from
operations............ 6,220 14.0 8,973 13.1 11,167 15.4 5,126 14.6
Interest expense, net... 2,812 6.3 3,007 4.4 2,668 3.7 1,406 4.0
--------- ----- --------- ----- --------- ----- ----------- -----
Income before income tax
provision,
extraordinary loss and
discontinued
operation............. 3,408 7.7 5,966 8.7 8,499 11.7 3,720 10.6
Income tax provision.... 1,395 3.1 3,393 5.0 3,466 4.8 1,488 4.2
--------- ----- --------- ----- --------- ----- ----------- -----
Income from continuing
operations before
extraordinary loss and
discontinued
operation............. $ 2,013 4.6% $ 2,573 3.7% $ 5,033 6.9% $ 2,232 6.4%
--------- ----- --------- ----- --------- ----- ----------- -----
--------- ----- --------- ----- --------- ----- ----------- -----
Net Income.............. $ 1,502 3.4% $ 1,094 1.6% $ 4,101 5.7% $ 1,300 3.7%
--------- ----- --------- ----- --------- ----- ----------- -----
--------- ----- --------- ----- --------- ----- ----------- -----
<CAPTION>
PERCENTAGE
JULY 4, OF
1997 NET SALES
--------- -------------
<S> <C> <C>
Net sales:
Aerospace Products.... $ 15,906 34.6%
Flooring Products..... 11,259 24.5
Commercial Products... 18,846 40.9
--------- -----
Total net sales..... 46,011 100.0
Cost of sales........... 32,467 70.6
--------- -----
Gross profit............ 13,544 29.4
Selling, general and
administrative
expenses.............. 6,116 13.3
--------- -----
Income from
operations............ 7,428 16.1
Interest expense, net... 1,013 2.2
--------- -----
Income before income tax
provision,
extraordinary loss and
discontinued
operation............. 6,415 13.9
Income tax provision.... 2,565 5.6
--------- -----
Income from continuing
operations before
extraordinary loss and
discontinued
operation............. $ 3,850 8.3%
--------- -----
--------- -----
Net Income.............. $ 3,850 8.3%
--------- -----
--------- -----
</TABLE>
SIX MONTHS ENDED JULY 4, 1997 VERSUS SIX MONTHS ENDED JUNE 28, 1996
NET SALES. Total net sales increased 30.9%, from $35.2 million for the six
months ended June 28, 1996 to $46.0 million for the six months ended July 4,
1997. Aerospace Products grew 26.7% as the result of strong expansion of
commercial aircraft build rates. Flooring Products grew 16.8% as the result of
generally stronger demand for construction products in California and the
introduction of vinyl cove base products. Commercial Products grew 45.4% due to
a major sale of Membrane Products for a liner application and due to orders from
a new customer.
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<PAGE>
COST OF SALES. Cost of sales increased 32.4%, from $24.5 million for the
six months ended June 28, 1996 to $32.5 million for the six months ended July 4,
1997. The increase was primarily due to the increase in net sales over the same
period. As a percentage of net sales, gross profit decreased from 30.3% for the
six months ended June 28, 1996 to 29.4% for the six months ended July 4, 1997.
The decrease was due to the fact that Membrane Products, which have a lower
gross profit margin than the Company's other product lines constituted a larger
portion of total net sales for the six months ended July 4, 1997 compared with
the six months ended June 28, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 10.9%, from $5.5 million for the six months
ended June 28, 1996 to $6.1 million for the six months ended July 4, 1997. The
increase was due primarily to additional expenses incurred in support of the
Company's sales growth. However, these costs declined as a percentage of net
sales from 15.7% in the six months ended June 28, 1996 to 13.3% in the six
months ended July 4, 1997.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations increased 44.9%, from $5.1 million for the six months ended June 28,
1996 to $7.4 million for the six months ended July 4, 1997.
INTEREST EXPENSE. Interest expense decreased 28.0%, from $1.4 million for
the six months ended June 28, 1996 to $1.0 million for the six months ended July
4, 1997. The decrease was due to lower total debt outstanding and to a reduction
in the LIBOR margin on the Company's indebtedness from 2.75% to 2.25%, effective
on March 28, 1997.
INCOME FROM CONTINUING OPERATIONS. As a result of the above factors, income
from continuing operations increased 72.5%, from $2.2 million for the six months
ended June 28, 1996 to $3.9 million for the six months ended July 4, 1997.
YEAR ENDED JANUARY 3, 1997 VERSUS YEAR ENDED DECEMBER 29, 1995
NET SALES. Total net sales increased 5.9%, from $68.4 million in 1995 to
$72.5 million in 1996. Aerospace Products grew 5.9%, reflecting the positive
effect of a full year of the deployment of the assets of Haskon acquired in June
1995, which was partially offset by the expiration of a significant supply
contract in 1995. Flooring Products grew 4.3% as the result of the introduction
of new products and price increases. Commercial Products grew 7.2% due to orders
from a new customer and to increased sales of the Company's silicone Custom
Products, offset by a decrease in Membrane Products sales due to a customer's
deferral of a major liner project.
COST OF SALES. Cost of sales increased 0.9%, from $49.2 million in 1995 to
$49.7 million in 1996. The increase was primarily due to the increase in net
sales over the same period. As a percentage of net sales, gross profit increased
from 28.0% in 1995 to 31.4% in 1996. The increase was due to the full
integration of assets acquired from SFS and Haskon into the Company's
operations, as well as increased volume which led to improved overhead
absorption and improvements in operational efficiency in the Company's Aerospace
Products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 13.7%, from $10.2 million in 1995 to $11.6
million in 1996. The increase was due to general cost increases to selling
expenses associated with expanding Flooring Products into markets in the eastern
United States and a full year of selling expenses associated with the assets of
Haskon acquired in 1995. As a percentage of sales, these costs increased from
14.9% in 1995 to 16.0% in 1996.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations increased 24.5%, from $9.0 million in 1995 to $11.2 million in 1996.
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<PAGE>
INTEREST EXPENSE. Interest expense decreased 11.3%, from $3.0 million in
1995 to $2.7 million in 1996. The decrease was due to lower total debt
outstanding.
INCOME FROM CONTINUING OPERATIONS. As a result of the above factors, income
from continuing operations increased 95.6%, from $2.6 million in 1995 to $5.0
million in 1996.
YEAR ENDED DECEMBER 29, 1995 VERSUS YEAR ENDED DECEMBER 30, 1994
NET SALES. Total net sales increased 54.2%, from $44.4 million in 1994 to
$68.4 million in 1995. Aerospace Products grew 385.8%, due to the acquisition of
the assets of SFS and Haskon in February and June 1995, respectively. Flooring
Products grew 1.0% due to price increases and continued demand in the repair and
remodel segment of the construction industry, offset by generally weaker demand
for construction products in California. Commercial Products grew 26.8% due to
the acquisition of the assets of SFS used to produce silicone Custom Products.
COST OF SALES. Cost of sales increased 64.1%, from $30.0 million in 1994 to
$49.2 million in 1995. The increase was primarily due to the increase in net
sales over the same period. As a percentage of net sales, gross profit decreased
from 32.4% in 1994 to 28.0% in 1995. The decrease was due primarily to the
start-up costs associated with the integration of the assets acquired from SFS
and Haskon in 1995 and to temporary increases in the cost of a raw material used
in the Company's Flooring Products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 25.3%, from $8.2 million in 1994 to $10.2
million in 1995. The increase was due to additional selling expenses associated
with the assets Haskon and SFS acquired in 1995. However, as a percentage of net
sales, these costs declined from 18.4% to 14.9% over the same period.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations increased 44.3%, from $6.2 million in 1994 to $9.0 million in 1995.
INTEREST EXPENSE. Interest expense increased 6.9%, from $2.8 million in
1994 to $3.0 million in 1995. The increase was due to higher total debt
outstanding, resulting from the acquisition of SFS and Haskon assets in 1995.
INCOME FROM CONTINUING OPERATIONS. As a result of the above factors, income
from continuing operations increased 27.8%, from $2.0 million in 1994 to $2.6
million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW. The Company's principal uses of cash are to finance working
capital and capital expenditures related to asset acquisitions and internal
growth. Net cash provided by operating activities was $8.3 million in 1996.
CAPITAL REQUIREMENTS. The Company expects to spend approximately $1.5
million during 1997 on capital expenditures not directly related to
acquisitions. Cash flow from operations, to the extent available, may also be
used to fund a portion of any acquisition expenditures. The Company is actively
seeking acquisition opportunities. The Company intends to seek additional
capital as necessary to fund potential acquisitions through one or more funding
sources that may include borrowings under the New Credit Facility described
below.
SOURCES OF CAPITAL. In July 1997, a commitment letter to provide senior
credit financing was issued to JFLEI. The New Credit Facility will provide for
$15.0 million of revolving credit borrowings. The New Credit Facility will
mature on the fifth anniversary of the Recapitalization. Interest on loans under
the New Credit Facility will bear interest at rates based upon either, at the
Company's option, Eurodollar Rates plus a margin of 2.50% or upon the Prime Rate
plus a margin of .50%. Loans under the New Credit Facility will be secured by
security interests in substantially all of the assets of the Company and will be
guaranteed by
50
<PAGE>
any and all current or future subsidiaries of the Company, which guarantees will
be secured by substantially all of the assets of the subsidiaries. The New
Credit Facility will contain customary covenants restricting the Company's
ability to, among other things, incur additional indebtedness, create liens or
other encumbrances, pay dividends or make other restricted payments, make
investments, loans and guarantees or sell or otherwise dispose of a substantial
portion of assets to, or merge or consolidate with, another entity. The New
Credit Facility will also contain a number of financial covenants that will
require the Company to meet certain financial ratios and tests and provide that
a "change of control" will constitute an event of default. For a more complete
description of the New Credit Facility, see "Risk Factors-- Significant Leverage
and Debt Service," "--Ranking of Notes; Asset Encumbrance," "--Restrictive
Covenants" and "Description of New Credit Facility."
The Company anticipates that its principal use of cash following the
Recapitalization will be working capital requirements, debt service requirements
and capital expenditures as well as expenditures relating to acquisitions and
integrating acquired businesses. Based upon current and anticipated levels of
operations, the Company believes that its cash flow from operations, together
with amounts available under the New Credit Facility, will be adequate to meet
its anticipated requirements for the foreseeable future for working capital,
capital expenditures and interest payments.
INCOME TAX PROVISION
For 1995 and 1996, the Company recorded an income tax provision of 56.9% and
40.8%, respectively, which differs from the federal statutory rate primarily due
to state income taxes (net of federal benefit), and for 1995 due to an
additional provision for potential Internal Revenue Service (IRS) audit
adjustments. In 1996 the Company settled with the IRS certain issues relating to
the Company's income tax returns for 1988 through 1990. As of January 3, 1997,
the Company had fully provided for the taxes and interest which are payable as a
result of the settlement.
In addition to the above settlement, the Company received a "Notice of
Deficiency" from the IRS for 1992 and 1993, also related to the reorganization
of the Company in 1988, resulting in proposed deficiencies of approximately
$1,534,000. Penalties on the proposed deficiencies described above would be
$290,000. The Company filed a tax court petition contesting the proposed tax
deficiencies. The Company believes that it has meritorious legal defenses to the
proposed IRS adjustments. Based upon the Company's analysis of the issues,
management believes that an adequate provision has been made for additional
liabilities that may ultimately result.
For 1994 and 1995, the Company recorded an income tax provision of 40.9% and
56.9%, respectively, which differs from the federal statutory rate primarily due
to state income taxes (net of federal benefit) and, for 1995 only, due to an
additional provision for potential Internal Revenue Service (IRS) audit
adjustments.
51
<PAGE>
BUSINESS
OVERVIEW
Burke, headquartered in San Jose, California, is a leading, diversified
manufacturer of highly engineered, rubber, silicone and vinyl-based (herein
"elastomer") products. Through its vertically integrated operations and
reputation for quality elastomer-based products, Burke has become (i) the
largest domestic producer of precision silicone seals for commercial and
military aircraft ("Aerospace Products"), (ii) the dominant west coast producer
of rubber cove base and floor covering accessories for commercial and industrial
applications ("Flooring Products") and (iii) a value-added producer of
high-performance silicone hose, roofing and membrane products for the heavy-duty
truck, commercial building and environmental industries, respectively
("Commercial Products").
The Company has grown through new product development and the successful
integration of acquired product lines and production assets. As a result, net
sales increased from $28.2 million in 1992 to $83.3 million for the twelve-month
period ended July 4, 1997 and EBITDA increased, from $3.1 million to $14.9
million, over the same time period. Net sales for the six months ended July 4,
1997 totaled $46.0 million, up 30.9% from $35.2 million for the same period in
1996 and EBITDA for the six months ended July 4, 1997 was $8.1 million, up 39.4%
from $5.8 million for the same period in 1996.
AEROSPACE PRODUCTS
Burke is the largest domestic producer of precision silicone seals used at
airframe and internal component junctures in commercial and military aircraft.
Burke seals are specified on virtually all major domestically produced
commercial aircraft, including every aircraft series manufactured by Boeing and
on substantially all United States military aircraft including cargo, fighter
and bomber series airplanes and several helicopter models. As a result, Burke's
products have been designed into some of the most successful commercial and
military aircrafts in the world, including the Boeing 737, 747, 757, 767 and
777, the McDonnell Douglas DC and MD series, the Northrop Grumman F-14 and the
Lockheed Martin L1011. Products are engineered to customer specifications for
selected aircraft body and engine models and are generally made from custom
tooling maintained and controlled by Burke for use over the life of the specific
aircraft program. Burke benefits from a lengthy product-demand cycle, which can
remain active for as long as 30 years, driven by new aircraft assembly and
retrofit and maintenance projects. Retrofit and maintenance projects accounted
for approximately two-thirds of the Company's 1996 Aerospace Products sales.
The Aerospace Products business also manufactures low-observable,
radar-absorbing seals and exterior tapes and coatings for stealth military
aircraft and other military applications. These products are currently in use on
the B-2 bomber and will also be used in the F-22, which is being developed to
replace the F-15 as the premier fighter in the United States military arsenal.
Aerospace Products sales increased from $3.6 million in 1993, the year that
Burke first entered the aerospace market with its purchase of assets of Purosil,
to $24.6 million in 1996, accounting for approximately 34.0% of the Company's
total net sales in 1996. Management believes the Aerospace Products business is
well positioned to benefit from the strong increase in commercial aircraft build
rates currently occurring and projected by industry analysts to continue, along
with the associated retrofit, refurbishment, replacement and upgrade projects
that are required over the life of the aircraft.
FLOORING PRODUCTS
Through its Flooring Products business, Burke is the dominant supplier of
rubber cove base (floor border that joins flooring or carpet to a wall),
manufactured under the name BurkeBase, and other rubber-based flooring
accessories for commercial and industrial applications in the western United
States. Its principal product offerings include vinyl cove base and rubber cove
base, tile, stair treads, corners, shapes
52
<PAGE>
and other flooring accessories. Demand for the Company's cove base is driven by
new commercial construction, remodeling, redecorating and general maintenance.
During periods of slower growth in new commercial construction, remodeling and
redecorating activities tend to increase, providing stable overall demand for
the Company's products. Flooring Products sales were $20.5 million in 1996,
comprising 28.4% of the Company's total net sales in 1996. In 1996, the Company
diversified its Flooring Products offerings with the introduction of new tiling
products and photoluminescent emergency lighting products marketed under the
name BurkeEmerge, and the acquisition of vinyl cove base production assets.
Management believes that the addition of the vinyl product line will enable it
to increase revenues through the increased penetration of existing markets and
the expansion of its product line to markets where vinyl cove base is more
popular than rubber cove base, such as the midwestern and eastern United States.
COMMERCIAL PRODUCTS
Burke's expertise in the mixing, blending and formulation of silicone and
organic rubber compounds has established its Commercial Products business as a
growing, value-added supplier of elastomer products for use in both intermediate
and end products. The Commercial Products business is comprised of three primary
product lines: (i) high-performance silicone truck hoses for heavy-duty trucks
and buses marketed under the Purosil brand name, (ii) membranes for commercial
roofing and fluid containment systems marketed under the Burkeline trade name
and manufactured from DuPont's patented Hypalon polymer material and (iii)
precision-formulated custom products and sheet goods that utilize Burke's
extensive formulation and production capabilities for use in end-product
elastomer applications. Commercial Products net sales increased from $10.0
million in 1992 to $27.3 million in 1996, and represented 37.6% of the Company's
total net sales in 1996. Management believes that the Commercial Products
business has significant growth potential primarily through the expansion of the
Purosil line of high-end hoses to new customers and channels of distribution and
the development of new applications for the silicone custom product line.
COMPETITIVE STRENGTHS
Burke has secured a strong competitive position in each of its specialized
market segments. Burke is the largest provider of aerospace seals to the
domestic commercial and military aerospace industries and also maintains strong
positions in its flooring, roofing and membrane, truck hose and custom product
lines. These competitive positions are sustained through the following
strengths.
ESTABLISHED CUSTOMER RELATIONSHIPS. The Company enjoys long-term
relationships with many of its customers in each of its markets. These
relationships, whether built by Burke over its long history or assumed in recent
asset acquisitions, provide the Company with a stable base from which to pursue
future expansion and give Burke a significant advantage over potential
competitors seeking to enter the Company's markets. Several of the Burke
trademarks and trade names (BurkeBase, Burkeline, SFS, Haskon and Purosil) are
widely recognized by end users and distributors and are generally associated
with superior levels of quality and customer service in their respective
markets.
DIVERSE REVENUE BASE. The Company's products are used in a wide variety of
industries and applications and a significant share of the Company's revenue is
derived from the repair and replacement market for its products, including
aerospace seals and tape, cove base, truck hoses and fluid containment membrane.
Replacement demand is typically less affected by slower economic periods.
Management believes that this diversity has and will continue to mitigate the
effect of economic fluctuations.
TECHNOLOGICAL LEADERSHIPS IN ELASTOMER-BASED PRODUCTS DEVELOPMENT AND
MANUFACTURE. Burke is widely recognized as a technological leader in
elastomer-based products due to its strong engineering, design and research
capabilities. Burke has 25 specialists in its engineering, design and laboratory
departments devoted to new product development and product cost reduction.
Management believes that its aerospace technical staff is significantly larger
than those of its direct competitors, providing the
53
<PAGE>
Company with a competitive advantage in pursuing and maintaining relationships
in the technologically advanced defense and commercial aerospace industries.
VERTICALLY INTEGRATED PRODUCTION CAPABILITIES. Burke has vertically
integrated production capabilities that enable it to transform raw organic
rubber and silicone gum into a diverse array of finished products. This
capability allows management more direct control over the Company's product
development, cost structure and quality requirements, providing a competitive
edge in its targeted market segments and enables Burke's Commercial Products
business to selectively participate in market segments as a value-added,
intermediate supplier to other elastomer product producers and users.
EXPERIENCED MANAGEMENT TEAM. The management team has extensive experience
both with the Company and within the industry and encompasses a balance of both
senior leadership and a strong group of young managers. This management team has
successfully orchestrated the acquisition and integration of four independent
operations since 1993, as well as the Company's ongoing vertical integration
efforts.
BUSINESS STRATEGY
Burke intends to capitalize on its aforementioned competitive strengths in a
variety of ways in each of its major businesses. Key components of this strategy
for each of the Company's businesses include:
AEROSPACE PRODUCTS
- PENETRATE INTERNATIONAL MARKET FOR AEROSPACE SEALS. Management believes
that the Company is the only domestic aerospace seal manufacturer with the
production capacity to market beyond the United States. With the Company's
recent acquisitions dramatically increased production capacity and, as a
result, the Company recently sought and was successful, in being
designated as a qualified parts manufacturer for a large subcontractor of
Airbus.
- FOCUS ON VALUE-ADDED MANUFACTURING. Management intends to further increase
its participation in the trend towards integrating higher levels of
processing and finishing to products before shipping to OEMs.
- MAINTAIN STRONG RELATIONSHIPS WITH LEADING PRIME CONTRACTORS. Management
believes that its existing relationships with leading prime military
contractors have positioned the Company to continue to participate in
"next generation" stealth military programs, including the Joint Strike
Fighter currently being developed for NATO, through the sale of
low-observable seals and tape.
FLOORING PRODUCTS
- BROADEN DOMESTIC DISTRIBUTION OF FLOORING PRODUCTS. Although the Company
is the dominant producer of rubber cove base in the western United States,
the Company believes it can successfully expand this product line into
other geographic regions by offering the full complement of its rubber and
newly acquired vinyl flooring products.
- LEVERAGE BRAND NAME RECOGNITION AND EXISTING DISTRIBUTION CHANNELS THROUGH
PRODUCT LINE EXTENSIONS. The Company intends to continue to capitalize on
the BurkeBase trade name by expanding and upgrading its existing product
line. In addition, the Company believes that it can leverage its strong
distribution network for its flooring products through the introduction of
flooring accessories. For example, the Company's new BurkeEmerge product
line of photoluminescent emergency lighting is an alternative to strip
lighting at a 70% lower cost. Emergency lighting is increasingly being
utilized due to heightened public awareness of the dangers that can result
from unlit corridors and confusing exit signs.
54
<PAGE>
COMMERCIAL PRODUCTS
- INCREASE PENETRATION OF PUROSIL SILICONE HOSES. The Company believes the
growth opportunities for its Purosil silicone hoses have not yet fully
been exploited, particularly in the heavy-duty truck and bus aftermarket.
New initiative includes increasing customer share at Mack Truck and other
targeted accounts as well as initiating production of silicone hoses for a
major new customer.
- PROMOTE ADDITIONAL HYPALON APPLICATIONS. Management is continuing to work
with DuPont to promote Hypalon as a durable and environmentally sound
liner product suitable for new water-containment applications.
In addition to these internal growth strategies, the Company intends to seek
selective acquisitions where it can expand and strengthen existing product lines
and its distribution and technological capabilities. The Company believes that
certain market niches in which it competes are highly fragmented, with a number
of manufacturers that would make attractive acquisition candidates.
INDUSTRY OVERVIEW
Virtually every industry contains applications for elastomeric products.
These products are used wherever there is a need for materials that are
flexible, yet retain their original shape and other properties. Elastomeric
products tend to be a small portion of the total cost of any product, yet can be
critical to a successful design. The Company believes that demand for
elastomeric products will continue to grow as the performance requirements of
various products are increased.
The Company serves a number of industries with significant usage of
highly-engineered elastomer-based products, including organic rubber, silicone
rubber, and vinyl. Customers in these industries value quality, on-time
performance, and the ability to provide technical problem-solving capabilities.
The increasingly complex product design efforts of companies in these and other
industries provides ongoing and new opportunities for elastomeric product
applications. The Company believes that its technical resources, experience, and
reputation provide it with a competitive advantage in seeking to provide
products to these industries.
HISTORY
The Burke Rubber Company was founded in 1942 as a family-owned manufacturer
of custom industrial rubber products. By the early 1950s, Burke manufactured a
proprietary line of rubber floor tile and cove base as well as custom-molded
rubber products. The Burke product line subsequently grew to include flexible
membrane products for industrial uses, as well as engineered elastomer-based
products for defense-related applications. In 1970, Burke developed an improved
roofing and fluid barrier technology based upon DuPont patented Hypalon
elastomer polymer. The Company was renamed Burke Industries, Inc. in 1972 to
reflect its broadened base of business.
The Company began expanding beyond its traditional product lines with its
acquisition of the silicone-based aerospace seal and automotive hose production
assets of Purosil in March 1993. In 1995, recognizing that the seals segment of
the aerospace industry was fragmented and ripe for consolidation, Burke sought
to expand its position in the category through the acquisition of assets of two
former industry leaders that were then experiencing financial difficulties:
California-based SFS and Massachusetts-based Haskon. Purosil, SFS and Haskon had
each been an independent producer of precision silicone aerospace components,
and together had over 85 years of service to the commercial and military
aerospace industry. In the Flooring Products division, the Company expanded its
product lines through the purchase of Kentile's vinyl cove base production
assets in April 1996.
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<PAGE>
Burke's integration of these acquisitions has led to a dominant position in
the aerospace seals market, opened new markets for its Flooring Business,
improved operating efficiencies, consolidated overhead and strengthened
technical capabilities.
PRODUCTS AND MARKETS
Burke is a leader in a number of markets where the Company's vertically
integrated production capabilities and design, engineering and manufacturing
expertise result in a strong competitive position. The Company currently serves
markets for aerospace components, floor covering accessories and a variety of
other commercial products.
AEROSPACE PRODUCTS
Operating out of Santa Fe Springs, California and Taunton, Massachusetts,
Burke, through its Aerospace Products business, is the leading domestic
manufacturer of two principal product lines: highly engineered elastomer-based
seals for commercial and military aircraft and low-observable, radar-absorbing
materials for stealth military applications. Burke's non-stealth aerospace
components are marketed under the SFS and Haskon trade names.
PRODUCTS
Burke's major aerospace seals products include: aerodynamic seals for
commercial and military airframes, firewall seals for aircraft engines and
nacelles, aircraft door and hatch seals, inflatable seals for cockpit canopies
and large openings, aircraft window seals, and aircraft conductive seals for
electromagnetic interference survivable conditions. Burke's product line ranges
from the most basic extruded seals, costing an average of $30 to $40, to
exceptionally complex seals which may cost in excess of $10,000. Burke's design
and engineering teams have a history of developing solutions for difficult
sealing and shielding problems. Burke's silicone seals are also reinforced (if
required) with a variety of materials including Kevlar, Dacron, Nomex, ceramic
cloth, fiberglass, conductive fabrics, metal mesh, nylon and other materials
which accommodate their demanding applications.
During the late 1980s and early 1990s, SFS invested significant capital
towards the research and development of radar-absorbing and signature-masking
composite materials. This initial research and development established SFS as
the technological leader in this niche defense-related area. Burke has continued
the development of this technology since its acquisition of SFS in 1995.
Generally, Burke works on an exclusive basis with the United States military to
test and develop these highly engineered and technical materials. Once a
contract has been awarded, Burke has historically become the sole supplier to
the United States government as an approved defense contractor. Based on its
history and the Company's proven record in this area, management believes that
Burke will remain a critical partner in product development opportunities in
this sector. Burke maintains a classified area within the Santa Fe Springs
facility where stealth technology products are developed, manufactured and
tested.
MARKETS AND CUSTOMERS
Burke's silicone seals are sold directly to manufacturers of commercial and
military aircraft, aerospace component distributors and the United States
government. Burke has maintained its leading position in this market through its
advanced in-house design, engineering, technical and production capabilities
coupled with superior customer service. The engineering staff at Burke works
directly with OEMs to design custom silicone sealing applications. Burke's
aerospace products are designed by Burke engineers in accordance with precise
OEM specifications and quality requirements. Products are rigorously tested
against ISO and OEM standards by Burke and its customers before final approval.
In 1996, the top five customers of the Aerospace Products division accounted for
$16.5 million in net sales, representing 22.8% and 67.1%, respectively, of the
Company's total and the Aerospace Product division's net sales in that year.
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Boeing is the single largest customer of Aerospace Products and, management
believes Burke is likewise the leading supplier of these products to Boeing.
Boeing currently controls over 60% of the worldwide commercial passenger
aircraft market and is enjoying a dramatic expansion in its backlog and orders.
In addition to Boeing, the Company produces seals for every major commercial
aircraft manufacturer in the world and for substantially all major military
manufactures in the United States, including McDonnell Douglas, Lockheed Martin,
Northrop Grumman, Airbus Industries, Pratt & Whitney, General Electric,
Gulfstream, Rohr, Bombardier and Textron. As a result, Burke's products have
been designed into some of the most successful commercial and military aircrafts
in the world, including the Boeing 737, 747, 767 and 777, the McDonnell Douglas
DC and MD series, the Northrop Grumman F-14 and the Lockheed Martin L1011.
Burke's Advanced Aerospace Products business has successfully introduced
several technologies in use by branches of the United States Navy, Air Force and
Army. These include radar-absorbing seals, tapes and other composite materials
utilized on the B-2 bomber, the F-22 fighter and naval surface ships.
Ground-based applications are also being developed in conjunction with United
Defense. The Burke radar-absorbing material technology has potentially much
broader applications than are currently in use, and the Company is presently
involved in initiatives that management believes will greatly expand the market
for its Advanced Aerospace Products business.
The Northrop Grumman B-2 radar-resistant tape program is the largest of
Burke's existing government contracts. Burke's revenues from this contract are
generated both by new aircraft production and by replacement tape applied as
part of the repair or scheduled maintenance of the aircraft. Burke has also been
qualified to supply the F-22 program. The F-22 is the latest generation United
States military fighter aircraft and is designed to replace the F-15 as the
premier fighter in the United States military arsenal.
The Advanced Aerospace Products business is also in the second phase of
redesigning the original "over-wing-fairing" seal for the B-1 bomber. This
redesign will proceed with the sale by the Company of working models of the seal
to the United States government in late 1997 or early 1998, followed by the sale
of refurbishment seal sets for each of the 95 existing B-1 bombers. The Company
is also in discussions with Boeing and Lockheed Martin to supply seals for the
new Joint Strike Fighter program. Both Boeing and Lockheed Martin have been
selected as the finalists for this program which is ultimately expected to
procure approximately 3,000 multi-service aircraft for the United States Air
Force, Marine Corps and Navy and the United Kingdom Royal Navy.
COMPETITION
Burke is the largest domestic supplier of highly-engineered silicone seals
for the aerospace OEM market and aftermarket. Burke's domestic competitors are
primarily small, privately-held companies which generally lack Burke's track
record, long-term OEM relationships and capabilities. These competitors include
Kirkhill Rubber Company, Chase-Walton Elastomers, Inc. and Elastomeric Silicone
Products. Management believes that each of Burke's competitors had silicone
aerospace seals revenues that were significantly smaller than the Company's
revenues from those products in 1996. Additionally, the Company has two
principle European competitors, Dunlop France S.A. and Bestobell Aviation, of
the United Kingdom, which enjoy significant market share among European aircraft
manufacturers, including Airbus Industries, but have not made significant
inroads in the United States commercial aerospace market.
Management believes that Burke's long-standing customer relationships,
unique design capabilities and superior product quality will continue to support
its position as the leading supplier of engineered silicone seals within this
fragmented market.
Burke is one of only a few companies with the combination of knowledge and
manufacturing capabilities required to develop, test and manufacture engineered
elastomer-based products to military specifications. Many of Burke's Advanced
Aerospace Products are classified in nature, and in many cases
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project leaders return to previous classified product suppliers for a
preliminary assessment of future development opportunity.
GROWTH AND OPPORTUNITIES
The strong expansion in commercial aircraft build rates is expected to drive
long-term growth within Burke's Aerospace Products business. Boeing and other
aircraft producers continue to build backlog and to experience increased demand
for new aircraft. According to industry sources, at the end of 1996, Boeing,
Airbus and McDonnell Douglas had a combined backlog of 2,370 aircraft. According
to Boeing's 1997 Current Market Outlook, Boeing will deliver 340 new aircraft
and will ramp its build rate up to 40 aircraft per month, its highest level
ever, by the end of this year. This surge in deliveries is the beginning of what
many industry analysts believe will be a prolonged industry upturn during which
industry analysts project 16,160 airplanes will be delivered by the major
manufacturers over the next 20 years.
The demand for new aircraft is being driven by increases in passenger miles
traveled and an aging aircraft fleet worldwide. The Aerospace Industries
Association reports that approximately 3,900 existing aircraft will require
replacement over the next 20 years due to age, regulations and prohibitive
maintenance costs. The two largest commercial aircraft manufacturers, Boeing and
Airbus, have recently released their annual market forecasts which corroborate
this view. Management believes that the continuing need for aircraft replacement
parts and upgrades will provide ongoing sales opportunities for Burke over the
life of the aircraft due to Burke's proprietary, in-house tooling for specified
seals and related components. As an OEM-specified supplier of multiple seals and
related components to a variety of aircraft, Burke should benefit from a
substantial installed base for future retrofit and refurbishment projects.
Defense-related applications are also expected to provide significant,
ongoing growth. Lockheed Martin is the primary contractor for the F-22 program
and has been selected as a finalist, along with Boeing, to develop the Joint
Strike Fighter for the United States military and the United Kingdom Royal Navy.
Management believes that Burke's existing supplier relationships with both of
these prime contractors will provide opportunities to participate in these and
other future program developments.
Burke management is also participating in a trend towards more value-added
manufacturing for aerospace OEMs by integrating higher levels of processing and
finishing to components before shipping to OEMs. Burke is encouraging this
higher value-added, higher margin practice with several of its customers in an
effort to strengthen its position as a long-term key supplier.
Burke is currently cooperating with United Defense to develop and test
products that utilize the Company's signature-masking stealth capabilities for
conventional ground-based military applications. Management is optimistic that
one or more of these concepts will receive federal funding and become important
products for Burke. Management has committed significant technical, engineering
and production resources to the Advanced Products division and believes that
programs from this division have the potential to generate substantial revenues
and profitability going forward.
FLOORING PRODUCTS
Burke is the leading producer and distributor of specialty rubber flooring
accessory products for use in commercial markets in the western United States.
Burke's trademark BurkeBase has enjoyed a dominant market share in that region
since the early 1950s and is well known throughout the industry. In addition,
Burke has extended its BurkeBase flooring product lines beyond rubber products
through its 1996 acquisition of the vinyl cove base production assets of
Kentile. Kentile was a nationally recognized producer of vinyl cove base and
flooring products which were sold into the commercial construction and
refurbishment markets. Burke purchased the cove base manufacturing assets and
subsequently relocated them to its San Jose, California facility. The
integration of these assets significantly enhances Burke's national market
position in flooring accessories given vinyl's broad appeal in geographic
regions where rubber products have traditionally been less popular.
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PRODUCTS
Burke's flooring product line consists of a variety of commercial rubber and
vinyl flooring products and accessories including vinyl cove base, and rubber
core base flooring tiles, stair treads, corners, shapes, special application
adhesives and newly developed luminescent emergency lighting accessories sold
under the BurkeEmerge trademark. Burke flooring and flooring accessory products
are generally recognized by architects, builders, and contractors as the
highest-quality commercial rubber flooring and flooring accessory products
available in terms of construction, durability and ease of installation. In its
principal markets, BurkeBase is utilized in most commercial applications using
resilient tile flooring and virtually all commercial applications involving
carpeting. Other Burke flooring products are employed in commercial and
institutional settings where durability and resilience are of primary
importance.
The addition of commercial vinyl cove base production capabilities from the
acquisition of the Kentile assets in 1996 is an important complement to Burke's
traditional product offerings. Rubber flooring products are generally more
expensive than vinyl products due to their material and manufacturing cost but
yield a longer-lasting product. However, vinyl flooring products are extremely
popular for less demanding applications and are the predominant commercial
flooring construction material in geographic regions outside of the western
United States. The addition of a vinyl cove base product line will create a
lower-cost, complementary offering targeted at less demanding, more
cost-sensitive applications.
New product developments, including profile stair treads, tiles and other
shapes, are becoming increasingly important components of the Flooring Products
business as well. For example, Burke previously sourced its profile tile from an
offshore manufacturer of specialty flooring products. However, in 1996 the
Company invested in production machinery and tooling necessary to manufacture
profile tile in the San Jose facility. This investment will enable Burke to
service this market in a more responsive and price-competitive manner.
Utilizing a proprietary, patent-pending system developed by Burke, the
BurkeEmerge safety strips are photoluminescent runners which can be attached to
cove bases in corridors, on stairwell treads and hand rails, around doors,
windows and signs and in basements, providing up to eight hours of illumination
and leading people to building exits in the event of a power failure. Unlike
conventional emergency lighting, BurkeEmerge requires no batteries or other
electrical power source. These safety strips serve a market for internal
emergency exit aids that has grown due to heightened public awareness of the
dangers that can result from unlit corridors and confusing exit signage.
BurkeEmerge is available in a variety of colors and can be easily installed over
existing cove base, making it suitable for new construction as well as emergency
retrofitting applications.
MARKETS AND CUSTOMERS
Burke's Flooring Products are sold primarily to dealers and distributors in
the western United States and through a network of flooring products
distributors in other regions. BurkeBase products are mostly found in commercial
and industrial buildings in the western United States, where the Company enjoys
a dominant market share, including an estimated 80% share of the commercial
rubber cove base market in California. In addition to the San Jose manufacturing
facility, the Company has distribution facilities in Santa Fe Springs,
California and in Bensonville, Illinois, and has hired additional sales
personnel to expand the Company's historically regional focus. As vinyl cove
base is more widely used than rubber cove base at the national level, the
introduction of a Burke vinyl cove base product is expected to create
significant opportunities beyond Burke's traditional product line and geographic
territories. In 1996, the top five customers of the Flooring Products division
accounted for $6.8 million in net sales, representing 9.4% and 33.2%,
respectively, of the Company's total and the Flooring Product division's net
sales in that year.
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COMPETITION
While there are a number of companies, both large and small, servicing the
floor covering market, Burke is the largest producer of rubber cove base in the
western United States. Burke's focus over many years on this specialized niche
has created significant brand awareness and customer loyalty. The Company's
primary competitors in rubber flooring accessories products include Roppe
Corporation, Johnsonite, Flexco and Vinyl Plastics Incorporated.
GROWTH AND OPPORTUNITIES
While Burke enjoys the leading share of the western United States rubber
cove base market, management believes there are opportunities to increase its
national presence through promotional and incentive-based distributor programs
and through the introduction of its vinyl product line. The addition of vinyl
cove base products should have a significant impact on the Company's penetration
into eastern United States markets where vinyl has historically been preferred.
Burke's distributor organization is being strengthened as new distributors
either take on Burke as a new supplier due to its new vinyl production
capabilities or, in an effort to consolidate their supplier base, allow Burke,
as its existing rubber flooring products supplier, to displace other vinyl
flooring products suppliers.
A relatively small portion of Burke's Flooring Products sales are currently
made outside of the western United States, although the market for rubber cove
base nationwide is estimated by management at approximately $100 million.
Management believes that its new vinyl product line and midwestern distribution
center will increase Burke's scope and presence in the midwestern and eastern
regions. These initiatives, along with Burke-produced profile tile and
BurkeEmerge safety luminescent products, are expected to support the ongoing
growth within and beyond Burke's traditional markets.
COMMERCIAL PRODUCTS
Burke's Commercial Products business serves end markets with both
intermediate and finished silicone and organic rubber-based compounds and
products.
PRODUCTS
SILICONE HOSE PRODUCTS. Burke manufactures and markets a wide range of
private label and Purosil-branded engineered silicone hose products for high-
pressure, heat-sensitive applications. These high-performance products are sold
primarily to OEMs and the aftermarket for heavy-duty trucks and buses. Burke was
the first silicone hose producer in the industry to become ISO 9002 certified
and is preparing for QS 9000 certification. The Company guarantees the
performance of certain higher quality silicone truck hoses for 1,000,000 miles
and experiences negligible product returns and warranty claims each year. The
Company also manufactures silicone hose products for applications in the
powerboat, potable water and food service industries.
New product development is an important focus within this group. Purosil has
responded to recent market demand with newly designed charged-activated-coupling
and knitted hose products for specific applications within the Class 8 truck
market. These additions are expected to strengthen the silicone hose product
line and increase Burke's penetration of the OEM market.
MEMBRANE PRODUCTS. Burke's Membrane Products business utilizes the
Company's elastomer-based manufacturing expertise to produce high-end,
single-ply commercial roof-covering systems and flexible liner membranes.
Commercial roofing systems are sold into the new roofing and re-roofing markets
under the Burkeline trade name and have been installed in large and small
commercial and institutional facilities around the world. The Company's Membrane
Products are also used as reservoir liners and floating potable and waste water
covers.
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Burke's roofing and liner membrane systems are designed with DuPont's
patented Hypalon polymer material, which is an extremely durable and flexible
material, widely regarded as the highest-quality single-ply product available in
the commercial roofing and membrane market. Burke's Membrane products typically
incorporate structural fabric laminated between thin layers of Hypalon.
Burkeline roofing systems are installed by Burke-approved contractors and
technical assistants and are fully warrantied for up to 20 years.
Membrane liners and covers are used primarily for protective purposes in
potable water and wastewater projects. The liners and covers are most often used
to protect against contamination of potable water during its storage and
transfer. Hypalon is one of the few polymers which meets environmental standards
regarding sanctioned potable water contact materials. Burke's in-house technical
and engineering groups work directly with municipal engineers and with
distributors and fabricators to assist in the design, testing and selection of
the final product. Burke also manufactures and provides a full line of
custom-made shrouds, gas vents, adhesives and other components necessary to
produce a complete system package.
CUSTOM PRODUCTS. The custom products group within Burke's Commercial
Products division has capitalized on the Company's sophisticated formulation and
production capabilities to become a value-added partner that collaborates
closely with its customers in designing application-specific advanced products
in both the silicone and organic rubber product markets. The group focuses on
identifying high-margin products that complement its existing product lines and
utilize excess production capacity. These custom products are typically complex
blending and compounding formulations serving as intermediate or finished
products for manufacturers of specialty rubber products and include oil drilling
equipment components, road tape, rocket motor insulation and surface ship bow
domes.
MARKETS AND CUSTOMERS
Management believes that the Company is the only approved supplier of
silicone hoses to Mack Trucks. Burke's automotive hose products are also
designed and specified into model builds of other major Class 8 truck OEMs
including Peterbilt and Freightliner.
Burke's membrane roofing products are sold both to distributors and directly
to end-users who favor higher-quality roofing systems and who select Burke based
on its reputation for quality. These roofing systems are typically employed in
high value-added applications where quality, as measured by durability and ease
of maintenance, is critical.
Burke's liner membrane products are used in applications which are typically
outsourced by municipalities on a bid basis and take several months to complete.
Burke's covers and liners are sold to distributors and fabricators who heat weld
the Hypalon-constructed sheets together to create a final product. It is not
unusual for Burke to work with multiple distributors who are bidding for the
same municipal project.
Most of Burke's customers of the custom products unit are repeat users and
range from large industrial companies to niche manufacturers producing
specialized elastomeric products. Burke has developed long-standing
relationships with a broad base of customers as a supplier of both intermediate
and finished products whose technical complexities are suited to its unique
capabilities. Burke markets these products using direct and independent sales
representatives in both the United States and Europe. In 1996, the top five
customers of the Commercial Products division accounted for $7.4 million in net
sales, representing 10.2% and 27.1%, respectively, of the Company's total and
the Custom Product division's net sales in that year.
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COMPETITION
The marketplace for engineered silicone hose applications is supplied by
four principal companies: Flexfab Horizons International, Thermopol
Incorporated, Gates Rubber Company and the Company. In both roofing and liner
systems, Burke competes with other Hypalon-based product manufacturers and with
lower-cost alternatives. Leading manufacturers of these alternative systems
include JPS Elastomerics Corp. and Carlisle Companies, Inc. Each has significant
single-ply membrane roofing businesses and emphasize their membrane products
manufactured from alternative materials as lower-cost, higher-volume products.
Their Hypalon offerings represent a small portion of their aggregate sales.
There are a number of manufacturers that compete in custom-mixing and
product formulation business, although management believes that only a few match
Burke's comprehensive capabilities in terms of its research, design, materials
compounding, engineering and laboratory testing resources. Burke's custom
products product line has developed a reputation for solving complex formulation
problems and is staffed with experienced compounding professionals.
GROWTH AND OPPORTUNITIES
Management believes that the Commercial Products division has significant
growth potential. The Company's Purosil line of silicone truck and industrial
hose is expected to command an increased share of the market based on its
development of new clients and new distribution channels. Management is also
examining the potential for product line extensions in this area of the
business. Management also foresees significant growth potential in the membrane
products line as it works with DuPont to promote Hypalon as a durable and
environmentally sound liner product for new applications. Moreover, management
continues to look for opportunities to capitalize on the Company's vertical
integration, wide customer base and technological leadership to identify new
high-margin custom elastomer-based products.
SALES AND MARKETING
Burke's sales and marketing personnel are organized by product lines. Based
on the nature of the markets served and the established distribution channels in
a particular segment, products are sold either directly to end-users or through
distributors and independent sales representatives. Burke's Aerospace Products
business has long-standing direct relationships with OEMs and aftermarket
suppliers to the aerospace industry and supports these relationships by
integrating its engineering and operating groups during the design, tooling and
production phases of a customer's project. Burke solidifies its relationships
through ongoing technical support throughout the life of a project.
Burke's Flooring Products business sells through a direct sales effort and
through flooring products distributors. The addition of a vinyl-based product
line will enable Burke to increase its number of first-tier distributors,
specifically in the midwest and east, who, in the past, have not carried Burke
products due to Burke's lack of a vinyl product offering, and displace other
vinyl suppliers with distributors that already carry Burke's rubber flooring
products line. The Flooring Products business currently utilizes 14 direct sales
representatives who manage direct sales and orchestrate the Company's national
marketing efforts through approximately 90 commercial flooring products
distributor locations.
Burke's Commercial Products business utilizes several different sales and
marketing approaches due to the scope of its product offering. Purosil's
high-performance silicone hoses are sold directly to OEMs in the heavy-duty
truck and bus market. The Company also manufactures a number of "standard"
product hoses which are marketed through sales representatives and a national
network of distributors. The other commercial products that Burke produces are
primarily sold through specialized in-house representatives adept at identifying
potential customers who can benefit from Burke's vertically integrated
manufacturing, compound formulation and engineering capabilities.
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RAW MATERIALS
Principal raw materials purchased by the Company for use in its products
include various custom and standard grades of rubber, silicone gum and vinyl as
well as the Hypalon polymer material. The Company has historically not
experienced any significant supply restrictions and has generally been able to
pass through increases in the price of these materials to customers. In 1995,
however, the Company experienced a significant price increase in one of the raw
materials used in the manufacture of one of its flooring products. Due to the
competitive nature of the flooring products business and the Company's
proprietary formula for this product, the Company was unable to fully pass this
price increase along to its consumers and its gross margins for this product
were adversely affected. Although the Company does not currently anticipate that
it will experience any similar price increases for this or any other raw
material used by the Company in the near future, there can be no assurance that
such price increases will not occur and that the Company's results of operations
will not be adversely affected thereby.
MANUFACTURING AND VERTICAL INTEGRATION
Burke's operations are vertically integrated for the production of both
silicone and organic rubber-based products. The Company's production process
commences with the receipt of raw materials, followed by a variety of production
steps which generally include mixing, milling, calendering (or extrusion or
stripping), forming and molding and, in the case of silicone, roto-curing.
Management believes Burke's vertical integration provides a key competitive
advantage within the markets it serves.
FACILITIES
San Jose, California serves as the corporate headquarters as well as the
manufacturing site for the Flooring Products business and the organic rubber
portion of the Commercial Products business. Santa Fe Springs, California is the
manufacturing headquarters for Burke's silicone production activities and houses
most of its Aerospace Products and all of its silicone Commercial Products
businesses. Along with the industrial hose production, the Aerospace Products
business classified development and production areas are also located at the
Santa Fe Springs facility. The Taunton, Massachusetts facility is the
manufacturing site for Burke's Haskon aerospace operations. This location
provides Burke with an alternative eastern United States manufacturing presence
for its aerospace customers.
As of July 4, 1997, the Company maintained operations at the following
locations:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE OWNERSHIP FUNCTION
- ---------------------------------- --------- ----------- -------------------------------------------------------
<S> <C> <C> <C>
San Jose, CA...................... 123,000 Owned Manufacturing, Engineering, Distribution, Offices
San Jose, CA...................... 82,000 Leased Manufacturing, Warehouse
Santa Fe Springs, CA.............. 80,000 Leased Manufacturing, Engineering, Distribution, Offices
Santa Fe Springs, CA.............. 25,000 Leased Mixing
Santa Fe Springs, CA.............. 25,000 Leased Distribution
Taunton, MA....................... 85,000 Leased Manufacturing, Engineering, Distribution, Offices
Bensonville, IL................... 15,000 Leased Distribution
</TABLE>
These facilities produce molded, extruded and calendered forms of organic
rubber and silicone which are then fabricated by machine or by skilled labor
into finished products. The Company's engineering, design and research and
development departments play a significant role in the initial product design
and compound formulation used in the production process. Burke has sophisticated
laboratories in each of its manufacturing facilities which allow the Company to
perform most of its necessary testing in-house. In addition to the facilities
identified above, the Company leases a 113,000 square foot facility in Modesto,
California, which is subleased to the purchaser of the Company's custom-molded
products business in connection with the sale of that business in 1996. The
Company believes that its facilities are in good
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condition and that the facilities, together with anticipated capital
improvements and additions, are adequate for its operating needs for the
foreseeable future.
BACKLOG AND WARRANTY
The Company's backlog consists of cancelable orders and is dependent upon
trends in consumer demand throughout the year. Customer order patterns vary from
year to year, largely because of annual differences in consumer end-product
demand, marketing strategies, overall economic and weather conditions. Orders
for the Company's products are generally subject to cancellation until shipment.
As a result, comparison of backlog as of any date in a given year with backlog
at the same date in a prior year is not necessarily indicative of sales trends.
Moreover, the Company does not believe that backlog is necessarily indicative of
the Company's future results of operations or prospects.
The Company's warranty policy is to accept returns of products with defects
in materials or workmanship. The Company will also accept returns of incorrectly
shipped goods where the Company has been notified on a timely basis and, in
certain cases, to maintain customer goodwill. In accordance with normal industry
practice, the Company ordinarily accepts returns only from its customers and
does not ordinarily accept returns directly from consumers. Certain of the
products returned to the Company by its customers, however, may have been
returned to those customers by consumers. The Company generally warrants its
roofing products for two years, for which the related costs are not significant.
In addition, the Company sells extended warranties on roofing products for ten
to twenty years. During the three-year period ended January 3, 1997, the Company
incurred insignificant warranty costs with respect to its roofing products.
EMPLOYEES
The Company employed at July 4, 1997, 863 employees at its three locations,
including 750 involved in manufacturing and manufacturing support and 82
involved in product sales. Employees at the Company's three locations receive
comparable insurance and benefit programs. Burke's employees at the San Jose and
Taunton locations are represented by the International Association of Machinists
and Electrical Workers Unions, respectively. The collective bargaining agreement
for the Taunton location was renegotiated in June 1997 for a three-year term and
the agreement for the San Jose location will expire in October 1997. While the
Company has not experienced a work stoppage due to a labor dispute since 1975
and management believes that the Company's relationships with its employees and
unions are good, there can be no assurance that the collective bargaining
agreement for the San Jose location will be renegotiated on terms satisfactory
to the Company and its employees.
PATENTS, TRADEMARKS, TRADE NAMES AND TRADE SECRETS
The success of the Company's various businesses depends in part on the
Company's ability to exploit certain proprietary patents, trademarks, trade
names and trade secrets on an exclusive basis in reliance upon the protections
afforded by applicable copyright, patent and trademark laws and regulations. The
loss of certain of the Company's rights to such patents, trademarks, trade names
and trade secrets or the inability of the Company effectively to protect or
enforce such rights could adversely affect the Company.
ENVIRONMENTAL LIABILITY
The Company is subject to various evolving federal, state and local
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of hazardous and non-hazardous substances and wastes.
These laws and regulations provide for substantial fees and sanctions for
violations and, in many cases, could require the Company to remediate a site to
meet applicable legal requirements. In connection with the Recapitalization,
JFLEI conducted certain investigations (including, in some cases, reviewing
environmental reports prepared by others) of the Company's operations and its
compliance with applicable
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environmental laws. The investigations, which included Phase I assessments
(consisting generally of a site visit, records review and non-intrusive
investigation of conditions at the subject facility) by independent consultants,
found that certain facilities have had or may have had releases of hazardous
materials that may require remediation. Pursuant to the Merger Agreement, the
shareholders of the Company have agreed, subject to certain limitations as to
survival and amount, to indemnify the Company against certain environmental
liabilities incurred prior to the consummation of the Recapitalization. See "The
Transactions." Based in part on the investigations conducted and the
indemnification provisions of the Merger Agreement with respect to environmental
matters, the Company believes, although there can be no assurance, that its
liabilities relating to these environmental matters will not have a material
adverse effect on its future financial position or results of operations. The
Company does not maintain a reserve for environmental liabilities.
LEGAL PROCEEDINGS
The Company is routinely involved in legal proceedings related to the
ordinary course of its business. Management does not believe any such matters
will have a material adverse effect on the Company. The Company maintains
property, general liability and product liability insurance in amounts which it
believes are consistent with industry practices and adequate for its operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of each of the
persons who became directors and executive officers of the Company upon
completion of the Prior Offering. Each director will hold office until the next
annual meeting of the shareholders or until his successor has been elected and
qualified. Officers will be elected by the Board of Directors and will serve at
the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Rocco C. Genovese.................................... 60 Vice Chairman of the Board, President and Chief
Executive Officer
Reed C. Wolthausen................................... 50 Director, Treasurer, Senior Vice President and
General Manager--Silicone Products
David E. Worthington................................. 44 Vice President--Finance
Robert F. Pitman..................................... 42 Vice President and Technical Director--San Jose
Craig A. Carnes...................................... 37 Vice President--Sales and Marketing--Flooring
Products
Ronald A. Stieben.................................... 50 Vice President--Sales and Marketing--Silicone
Products
Robert G. Engle...................................... 56 Vice President--Operations--Santa Fe Springs
Hisham Alameddine.................................... 39 Vice President--Operations--San Jose
John F. Lehman....................................... 54 Director
Donald Glickman...................................... 64 Director
George Sawyer........................................ 66 Director
Keith Oster.......................................... 36 Director
Oliver C. Boileau, Jr................................ 70 Director
Thomas G. Pownall.................................... 75 Director
Bruce D. Gorchow..................................... 39 Director
</TABLE>
ROCCO C. GENOVESE, Vice Chairman, President and Chief Executive Officer, has
been with the Company for 41 years. Mr. Genovese joined Burke in 1955 and has
held a number of operations and sales positions within the Company since that
time. Mr. Genovese assumed his current role as Chairman, President and Chief
Executive Officer in 1989. He is active in all aspects of Burke's business and
is a participant in several industry associations.
REED C. WOLTHAUSEN, Treasurer, Senior Vice President and General
Manager--Silicone Products, has been with the Company for eight years. Initially
serving as the Company's Chief Financial Officer, Mr. Wolthausen is now the
Company's Treasurer and manages Burke's silicone businesses. Prior to joining
Burke, he served as Chief Financial Officer for Micronix Corp. and as Controller
for Velo-Bind, Inc.
DAVID E. WORTHINGTON, Vice President--Finance, has been with the Company for
six years. Mr. Worthington joined Burke as Corporate Controller in 1990 and
served in that capacity until 1997 when he was promoted to his current position.
Prior to joining the Company, he served as Chief Financial Officer for
Electro-Technology Corporation.
ROBERT F. PITMAN, Vice President and Technical Director--San Jose, has been
with the Company since 1980 and currently oversees all technical and product
development for the San Jose-based businesses as well as sales and marketing for
the San Jose portion of the Commercial Products business. During his tenure with
Burke, Mr. Pitman has held a number of positions including Director of Technical
Services and Material/Process Development Engineer. He has served in his current
position since 1994.
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CRAIG A. CARNES, Vice President--Sales and Marketing--Flooring Products,
joined the Company in 1996. Prior to joining the Company, Mr. Carnes held senior
sales and marketing positions with several consumer and commercial products
companies including Levolor Corporation.
RONALD A. STIEBEN, Vice President--Sales and Marketing--Silicone Products,
has worked for the Company for two years. Prior to joining Burke, Mr. Stieben
worked for 16 years at Kirkhill Rubber Company, one of Burke's competitors. He
served as Vice President of Sales for Kirkhill for five years before joining
Burke in 1995.
ROBERT G. ENGLE, Vice President--Operations--Santa Fe Springs, joined Burke
as Industrial Engineering Manager in 1986 and has since held the positions of
Engineering Manager and Vice President of Manufacturing. Before joining Burke,
Mr. Engle served as Manager of Engineering Services and Chief Industrial
Engineer for Norton Company.
HISHAM ALAMEDDINE, Vice President--Operations--San Jose, has been with the
Company for five years. Before serving in his current position, Mr. Alameddine
served as Director of Engineering Services for the Company. Prior to joining
Burke, Mr. Alameddine was the Vice President of Manufacturing for Sonfarrel,
Inc. and has held senior operations positions with two other companies.
JOHN F. LEHMAN, became a director of the Company upon consummation of the
Recapitalization, is a Managing Principal of Lehman. Prior to joining Lehman,
Dr. Lehman was an investment banker with Paine Webber, Inc., and served as a
Managing Director in Corporate Finance. Dr. Lehman served for six years as
Secretary of the Navy, was a member of the National Security Council Staff,
served as a delegate to the Mutual Balanced Force Reductions negotiations and
was the Deputy Director of the Arms Control and Disarmament Agency. Dr. Lehman
served as Chairman of the Board of Directors of Sperry Marine, Inc., and is a
member of the Board of Directors of Sedgwick Group plc, Ball Corporation and ISO
Inc., and is currently Vice Chairman of the Princess Grace Foundation, a
director of OpiSail Foundation and a trustee of Spence School.
DONALD GLICKMAN, who became a director of the Company upon consummation of
the Recapitalization, is a Managing Principal of Lehman. Prior to joining
Lehman, Mr. Glickman was a principal of the Peter J. Solomon Company, a Managing
Director of Shearson Lehman Brothers Merchant Banking Group and Senior Vice
President and Regional Head of The First National Bank of Chicago. Mr. Glickman
served as an armored calvary officer in the Seventh U.S. Army. Mr. Glickman is
currently a director of Cal-Tex Industries, Inc. and Monro Muffler Brake, Inc.
and is a trustee of MassMutual Corporate Investors, MassMutual Participation
Investors and Wolf Trap Foundation for the Performing Arts.
GEORGE SAWYER, became a director of the Company upon consummation of the
Recapitalization, is a Managing Principal of Lehman. From 1993-1995, Mr. Sawyer
served as the President and Chief Executive Officer of Sperry Marine Inc. Prior
to that, Mr. Sawyer held a number of prominent positions in private industry and
in the U.S. government, including serving as the President of John J. McMullen
Associates, the President and Chief Operating Officer of TRE Corporation, the
Vice President of International Operations for Bechtel Corporation and the
Assistant Secretary of the Navy for Shipbuilding and Logistics under Mr. Lehman.
KEITH OSTER, became a director of the Company upon consummation of the
Recapitalization, is a Principal of Lehman. Mr. Oster joined Lehman in 1992 and
is principally responsible for financial structuring and analysis. Prior to
joining Lehman, Mr. Oster was with the Carlyle Group, where he was responsible
for analyzing acquisition opportunities and arranging debt financing, and was a
Senior Financial Analyst with Prudential-Bache Capital Funding, working in the
Mergers, Acquisitions and Leveraged Buyout Department.
OLIVER C. BOILEAU, JR., became a director of the Company upon consummation
of the Recapitalization, joined The Boeing Company in 1953 as a research
engineer. He progressed through several technical and management positions and
was named Vice President in 1968 and then President of Boeing Aerospace in
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<PAGE>
1973. In 1980, he joined General Dynamics Corporation as President and a member
of the Board of Directors. In January 1988, Mr. Boileau was promoted to Vice
Chairman and then retired in May 1988. Mr. Boileau joined Northrop Grumman
Corporation in December 1989 as Vice President and President and General Manager
of the B-2 Division. He is an Honorary Fellow of the American Institute of
Aeronautics and Astronautics, a member of the National Academy of Engineering,
the Board of Trustees of St. Louis University, and Chairman of the Massachusetts
Institute of Technology-Lincoln Laboratory Advisory Board.
THOMAS G. POWNALL, became a director of the Company upon consummation of the
Recapitalization, is a member of the investment advisory board of Lehman. Mr.
Pownall was Chairman of the Board of Directors from 1983 until 1992 and Chief
Executive Officer of Martin Marietta Corporation from 1982 until his retirement
in 1988. Mr. Pownall joined Martin Marietta Corporation in 1963 as President of
its Aerospace Advanced Planning unit, became President of Aerospace Operations
and, in succession, Vice President and President and Chief Operating Officer of
the corporation. Mr. Pownall is also a director of the Titan Corporation and
Director Emeritus of Sundstrand Corporation, serves as a member of the advisory
boards of Ferris, Baker Watts Incorporated and Sedgwich New York Metropolitan
and as a director of the U.S. Naval Academy Foundation and a trustee of
Salem-Teikyo University.
BRUCE D. GORCHOW, became a director of the Company upon consummation of the
Recapitalization, is a member of the investment advisory board of Lehman. Since
1991, Mr. Gorchow has been Executive Vice President and head of the Private
Finance Group of PPM America, Inc. Mr. Gorchow is also a Director of Global
Imaging Systems, Inc., Leiner Health Products, Inc., Tomah Products, Inc. and is
an investment director of several investment limited partnerships. Mr. Gorchow
also represents PPM America, Inc. on the boards of ten of its portfolio
companies. Prior to his position at PPM America, Mr. Gorchow was a Vice
President at Equitable Capital Management, Inc.
CERTAIN RIGHTS OF HOLDERS OF REDEEMABLE PREFERRED STOCK
Under certain circumstances, the holders of the Redeemable Preferred Stock
may have the right to elect a majority of the directors of Company. See
"Description of Redeemable Preferred Stock and Warrants--Redeemable Preferred
Stock--Voting Rights."
COMMITTEES OF THE BOARD OF DIRECTORS
It is expected that the Board of Directors will establish an Audit Committee
and a Compensation Committee. The membership of these committees has not yet
been determined. The Compensation Committee will make recommendations concerning
the salaries and incentive compensation of employees of and consultants to the
Company, and will oversee and administer the Company's stock option plans. The
Audit Committee will be responsible for reviewing the results and scope of
audits and other services provided by the Company's independent auditors.
EXECUTIVE COMPENSATION
The information set forth in this section relates to the Chief Executive
Officer of the Company and the four most highly compensated executive officers
of the Company as of January 3, 1997. It is expected that, following the
consummation of the Transactions, the Company generally will provide its
executives with compensation (including cash compensation and benefits)
comparable to the compensation provided to them prior to the Recapitalization,
with such additions or modifications as may be negotiated by the Company and
management.
COMPENSATION SUMMARY
The following summary compensation table sets forth for the fiscal years
ended January 3, 1997, December 29, 1995 and December 30, 1994, the historical
compensation for services to the Company of
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<PAGE>
the Chief Executive Officer and the four most highly compensated executive
officers (the "Named Executive Officers") as of January 3, 1997:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) -------------
-------------------- SECURITIES ALL OTHER
FISCAL SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(2) OPTIONS ($)(3)
- ----------------------------------------------------- ----------- --------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Rocco C. Genovese ................................... 180,050 150,000 750
President and Chief 1996 1995 189,614 120,000 336,000 -- 750
Executive Officer 1994 170,000 75,000 100,000 750
Reed C. Wolthausen .................................. 141,378 100,000 750
Senior Vice President and 1996 1995 133,664 60,000 224,000 -- 750
General Manager--Silicone Products 1994 115,050 40,000 25,000 750
Ronald A. Stieben(4) ................................ 130,000 -- -- 750
Vice President--Sales and 1996 1995 82,500 -- 25,000 480
Marketing--Silicone Products 1994 -- -- -- --
Robert F. Pitman .................................... 90,750 27,500 -- 750
Vice President and 1996 1995 84,273 22,500 -- 750
Technical Director--San Jose 1994 81,249 21,500 20,000 750
90,794 25,000 -- 750
David E. Worthington ................................ 1996 1995 87,791 20,000 -- 750
Vice President--Finance 1994 83,799 10,000 10,000 750
</TABLE>
- ------------------------
(1) Perquisites and other personal benefits paid in 1996 for the Named Executive
Officers aggregated less than the lesser of $50,000 and 10% of the total
annual salary and bonus set forth in the columns entitled "Salary" and
"Bonus" for each named executive officer and, accordingly, are omitted from
the table as permitted by the rules of the Commission.
(2) Annual bonuses are indicated for the year in which they were earned and
accrued. Annual bonuses for any year are generally paid in the following
fiscal year.
(3) The Company's contributions to the Company's 401(k) plan on behalf of the
Named Executive Officers.
(4) Mr. Stieben was hired by the Company on May 15, 1995.
1989 STOCK OPTION PLAN AND STOCK OPTION GRANTS
Prior to consummation of the Recapitalization, the Company maintained the
1989 Stock Option Plan, pursuant to which incentive and nonqualified options to
purchase an aggregate of 1,182,000 shares of Common Stock were vested and
outstanding at July 4, 1997. In addition, in 1996 the Board of Directors granted
nonqualified options to purchase an aggregate of 360,000 shares of Common Stock
to certain executive officers not pursuant to a formal plan. In connection with
the Recapitalization, all vested options outstanding as of the consummation of
the Recapitalization were converted into the right to receive the
Recapitalization Consideration less the applicable exercise price.
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<PAGE>
The following table summarizes options granted in 1996 to the Named
Executive Officers.
OPTIONS GRANTED IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------------------
PERCENTAGE OF
TOTAL OPTIONS EXERCISE
SHARES UNDERLYING GRANTED TO PRICE PER EXPIRATION
NAME OPTIONS EMPLOYEES SHARE DATE
- ------------------------------------------------- ----------------- --------------------- ----------- -----------
<S> <C> <C> <C> <C>
Rocco C. Genovese................................ 336,000 54.4% $ 1.500 June 2006
Reed C. Wolthausen............................... 224,000 36.2% 1.500 June 2006
</TABLE>
- ------------------------
(1) All vested options outstanding immediately prior to the Recapitalization
will be canceled and converted into the right to receive the
Recapitalization consideration less the applicable exercise price.
The following table summarizes information with respect to the year-end
values of all options held by Named Executive Officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE REALIZED YEAR-END (#) AT FISCAL YEAR-END
NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE ($)
- ------------------------------------------ ----------------- --------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
Rocco C. Genovese......................... 0 0 611,000/0 $ 295,000
Reed C. Wolthausen........................ 0 0 354,000/0 $ 139,750
Ronald A. Stieben......................... 0 0 20,000/5,000 $ 0
Robert F. Pitman.......................... 0 0 63,750/0 $ 68,531
David E. Worthington...................... 0 0 45,000/0 $ 48,375
</TABLE>
COMPENSATION OF DIRECTORS
It is anticipated that none of the directors who are officers of the Company
will receive any compensation directly for their service on the Company's Board
of Directors. All other directors will receive customary directors' fees for
their services. In addition, the Company has agreed to pay Lehman certain fees
for various management, consulting and financial planning services, including
assistance in strategic planning, providing market and financial analyses,
negotiating and structuring financing and exploring expansion opportunities. See
"Certain Relationships and Related Transactions."
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's common stock as of July 4, 1997, assuming the Transactions
occurred on that date, by (i) each director, (ii) each of the executive officers
of the Company, (iii) all executive officers and directors as a group and (iv)
each person expected by the Company to be the beneficial owner of more than 5%
of the outstanding Common Stock of the Company immediately after consummation of
the Recapitalization.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES
NAME OF INDIVIDUAL OR ENTITY(1) SHARES(2) OUTSTANDING(3)
- ------------------------------------------------------------------------------ ---------- --------------
<S> <C> <C> <C>
JFLEI(4)...................................................................... 3,134,298 65.0%
John F. Lehman(5)............................................................. 3,134,298 65.0
George Sawyer(5).............................................................. 3,134,298 65.0
Donald Glickman(5)............................................................ 3,134,298 65.0
Keith Oster(5)................................................................ 3,134,298 65.0
Rocco C. Genovese............................................................. 241,000 5.0
Reed C. Wolthausen............................................................ 193,602 4.0
David E. Worthington.......................................................... 14,500 *
Robert F. Pitman.............................................................. 8,600 *
Craig A. Carnes............................................................... 5,300 *
Ronald A. Stieben............................................................. 1,100 *
Robert F. Engle............................................................... 5,300 *
Hisham Alameddine............................................................. 4,300 *
Oliver C. Boileau, Jr.(6)..................................................... -- --
Thomas G. Pownall(7).......................................................... -- --
Bruce D. Gorchow(8)........................................................... -- --
Jackson National(9)........................................................... 428,444 8.9
MassMutual(9)................................................................. 428,444 8.9
Paribas(9).................................................................... 107,112 2.2
All directors and executive officers as a group (15 persons).................. 3,608,000 74.9%
</TABLE>
- ------------------------
* Less than 1%
(1) The address of JFLEI and Messrs. Lehman, Sawyer, Glickman and Oster is 2001
Jefferson Davis Highway, Suite 607, Arlington, Virginia 22202. The address
of Jackson National and Mr. Gorchow is 225 West Wacker Drive, Chicago,
Illinois 60606. The address of MassMutual is 1295 State Street, Springfield,
Massachusetts 01111. The address of Paribas is 787 Seventh Avenue, New York,
New York 10019.
(2) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared power
to dispose, or direct the disposition of, a security.
(3) Computed based upon the total number of shares of the Company's Common Stock
outstanding and the number of shares of the Company's Common Stock
underlying options or warrants held by that person exercisable within 60
days after consummation of the Transactions. In accordance with Rule 13(d)-3
of the Exchange Act, any Common Stock that will not be outstanding at the
consummation of the Transactions that is subject to options or warrants
exercisable within 60 days is deemed to be outstanding for the purpose of
computing the percentage of outstanding shares of the Company's Common Stock
owned by the person holding such options or warrants, but is not deemed to
be outstanding for the purpose of computing the percentage of outstanding
shares of the Company's Common Stock owned by any other person.
(4) JFLEI is a Delaware limited partnership managed by Lehman, which is an
affiliate of the general partner of JFLEI. Each of Messrs. Lehman, Glickman,
Sawyer and Oster, either directly (whether through ownership interest or
position) or through one or more intermediaries, may be deemed to control
Lehman and such general partner. Lehman and such general partner may be
deemed to control the voting and disposition of the shares of the Company
common stock owned by JFLEI. Accordingly, for certain purposes, Messrs.
Lehman, Glickman, Sawyer, Oster may be deemed to be beneficial owners of the
shares of the Company's Common Stock owned by JFLEI.
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<PAGE>
(5) Includes the shares beneficially owned by JFLEI, of which Messrs. Lehman,
Glickman, Sawyer and Oster are affiliates.
(6) Mr. Boileau is a limited partner of JFLEI.
(7) Mr. Pownall is a limited partner of JFLEI and is on the investment advisory
board of Lehman.
(8) Mr. Gorchow is on the investment advisory board of Lehman.
(9) All shares are obtainable upon the exercise of the Warrants. See "The
Transactions" and "Description of Redeemable Preferred Stock and Warrants."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT PARTICIPATION IN THE TRANSACTIONS
COMMON STOCK. The executive officers and directors of the Company will
receive a total of approximately $13.8 million, representing the
Recapitalization Consideration. Certain executive officers and directors of the
Company will also retain the Continuing Shares. See "The Transactions" and
"Security Ownership of Certain Beneficial Owners and Management."
TREATMENT OF STOCK OPTIONS. Certain of the directors and executive officers
of the Company held options to purchase the Company's Common Stock that were
terminated upon the effectiveness of the Merger and, as to a portion of which,
such persons received cash pursuant to the terms of the Merger Agreement. Prior
to the effective date of the Merger, the Company agreed, pursuant to the terms
of the Merger Agreement, to take all necessary action to cancel all outstanding
options to purchase the Company's Common Stock, whether or not exercisable. As
of July 4, 1997, there were options vested and outstanding to purchase an
aggregate of 1,542,000 shares of the Company's Common Stock at a weighted
average exercise price of $0.840 per share, which options were held by 28
persons.
MANAGEMENT AGREEMENT
Pursuant to the terms of a ten-year Management Agreement (the "Management
Agreement") entered into between Lehman and the Company, (i) upon consummation
of the Transactions, the Company paid Lehman a transaction fee in the amount of
$1.5 million and (ii) the Company agreed to pay Lehman an annual management fee
equal to $500,000 that shall commence accruing on October 1, 1998 and shall be
payable in arrears on a quarterly basis commencing on January 1, 1999.
SHAREHOLDERS AGREEMENT
In connection with the Recapitalization, the Company, JFLEI, the Continuing
Shareholders and, in their capacity as holders of the Warrants, Jackson
National, Paribas and MassMutual (collectively, the "Shareholders") entered into
a Shareholders Agreement (the "Shareholders Agreement"), the principal terms of
which are summarized below:
RESTRICTIONS ON TRANSFER. The shares of the Company's Common Stock held by
each of the parties to the Shareholders Agreement, and certain of their
transferees, are subject to restrictions on transfer. The shares of Common Stock
may be transferred only to certain related transferees, including (i) in the
case of individual Shareholders, family members or their legal representatives
or guardians, heirs and legatees and trusts, partnerships and corporations the
sole beneficiaries, partners or shareholders, as the case may be, of which are
family members, (ii) in the case of partnership entity Shareholders (other than
JFLEI), the partners of such partnership, (iii) in the case of entity
Shareholders (other than JFLEI), affiliates of such entity, or to transferees of
shares sold in transactions complying with the applicable provisions of the
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<PAGE>
Shareholder or Company Right of First Offer or the Tag-Along or Drag-Along
Rights (as each term is defined below) or in a Registered Offering (as defined
below).
RIGHTS OF FIRST OFFER. If any Shareholder desires to transfer any shares of
the Company's Common Stock or Warrants (other than pursuant to certain permitted
transfers) and if such Shareholder has not received a bona fide offer from an
unrelated third-party that such shareholder wishes to accept (a "Third-Party
Offer"), all other Shareholders have a right of first offer (the "Right of First
Offer") to purchase the shares or warrants (the "Subject Shares") upon such
terms and subject to such conditions as are set forth in a notice (a "First
Offer Notice") sent by the selling Shareholder to such other Shareholders. If
the Shareholders elect to exercise their Rights of First Offer with respect to
less than all of the Subject Shares, the Company has a right to purchase all of
the Subject Shares that the Shareholders have not elected to purchase. If the
Shareholders receiving the First Offer Notice and the Company elect to exercise
their respective rights of first offer with respect to less than all of the
Subject Shares, the selling Shareholder may solicit Third-Party Offers to
purchase all (but not less than all) of the Subject Shares upon such terms and
subject to such conditions as are, in the aggregate, no less favorable to the
selling Shareholder than those set forth in the First Offer Notice; provided
that the price may not be less than 90% of the price set forth in the First
Offer Notice. Any sale pursuant to a Third-Party Offer must be consummated
within 180 days after the expiration of the Company's Right of First Refusal and
will be subject to applicable Tag-Along Rights.
SUBSCRIPTION OFFER WITH RESPECT TO PRIMARY ISSUANCES. The Shareholders
Agreement provides that the Company may not issue equity securities, or
securities convertible into equity securities unless the Company has offered to
issue to each of the other Shareholders, on a pro rata basis, an opportunity to
purchase such securities on the same terms, including price, and subject to the
same conditions as those applicable to the proposed purchaser.
TAG-ALONG RIGHTS. The Shareholders Agreement provides that, if the
Shareholders and the Company fail to exercise their respective rights of first
refusal with respect to all of the Subject Shares, the Shareholders have the
right to "tag along" (the "Tag-Along Right") upon the sale of the Company's
Common Stock by JFLEI pursuant to a Third-Party Offer .
DRAG-ALONG RIGHTS. The Shareholders Agreement provides that if one or more
Shareholders holding a majority of the Company's Common Stock (the "Majority
Shareholders") propose to sell all of the Common Stock owned by the Majority
Shareholders, the Majority Shareholders have the right (the "Drag-Along Right")
to compel the other Shareholders to sell all of the shares of Common Stock and
all of the Warrants held by such other Shareholders upon the same terms and
subject to the same conditions as the terms and conditions applicable to the
sale by the Majority Shareholders.
MERGER. The Shareholders Agreement provides that the Company may not enter
into any merger, consolidation or similar business combination unless the terms
of such merger provide for all Shareholders to receive the same consideration
for their shares of Common Stock.
REGISTERED OFFERINGS. The shares of Common Stock may be transferred in a
bona fide public offering for cash pursuant to an effective registration
statement (a "Registered Offering") without compliance with the provisions of
the Shareholders Agreement related to the Right of First Offer or the Tag-Along
or Drag-Along Rights.
LEGENDS. The shares of Common Stock subject to the Shareholders Agreement
will bear a legend related to the Right of First Offer and the Tag-Along and
Drag-Along Rights, which legends will be removed when the shares of Common Stock
are, pursuant to the terms of the Shareholders Agreement, no longer subject to
the restrictions on transfer imposed by the Shareholders Agreement.
REGISTRATION RIGHTS. JFLEI and certain other shareholders are entitled to
one "demand" and unlimited piggyback registration rights, subject to additional
customary rights and limitations.
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<PAGE>
The term of the Shareholders Agreement will expire on the earliest of (i) 10
years from the consummation of the Recapitalization, (ii) the date on which none
of the Shareholders nor any of their permitted transferees are subject to the
terms of the Shareholders Agreement, (iii) the date on which none of the shares
of Common Stock are subject to the restrictions on transfer imposed by the
Shareholders Agreement or (iv) the consummation of a Registered Offering for an
aggregate offering price of $25.0 million or more.
REGISTRATION RIGHTS FOR WARRANTHOLDERS
The holders of the shares issuable upon exercise of the Warrants will be
entitled to one "demand" registration right at any time on or after the later of
(i) August 20, 2002 and (ii) the 181st day after completion of the initial
public offering by the Company of its Common Stock, subject to additional
customary rights and limitations. In addition, holders of the shares issuable
upon exercise of the Warrants will be entitled to unlimited "piggyback"
registration rights after the date of the Company's initial public offering of
its Common Stock, subject to customary rights and limitations. See "Description
of Redeemable Preferred Stock and Warrants--Registration Rights for Warrant
Shares."
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles of Incorporation of the Company contain provisions eliminating
the personal liability of directors for monetary damages for breaches of their
duty of care, except in certain prescribed circumstances. The Bylaws of the
Company also provide that directors and officers will be indemnified to the
fullest extent authorized by California law, as it now stands or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company. The Bylaws of the
Company provide that the rights of directors and officers to indemnification is
not exclusive of any other right now possessed or hereinafter acquired under any
statute, agreement or otherwise.
DESCRIPTION OF NOTES
Except as otherwise indicated below, the following summary applies to both
the Old Notes and the New Notes. As used herein, the term "Notes" shall mean the
Old Notes and the New Notes, unless otherwise indicated.
The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the New Notes (i) will be registered
under the Securities Act, (ii) will not provide for payment of penalty interest
as Liquidated Damages, which terminate upon consummation of the Exchange Offer,
and (iii) will not bear any legends restricting transfer thereof. The New Notes
will be issued solely in exchange for an equal principal amount of Old Notes. As
of the date hereof, $110.0 million aggregate principal amount of Old Notes is
outstanding. See "The Exchange Offer."
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GENERAL
The Old Notes were issued and the New Notes will be issued pursuant to an
Indenture (the "Indenture") between the Company, the Subsidiary Guarantors
referred to below and United States Trust Company of New York, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The Notes are subject to all such
terms, and Holders of Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. A copy of the Indenture is available as set forth
under "Additional Information." The definitions of certain terms used in the
following summary are set forth below under the caption "Certain Definitions."
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on August 15, 2007, will initially be limited to
$110.0 million aggregate principal amount and will be senior unsecured
obligations of the Company. The Indenture provides for the issuance of up to
$75.0 million aggregate principal amount of additional Notes having identical
terms and conditions to the Notes offered hereby (the "Additional Notes"),
subject to compliance with the covenants contained in the Indenture. Any
Additional Notes will be part of the same issue as the New Notes offered hereby
and will vote on all matters with the New Notes offered hereby. For purposes of
this "Description of the Notes," reference to the Notes does not include
Additional New Notes. Except as otherwise described below, each Note will bear
interest at 10% per annum from August 20, 1997 or from the most recent interest
payment date to which interest has been paid or duly provided for, payable
semiannually on February 15 and August 15 in each year, commencing February 15,
1998, until the principal thereof is paid or duly provided for, to the person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the February 1 or August 1 next preceding such interest payment
date. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
The principal of and premium, if any, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the office of the Trustee located at 111 Broadway,
Lower Level, New York, N.Y., 10006) or, at the option of the Company, interest
may be paid by check mailed to the address of the person entitled thereto as
such address appears in the security register; PROVIDED that all payments with
respect to Global Notes and Certificated Notes (as such terms are defined below
under the caption "--Book Entry, Delivery and Form") the holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
holders thereof. The Notes will be issued only in registered form without
coupons and only in denominations of $1,000 and any integral multiples thereof.
No service charge will be made for any registration of transfer or exchange or
redemption of Notes, but the Company may require payment in certain
circumstances of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith.
Old Notes that remain outstanding after the consummation of the Exchange
Offer and New Notes issued in connection with the Exchange Offer will be treated
as a single class of securities under the Indenture.
The Notes will not be entitled to the benefit of any sinking fund.
NOTE GUARANTEES
Payment of the principal of (and premium, if any) and interest on the Notes,
when and as the same become due and payable, will be guaranteed, jointly and
severally, on a senior unsecured basis (the "Note
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Guarantees") by the Subsidiary Guarantors referred to below. The obligations of
the Subsidiary Guarantors under the Note Guarantees will be limited so as not to
constitute a fraudulent conveyance under applicable law. See "Risk
Factors--Fraudulent Conveyance and Preference Considerations."
The Company's Restricted Subsidiaries will be Subsidiary Guarantors and will
consist of Burke Rubber Company, Inc., Burke Flooring Products, Inc. and Burke
Custom Processing, Inc. However, under certain circumstances, the Company will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to the restrictive
covenants set forth in the Indenture. The Indenture will require that each
Restricted Subsidiary organized within the United States and certain other
Restricted Subsidiaries issue a Note Guarantee. See "Certain
Covenants--Limitations on Guarantees of Indebtedness by Restricted
Subsidiaries."
The Indenture provides that, in the event of any sale, exchange or transfer
(including by way of merger of such Restricted Subsidiary) to any person not an
Affiliate of the Company of all of the Company's and the Restricted
Subsidiaries' Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture), then such Subsidiary Guarantor will be deemed automatically and
unconditionally released and discharged from all of its obligations under its
Note Guarantee without any further action on the part of the Trustee or any
holder of the Notes; provided that the Net Proceeds of such sale, transfer or
other disposition are applied in accordance with the "Limitation on Certain
Asset Sales" covenant to the extent required thereby. In addition, any
Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the terms of the Indenture may be released and relieved of its
obligations under its Note Guarantee.
RANKING
The Notes will be senior unsecured obligations of the Company and will rank
PARI PASSU in right of payment with all other existing and future senior
obligations of the Company. Loans under the Bank Credit Agreement will be
secured by substantially all of the Company's assets. Accordingly, while the
Notes rank PARI PASSU in right of payment with the loans under the Bank Credit
Agreement, the Notes will be effectively subordinated to the loans outstanding
under the Bank Credit Agreement to the extent of the
value of the assets securing such loans. As of July 4, 1997, on a pro forma
basis after giving effect to the Recapitalization, including the Prior Offering
and the use of proceeds therefrom, the Company would have had no consolidated
indebtedness other than the Old Notes. Subject to certain limitations, the
Company and its Restricted Subsidiaries may incur additional Indebtedness in the
future.
Each Note Guarantee will be a senior unsecured obligation of the respective
Subsidiary Guarantor, ranking PARI PASSU in right of payment with all existing
and future senior obligations of such Subsidiary Guarantor. Loans under the Bank
Credit Agreement will be guaranteed by the Company's Subsidiaries, which
guarantees will be secured by substantially all of the assets of the Company's
Subsidiaries. Accordingly, while a Note Guarantee will rank PARI PASSU in right
of payment with such Subsidiary's guarantee under the Bank Credit Agreement,
such Note Guarantee will be effectively subordinated to such Subsidiary's
guarantee under the Bank Credit Agreement to the extent of the value of the
assets securing such guarantee. As of July 4, 1997, on a pro forma basis after
giving effect to the Recapitalization,
including the Prior Offering and the use of proceeds therefrom, the Subsidiary
Guarantors would have had no Indebtedness other than under their Note
Guarantees.
REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable, at the option of the
Company, as a whole or from time to time in part, at any time on or after August
15, 2002, on not less than 30 nor more than 60 days' prior notice at the
redemption prices (expressed as percentages of principal amount) set forth
below, if
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redeemed during the 12-month period beginning on August 15 of the years
indicated below (subject to the right of holders of record on the relevant
record date to receive interest due on an interest payment date):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2002............................................................................. 105.000%
2003............................................................................. 103.333
2004............................................................................. 101.667
</TABLE>
and thereafter at 100% of the principal amount, together with accrued interest,
if any, to the redemption date.
In addition, at any time or from time to time prior to August 15, 2000, the
Company may redeem up to 35% of the sum of (i) the initial aggregate principal
amount of the Notes and (ii) the initial aggregate principal amount of any
Additional Notes on one or more occasions with the net proceeds of one or more
Public Equity Offerings at a redemption price equal to 110% of the principal
amount thereof, plus accrued interest, if any, and Liquidated Damages, if any,
to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date);
PROVIDED that, immediately after giving effect to such redemption, at least 65%
of the sum of (x) the initial aggregate principal amount of the Notes and (y)
the initial aggregate principal amount of any Additional Notes remains
outstanding; PROVIDED FURTHER that such redemptions shall occur within 45 days
of the date of closing of each Public Equity Offering.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by such method as the Trustee deems fair and appropriate.
OPTIONAL REDEMPTION UPON CHANGE OF CONTROL. Upon the occurrence of a Change
of Control prior to August 15, 2002, the Notes will be redeemable, in whole or
in part, at the option of the Company, upon not less than 30 nor more than 60
days prior notice to each holder of Notes to be redeemed, at a redemption price
equal to the sum of (i) the then outstanding principal amount thereof plus (ii)
accrued an unpaid interest thereon and Liquidated Damages, if any, to the
redemption date plus (iii) the Applicable Premium. The following definitions are
used to determine the Applicable Premium:
"Applicable Premium" will be defined, with respect to a Note, as the greater
of (i) 5% of the then outstanding principal amount of such Note and (ii) the
excess of (A) the present value of the remaining required interest and principal
payments due on such Note (exclusive of accrued and unpaid interest), computed
using a discount rate equal to the Treasury Rate plus 100 basis points, over (B)
the then outstanding principal amount of such Note.
"Treasury Rate" will be defined as the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15 (519) which has become publicly available at least two Business Days prior
to the date fixed for prepayment (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining Average Life to Stated Maturity of the Notes;
PROVIDED; HOWEVER, that if the Average Life to Stated Maturity of the Notes is
not equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such yields
are given, except that if the Average Life to Stated Maturity of the Notes is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
PURCHASE OF NOTES UPON CHANGE OF CONTROL OR ASSET SALE. Each holder of the
Notes will have certain rights to require the Company to purchase such holder's
Notes upon the occurrence of a Change of Control. See
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"Certain Covenants--Purchase of Notes upon Change of Control" below. Under
certain circumstances, the Company will be required to make an offer to purchase
all or a portion of the Notes with proceeds received from an Asset Sale. See
"--Certain Covenants--Limitation on Certain Asset Sales" below.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATION ON INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK. The Company
will not, and will not permit any Restricted Subsidiary to, create, issue,
assume, guarantee or in any manner become directly or indirectly liable for the
payment of, or otherwise incur (collectively, "incur"), any Indebtedness
(including Acquired Indebtedness and the issuance of Disqualified Stock), except
that the Company or any Subsidiary Guarantor may incur Indebtedness if, at the
time of such event, the Fixed Charge Coverage Ratio for the immediately
preceding four full fiscal quarters for which internal financial statements are
available, taken as one accounting period, would have been equal to at least 2.0
to 1.0.
In making the foregoing calculation for any four-quarter period that
includes the Closing Date, pro forma effect will be given to the Prior Offering
and the Recapitalization, as if such transactions had occurred at the beginning
of such four-quarter period. In addition (but without duplication), in making
the foregoing calculation, pro forma effect will be given to: (i) the incurrence
of such Indebtedness and (if applicable) the application of the net proceeds
therefrom, including to refinance other Indebtedness, as if such Indebtedness
was incurred and the application of such proceeds occurred at the beginning of
such four-quarter period, (ii) the incurrence, repayment or retirement of any
other Indebtedness by the Company or its Restricted Subsidiaries since the first
day of such four-quarter period as if such Indebtedness was incurred, repaid or
retired at the beginning of such four-quarter period and (iii) the acquisition
(whether by purchase, merger or otherwise) or disposition (whether by sale,
merger or otherwise) of any company, entity or business acquired or disposed of
by the Company or its Restricted Subsidiaries, as the case may be, since the
first day of such four-quarter period, in each case as if such acquisition or
disposition (and the reduction or increase of any associated Fixed Charge
obligations and the change in Consolidated EBITDA resulting therefrom) had
occurred at the beginning of such four-quarter period. If since the beginning of
such period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any acquisition (whether by purchase, merger or
otherwise) or disposition that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving PRO
FORMA effect thereto as if such acquisition or disposition had occurred at the
beginning of the applicable four-quarter period. In making a computation under
the foregoing clause (i) or (ii), (A) the amount of Indebtedness under a
revolving credit facility will be computed based on the average daily balance of
such Indebtedness during such four-quarter period, (B) if such Indebtedness
bears, at the option of the Company, a fixed or floating rate of interest,
interest thereon will be computed by applying, at the option of the Company,
either the fixed or floating rate and (C) the amount of any Indebtedness that
bears interest at a floating rate will be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Hedging Obligations applicable to such Indebtedness if
such Hedging Obligations have a remaining term at the date of determination in
excess of 12 months). For purposes of this definition, whenever PRO FORMA effect
is to be given to a transaction, the PRO FORMA calculations shall be made in
good faith by the chief financial officer of the Company.
Notwithstanding the foregoing, the Company may, and may permit its
Restricted Subsidiaries to, incur the following Indebtedness ("Permitted
Indebtedness"):
(i) Indebtedness of the Company or any Restricted Subsidiary under the
Bank Credit Agreement or one or more other credit facilities (and the
incurrence by any Restricted Subsidiary of guarantees thereof) in an
aggregate principal amount at any one time outstanding not to exceed the
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greater of (x) $15 million or (y) the amount of the Borrowing Base, less any
amounts applied to the permanent reduction of such credit facilities
pursuant to the "--Limitation on Certain Asset Sales" covenant;
(ii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Closing Date and listed on a schedule to the Indenture
(other than Indebtedness described under clause (i) above);
(iii) Indebtedness owed by the Company to any Wholly Owned Restricted
Subsidiary or owed by any Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary (provided that such Indebtedness is held by the
Company or such Restricted Subsidiary); PROVIDED, HOWEVER, that any
Indebtedness of the Company owing to any such Restricted Subsidiary is
unsecured and subordinated in right of payment from and after such time as
the Notes shall become due and payable (whether at Stated Maturity,
acceleration, or otherwise) to the payment and performance of the Company's
obligations under the Notes;
(iv) Indebtedness represented by the Notes (other than the Additional
Notes) and the Note Guarantees (including any Note Guarantees issued
pursuant to "--Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries");
(v) Indebtedness of the Company or any Restricted Subsidiary under
Hedging Obligations incurred in the ordinary course of business;
(vi) Indebtedness of the Company or any Restricted Subsidiary consisting
of guarantees, indemnities or obligations in respect of purchase price
adjustments in connection with the acquisition or disposition of assets,
including, without limitation, shares of Capital Stock;
(vii) either (A) Capitalized Lease Obligations of the Company or any
Restricted Subsidiary or (B) Indebtedness under purchase money mortgages or
secured by purchase money security interests, in each case incurred for the
purpose of financing or refinancing all or any part of the purchase price or
cost of construction or improvement of any property (real or personal) or
other assets that are used or useful in the business of the Company or such
Restricted Subsidiary (whether through the direct purchase of assets or the
Capital Stock of any Person owning such assets and whether such Indebtedness
is owed to the seller or Person carrying out such construction or
improvement or to any third party), so long as (x) such Indebtedness is not
secured by any property or assets of the Company or any Restricted
Subsidiary other than the property and assets so acquired, constructed or
improved and (y) such Indebtedness is created within 90 days of the
acquisition or completion of construction or improvement of the related
property; provided that the aggregate amount of Indebtedness under clauses
(A) and (B) does not exceed $7.5 million at any one time outstanding;
(viii) Indebtedness of the Company or any Restricted Subsidiary not
permitted by any other clause of this definition, in an aggregate principal
amount not to exceed $10 million at any one time outstanding;
(ix) Indebtedness under (or constituting reimbursement obligations with
respect) to letters of credit issued in the ordinary course of business,
including without limitation letters of credit in respect of workers'
compensation claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims;
PROVIDED, HOWEVER, that upon the drawing of such letters of credit or other
obligations, such obligations are reimbursed within five days following such
drawing; and
(x) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Indebtedness, other than Indebtedness incurred pursuant to
clause (i), (iii), (v), (vi), (vii), (viii) or (ix) of this definition,
including any successive refinancings thereof, so long as (A) any such new
Indebtedness is in a principal amount that does not exceed the principal
amount so refinanced, plus the amount of any premium required to be paid in
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connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by the Company
as necessary to accomplish such refinancing, plus the amount of the expenses
of the Company incurred in connection with such refinancing, (B) in the case
of any refinancing of Subordinated Indebtedness, such new Indebtedness is
made subordinate to the Notes at least to the same extent as the
Indebtedness being refinanced and (C) such refinancing Indebtedness does not
have an Average Life less than the Average Life of the Indebtedness being
refinanced and does not have a final scheduled maturity earlier than the
final scheduled maturity, or permit redemption at the option of the holder
earlier than the earliest date of redemption at the option of the holder, of
the Indebtedness being refinanced.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, take any of the
following actions:
(a) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Capital Stock (including, without limitation any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Capital Stock in their capacity as such, other than (i)
dividends, payments or distributions payable solely in Qualified Equity
Interests, (ii) dividends, payments or distributions by a Restricted
Subsidiary payable to the Company or another Restricted Subsidiary or (iii)
pro rata dividends, payments or distributions on common stock of Restricted
Subsidiaries held by minority stockholders, provided that such dividends,
payments or distributions do not in the aggregate exceed the minority
stockholders' pro rata share of such Restricted Subsidiaries' net income
from the first day of the Company's fiscal quarter during which the Closing
Date occurs;
(b) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any shares of Capital Stock, or any options, warrants or
other rights to acquire such shares of Capital Stock of (i) the Company or
(ii) any Restricted Subsidiary held by any Affiliate of the Company (other
than, in either case, any such Capital Stock owned by the Company or any of
its Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
and
(d) make any Investment (other than a Permitted Investment) in any
person (such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of the "Limitation on
Indebtedness and Issuance of Disqualified Stock" covenant and
(iii) the aggregate amount of all Restricted Payments made after the
Closing Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Adjusted Net Income of the
Company during the period (taken as one accounting period) from the
first day of the Company's first fiscal quarter commencing after the
Closing Date to the last day of the Company's most recently ended
fiscal quarter for which internal financial statements are available
at the time of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Adjusted Net Income is a loss,
minus 100% of such amount); plus
(B) 100% of the aggregate net cash proceeds received by the
Company after the Closing Date from (x) the issuance or sale (other
than to a Restricted Subsidiary) of either
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(1) Qualified Equity Interests of the Company or (2) Indebtedness or
Disqualified Stock (other than the Series A Preferred Stock and any
refinancings thereof) that has been converted into or exchanged for
Qualified Equity Interests of the Company, together with the
aggregate net cash proceeds received by the Company at the time of
such conversion or exchange or (y) cash capital contributions
received by the Company after the Closing Date with respect to
Qualified Equity Interests; plus
(C) $3 million.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may take the following actions, so long as (other than with respect to the
action described in clause (a) below) no Default or Event of Default has
occurred and is continuing or would occur:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provisions;
(b) the repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or out
of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, Qualified Equity Interests of the Company;
(c) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of, shares of Qualified Equity Interests of the
Company;
(d) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or out of
the net cash proceeds of a substantially concurrent issuance or sale (other
than to a Restricted Subsidiary) of, Subordinated Indebtedness, so long as
the Company or a Restricted Subsidiary would be permitted to refinance such
original Subordinated Indebtedness with such new Subordinated Indebtedness
pursuant to clause (x) of the definition of Permitted Indebtedness;
(e) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, options or
warrants to acquire any such shares or related stock appreciation rights
held by officers, directors or employees of the Company or its Subsidiaries
or former officers, directors or employees (or their respective estates or
beneficiaries under their estates) of the Company or its Subsidiaries or by
any plan for their benefit, in each case, upon death, disability, retirement
or termination of employment or pursuant to the terms of any benefit plan or
any other agreement under which such shares of stock or options, warrants or
rights were issued; provided that the aggregate cash consideration paid for
such purchase, redemption, acquisition, cancellation or other retirement of
such shares of Capital Stock or options, warrants or rights after the
Closing Date does not exceed in any fiscal year the sum of (i) $500,000,
(ii) the cash proceeds received by the Company after the Closing Date from
the sale of Qualified Equity Interests to employees, directors or officers
of the Company and its Subsidiaries that occurs in such fiscal year and
(iii) amounts referred to in clauses (i) through (ii) that remain unused
from the immediately preceding fiscal year; and
(f)(i)the payment of any regular quarterly dividends in respect of the
Series A Preferred Stock in the form of additional shares of Series A
Preferred Stock having the terms and conditions set forth in the Certificate
of Determination for the Series A Preferred Stock as in effect on the
Closing Date; and (ii) commencing October 15, 2000, the payment of regular
quarterly cash dividends (in the amount no greater than that provided for in
the Certificate of Determination for the Series A Preferred Stock as in
effect on the Closing Date), out of funds legally available therefor, on any
of the shares of Series A Preferred Stock issued and outstanding on the
Closing Date and on any shares of Series A Preferred Stock issued in payment
of dividends made or subsequently issued in payment of dividends thereon in
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respect of such shares of Series A Preferred Stock outstanding on the
Closing Date, PROVIDED that, at the time of and immediately after giving
effect to the payment of such cash dividend, the Fixed Charge Coverage
Ratio, giving pro forma effect to the payment of such dividend as if it had
occurred at the beginning of the four full fiscal quarters immediately
preceding the date on which the dividend is to be paid, would have been
equal to at least 2.25 to 1.0.
The actions described in clauses (b), (c), (e) and (f)(ii) of this paragraph
will be Restricted Payments that will be permitted to be taken in accordance
with this paragraph but will be considered Restricted Payments for purposes of
clause (iii) of the first paragraph of this covenant and the actions described
in clauses (a), (d) and (f)(i) of this paragraph will be Restricted Payments
that will be permitted to be taken in accordance with this paragraph but will
not be considered Restricted Payments for purposes of clause (iii) of the first
paragraph of this covenant.
For the purpose of making any calculations under the Indenture (i) if a
Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company will
be deemed to have made an Investment in an amount equal to the fair market value
of the net assets of such Restricted Subsidiary at the time of such designation
as determined by the Board of Directors of the Company, whose good faith
determination will be conclusive, (ii) any property transferred to or from an
Unrestricted Subsidiary will be valued at fair market value at the time of such
transfer, as determined by the Board of Directors of the Company, whose good
faith determination will be conclusive and (iii) subject to the foregoing, the
amount of any Restricted Payment, if other than cash, will be determined by the
Board of Directors of the Company, whose good faith determination will be
conclusive.
If the aggregate amount of all Restricted Payments calculated under the
foregoing provision includes an Investment (other than a Permitted Investment)
in an Unrestricted Subsidiary or other person that thereafter becomes a
Restricted Subsidiary, the aggregate amount of all Restricted Payments
calculated under the foregoing provision will be reduced by the lesser of (x)
the net asset value of such Subsidiary at the time it becomes a Restricted
Subsidiary and (y) the initial amount of such Restricted Payment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision will be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in the
Company's Consolidated Adjusted Net Income; provided that the total amount by
which the aggregate amount of all Restricted Payments may be reduced may not
exceed the lesser of (x) the cash proceeds received by the Company and its
Restricted Subsidiaries in connection with such net reduction and (y) the
initial amount of such Restricted Payment.
In computing the Consolidated Adjusted Net Income of the Company for
purposes of the foregoing clause (iii)(A), (i) the Company may use audited
financial statements for the portions of the relevant period for which audited
financial statements are available on the date of determination and unaudited
financial statements and other current financial data based on the books and
records of the Company for the remaining portion of such period and (ii) the
Company will be permitted to rely in good faith on the financial statements and
other financial data derived from its books and records that are available on
the date of determination. If the Company makes a Restricted Payment that, at
the time of the making of such Restricted Payment, would in the good faith
determination of the Company be permitted under the requirements of the
Indenture, such Restricted Payment will be deemed to have been made in
compliance with the Indenture notwithstanding any subsequent adjustments made in
good faith to the Company's financial statements affecting Consolidated Adjusted
Net Income of the Company for any period.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL. If a Change of Control occurs
at any time, then, unless irrevocable notice of redemption for all of the Notes
is given within 30 days after the occurrence of such Change of Control in
accordance with the provisions of "--Optional Redemption Upon a Change of
Control," each holder of Notes or Additional Notes will have the right to
require that the Company
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purchase such holder's Notes or Additional Notes, as applicable, in whole or in
part in integral multiples of $1,000, at a purchase price in cash equal to 101%
of and Liquidated Damages, if any, the principal amount of such Notes or
Additional Notes, plus accrued and unpaid interest, if any, to the date of
purchase, pursuant to the offer described below (the "Change of Control Offer")
and the other procedures set forth in the Indenture.
Within 30 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes or Additional Notes by first-class mail, postage prepaid, at its
address appearing in the security register, stating, among other things, (i) the
purchase price and the purchase date, which will be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed or such
later date as is necessary to comply with requirements under the Exchange Act;
(ii) that any Note or Additional Note not tendered will continue to accrue
interest; (iii) that, unless the Company defaults in the payment of the purchase
price, any Notes or Additional Notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest after the Change of Control
purchase date; and (iv) certain other procedures that a holder of Notes or
Additional Notes must follow to accept a Change of Control Offer or to withdraw
such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes and Additional Notes that might be tendered by holders of the Notes
and Additional Notes seeking to accept the Change of Control Offer. The failure
of the Company to make or consummate the Change of Control Offer or pay the
applicable Change of Control purchase price when due would result in an Event of
Default and would give the Trustee and the holders of the Notes and Additional
Notes the rights described under "--Events of Default".
One of the events that constitutes a Change of Control under the Indenture,
subject to exceptions, is the disposition of "all or substantially all" of the
Company's assets. This term has not been interpreted under New York law (which
is the governing law of the Indenture) to represent a specific quantitative
test. As a consequence, in the event holders of the Notes or Additional Notes
elect to require the Company to purchase the Notes or Additional Notes and the
Company elects to contest such election, there can be no assurance as to how a
court interpreting New York law would interpret the phrase in many
circumstances.
The existence of a holder's right to require the Company to purchase such
holder's Notes or Additional Notes upon a Change of Control may deter a third
party from acquiring the Company in a transaction that constitutes a Change of
Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes or Additional
Notes the right to require the Company to repurchase such Notes or Additional
Notes in the event of a highly leveraged transaction or certain transactions
with the Company's management or its affiliates, including a reorganization,
restructuring, merger or similar transaction involving the Company (including,
in certain circumstances, an acquisition of the Company by management or its
affiliates) that may adversely affect holders of the Notes or Additional Notes,
if such transaction is not a transaction defined as a Change of Control. See
"Certain Definitions" below for the definition of "--Change of Control". A
transaction involving the Company's management or its affiliates, or a
transaction involving a recapitalization of the Company, would result in a
Change of Control if it is the type of transaction specified in such definition.
The Company will comply with the applicable tender offer rules including
Rule-14e under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer. To the extent that
provisions of any applicable securities laws or regulations conflict with
provisions of this covenant, the Company will comply with such securities laws
and regulations and will not be deemed to have breached its obligations under
this covenant by virtue thereof.
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The Company's New Credit Agreement will contain prohibitions of certain
events that would constitute a Change of Control and provides that such events
constitute events of defaults thereunder.
LIMITATION ON CERTAIN ASSET SALES. (a) The Company will not, and will not
permit any Restricted Subsidiary to, engage in any Asset Sale unless (i) the
consideration received by the Company or such Restricted Subsidiary for such
Asset Sale is not less than the fair market value of the assets sold (as
determined by the Board of Directors of the Company, whose good faith
determination will be conclusive) and (ii) the consideration received by the
Company or the relevant Restricted Subsidiary in respect of such Asset Sale
consists of at least 75% cash or cash equivalents (including, for purposes of
this clause (ii), the principal amount of any Indebtedness for money borrowed
(as reflected on the Company's consolidated balance sheet) of the Company or any
Restricted Subsidiary that (x) is assumed by any transferee of any such assets
or other property in such Asset Sale or (y) with respect to the sale or other
disposition of all of the Capital Stock of any Restricted Subsidiary, remains
the liability of such Subsidiary subsequent to such sale or other disposition,
but only to the extent that such assumption, sale or other disposition, as the
case may be, is effected on a basis under which there is no further recourse to
the Company or any of its Restricted Subsidiaries with respect to such
liability).
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company may, at its option, within 12 months after such Asset Sale, (i)
apply all or a portion of the Net Cash Proceeds to the reduction of amounts
outstanding under the Bank Credit Agreement or to the permanent repayment of
other senior Indebtedness of the Company or a Restricted Subsidiary, or (ii)
invest (or enter into a legally binding agreement to invest) all or a portion of
such Net Cash Proceeds in the making of capital expenditures, the acquisition of
a controlling interest in a Permitted Business or acquisition of other long-term
assets, in each case, that will be used or useful in the Permitted Businesses of
the Company or its Restricted Subsidiaries, as the case may be. Pending the
final application of any such Net Cash Proceeds, the Company may temporarily
reduce revolving credit Indebtedness to the extent not prohibited by the
Indenture. If any such legally binding agreement to invest such Net Cash
Proceeds is terminated, the Company may, within 90 days of such termination or
within 12 months of such Asset Sale, whichever is later, invest such Net Cash
Proceeds as provided in clause (i) or (ii) (without regard to the parenthetical
contained in such clause (ii)) above. The amount of such Net Cash Proceeds not
so used as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5 million, the
Company will, within 30 days thereafter, make an offer to purchase from all
holders of Notes and Additional Notes, on a pro rata basis, in accordance with
the procedures set forth in the Indenture, the maximum principal amount
(expressed as a multiple of $1,000) of Notes and Additional Notes that may be
purchased with the Excess Proceeds, at a purchase price in cash equal to 100% of
the principal amount thereof, plus accrued interest, if any, and Liquidated
Damages, if any, to the date such offer to purchase is consummated. To the
extent that the aggregate principal amount of Notes and Additional Notes
tendered pursuant to such offer to purchase is less than the Excess Proceeds,
the Company or its Restricted Subsidiaries may use such deficiency for general
corporate purposes. If the aggregate principal amount of Notes and Additional
Notes validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, the Notes and Additional Notes to be purchased will be selected on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds will be reset to zero.
(d) The Company will comply with the applicable tender offer rules including
Rule-14e under the Exchange Act, and any other applicable securities laws and
regulations in connection with an offer made pursuant to clause (c) above. To
the extent that provisions of any applicable securities laws or regulations
conflict with provisions of this covenant, the Company will comply with such
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction with, or for the benefit of,
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any Affiliate of the Company or any beneficial owner of 10% or more of any class
of the Capital Stock of the Company at any time outstanding ("Interested
Persons"), unless (a) such transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
could have been obtained in an arm's length transaction with third parties who
are not Interested Persons and (b) the Company delivers to the Trustee (i) with
respect to any transaction or series of related transactions entered into after
the Closing Date involving aggregate payments in excess of $1.0 million, a
resolution of the Board of Directors of the Company set forth in an officers'
certificate certifying that such transaction or transactions complies with
clause (a) above and that such transaction or transactions have been approved by
the Board of Directors (including a majority of the Disinterested Directors) of
the Company and (ii) with respect to a transaction or series of related
transactions involving aggregate payments equal to or greater than $5 million, a
written opinion as to the fairness to the Company or such Restricted Subsidiary
of such transaction or series of transactions from a financial point of view
issued by an independent investment banking, accounting or valuation firm of
national standing.
The foregoing covenant will not restrict
(A) transactions among the Company and/or its Restricted Subsidiaries;
(B) transactions (including Permitted Investments) permitted by the
provisions of the "--Limitations on Restricted Payments" covenant;
(C) employment agreements on customary terms and the payment of regular and
customary compensation to employees, officers or directors in the ordinary
course of business;
(D) the payment to the Principals or their Related Parties and Affiliates,
of annual management and advisory fees and related expenses, provided that the
amount of any such fees and expenses shall not exceed $500,000 per fiscal year,
provided further that any such fees shall only commence accruing on October 1,
1998 and shall be payable in arrears on a quarterly basis commencing on January
1, 1999;
(E) loans or advances to officers or employees of the Company or any of its
Restricted Subsidiaries in the ordinary course of business not to exceed
$250,000 in the aggregate at any one time outstanding;
(F) the payment of all fees and expenses related to the Recapitalization;
and
(G) any agreement to which the Company or any Restricted Subsidiary is a
party as in effect as of the date of the Indenture as set forth in a schedule
thereto or any amendment thereto (as long as any such amendment is not
disadvantageous to the Holders in any material respect) or any transaction
contemplated thereby.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (c) make loans or advances to the Company or any other Restricted
Subsidiary or (d) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of:
(i) any agreement in effect on the Closing Date;
(ii) any agreement or other instrument of a person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired;
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(iii) any security or pledge agreements or leases (or similar agreements)
containing customary restrictions on transfers of the assets encumbered
thereby or leased or on the leasehold interest represented thereby;
(iv) any contracts for the sale of assets, including, without
limitation, any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted
Subsidiary, pending the closing of such sale or disposition, PROVIDED that
any such restriction relates solely to the assets that are the subject of
such agreement;
(v) restrictions on cash or other deposits or net worth imposed by
leases entered into in the ordinary course of business; and
(vi) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (i) and (ii), PROVIDED that any encumbrances or
restrictions imposed by such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
are not materially more restrictive than those contained in the contract,
instrument or obligation prior to such amendment, modification, restatement,
renewal, increase, supplement, refunding, replacement or refinancing.
LIMITATION ON ISSUANCES AND SALES OF PREFERRED STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not permit any Restricted Subsidiary to issue
any Preferred Stock.
PAYMENTS FOR CONSENT. The Indenture will provide that neither the Company
nor any of its Restricted Subsidiaries will, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Notes unless such consideration is offered to be paid or is paid to all Holders
of the Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES. The
Company will not permit any Restricted Subsidiary that is not a Subsidiary
Guarantor, directly or indirectly, to guarantee, assume or in any other manner
become liable for the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary, unless (a) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture and a
Note Guarantee providing for a guarantee of payment of the Notes by such
Restricted Subsidiary and (b) with respect to any guarantee of Subordinated
Indebtedness by a Restricted Subsidiary, any such guarantee is subordinated to
such Restricted Subsidiary's guarantee with respect to the Notes at least to the
same extent as such Subordinated Indebtedness is subordinated to the Notes.
Any Note Guarantee by a Restricted Subsidiary of the Notes pursuant to the
preceding paragraph will provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer
to any person not an Affiliate of the Company of all of the Company's and the
Restricted Subsidiaries' Capital Stock in, or all or substantially all the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture), (ii) the release or discharge of the guarantee
that resulted in the creation of such guarantee of the Notes, except a discharge
or release by or as a result of payment under such guarantee or (iii) the
designation of such Restricted Subsidiary as an Unrestricted Subsidiary in
accordance with the terms of the Indenture.
ISSUANCES OF GUARANTEES BY CERTAIN NEW RESTRICTED SUBSIDIARIES. The Company
will provide to the Trustee, on the date that any Person becomes a Restricted
Subsidiary, a supplemental indenture to the Indenture, executed by such new
Restricted Subsidiary, providing for a full and unconditional guarantee on a
senior basis by such new Restricted Subsidiary of the Company's obligations
under the Notes and the
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Indenture to the same extent as that set forth in the Indenture, PROVIDED that
any such Restricted Subsidiary that is organized outside the United States shall
not be required to provide a Note Guarantee so long as such Restricted
Subsidiary has not guaranteed any other Indebtedness of the Company or any other
Restricted Subsidiary.
LINE OF BUSINESS. The Company will not and will not cause or permit any of
its Restricted Subsidiaries to engage in any businesses other than the
businesses in which the Company is engaged on the Closing Date and any
businesses reasonably related or complimentary to one or more of its businesses
on the Closing Date (as determined in good faith by the Company's Board of
Directors).
UNRESTRICTED SUBSIDIARIES. (a) The Board of Directors of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the Company
nor any Restricted Subsidiary is directly or indirectly liable for any
Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Company or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity, (iii) any
Investment in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of the "Limitation on
Restricted Payments" covenant, (iv) neither the Company nor any Restricted
Subsidiary has a contract, agreement, arrangement, understanding or obligation
of any kind, whether written or oral, with such Subsidiary other than those that
might be obtained at the time from persons who are not Affiliates of the Company
and (v) neither the Company nor any Restricted Subsidiary has any obligation to
subscribe for additional shares of Capital Stock or other equity interest in
such Subsidiary, or to maintain or preserve such Subsidiary's financial
condition or to cause such Subsidiary to achieve certain levels of operating
results.
(b) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary; PROVIDED that (i) no Default or Event of
Default has occurred and is continuing following such designation and (ii) the
Company could incur at least $1.00 of additional Debt (other than Permitted
Debt) pursuant to the first paragraph of the "--Limitation on Indebtedness and
Issuance of Disqualified Stock" covenant (treating any Debt of such Unrestricted
Subsidiary as the incurrence of Debt by a Restricted Subsidiary).
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind on or with respect to any of its property
or assets, including any shares of stock or debt of any Restricted Subsidiary,
whether owned at the Closing Date or thereafter acquired, or any income, profits
or proceeds therefrom, or assign or otherwise convey any right to receive income
thereon, unless (a) in the case of any Lien securing Subordinated Indebtedness,
the Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Lien and (b) in the case of any other Lien, the Notes
are equally and ratably secured with the obligation or liability secured by such
Lien.
Notwithstanding the foregoing, the Company may, and may permit any
Subsidiary to, incur the following Liens ("Permitted Liens"):
(i) Liens (other than Liens securing Indebtedness under the Bank Credit
Agreement) existing as of the Closing Date;
(ii) Liens on property or assets of the Company or any Restricted
Subsidiary securing Indebtedness under the Bank Credit Agreement or one or
more other credit facilities in a principal amount not to exceed the
principal amount of the outstanding Indebtedness permitted by clause (i) of
the definition of "Permitted Indebtedness";
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(iii) Liens on any property or assets of a Restricted Subsidiary granted
in favor of the Company or any Wholly Owned Restricted Subsidiary;
(iv) Liens securing the Notes or any Note Guarantee;
(v) any interest or title of a lessor under any Capitalized Lease
Obligation or Sale and Leaseback Transaction that was not entered into in
violation of the "--Limitation on Indebtedness and Issuance of Disqualified
Stock" covenant;
(vi) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by the Company or any Restricted Subsidiary; PROVIDED that such Lien does
not extend to any property or assets of the Company or any Restricted
Subsidiary other than the property and assets acquired in connection with
the incurrence of such Acquired Indebtedness;
(vii) Liens securing Hedging Obligations permitted to be incurred
pursuant to clause (v) of the definition of "Permitted Indebtedness";
(viii) Liens securing Indebtedness permitted to be incurred under
paragraph (vii) of the definition of "Permitted Indebtedness" in the
covenant described under the caption "--Limitation on Indebtedness and
Issuance of Disqualified Stock";
(ix) statutory Liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings
and, if required by GAAP, a reserve or other appropriate provision has been
made therefor;
(x) Liens for taxes, assessments, government charges or claims that are
not yet delinquent or being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and, if required by
GAAP, a reserve or other appropriate provision has been made therefor;
(xi) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts for
the payment of money);
(xii) easements, rights-of-way, restrictions and other similar charges or
encumbrances not interfering in any material respect with the business of
the Company or any Restricted Subsidiary incurred in the ordinary course of
business;
(xiii) Liens arising by reason of any judgment, decree or order of any
court, so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been duly initiated for the review of such
judgment, decree or order have not been finally terminated or the period
within which such proceedings may be initiated has not expired;
(xiv) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such letters
of credit and the products and proceeds thereof;
(xv) Liens upon specific items of inventory or other goods and proceeds
of the Company or any Restricted Subsidiary securing its obligations in
respect of bankers' acceptances issued or created for the account of any
person to facilitate the purchase, shipment or storage of such inventory or
other goods;
(xvi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xvii) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that do
not exceed $500,000 at any one time
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outstanding and that (a) are not incurred in connection with the borrowing
of money or the obtaining of advances or credit (other than trade credit in
the ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof
in the operation of the businesses of the Company or such Restricted
Subsidiary;
(xviii) leases or subleases to third parties;
(xix) Liens in connection with workers' compensation obligations of the
Company and its Restricted Subsidiaries incurred in the ordinary course; and
(xx) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (i) through (xix); provided that any
such extension, renewal or replacement is no more restrictive in any
material respect than the Lien so extended, renewed or replaced and does not
extend to any additional property or assets.
REPORTS. At all times from and after the earlier of (i) the date of the
commencement of the Exchange Offer (the "Registration") and (ii) the date 120
days after the Closing Date, in either case, whether or not the Company is then
required to file reports with the Commission, the Company will file with the
Commission (to the extent accepted by the Commission) all such annual reports,
quarterly reports and other documents that the Company would be required to file
if it were subject to Sections 13(a) or 15(d) under the Exchange Act. The
Company will also be required (a) to supply to the Trustee and each holder of
Notes, or supply to the Trustee for forwarding to each such holder, without cost
to such holder, copies of such reports and other documents within 15 days after
the date on which the Company files such reports and documents with the
Commission or the date on which the Company would be required to file such
reports and documents if the Company were so required and (b) if filing such
reports and documents with the Commission is not accepted by the Commission or
is prohibited under the Exchange Act, to supply at the Company's cost copies of
such reports and documents to any prospective holder of Notes promptly upon
written request. In addition, at all times prior to the earlier of the date of
the Registration and the date 120 days after the Closing Date, the Company will,
at its cost, deliver to each holder of the Notes quarterly and annual reports
substantially equivalent to those that would be required by the Exchange Act.
Furthermore, at all times prior to the date of Registration, the Company will
supply at the Company's cost copies of such reports and documents to any
prospective holder of Notes promptly upon written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not, in a single transaction or series of related
transactions, consolidate or merge with or into (other than the consolidation or
merger of a Restricted Subsidiary with another Restricted Subsidiary or into the
Company) (whether or not the Company or such Restricted Subsidiary is the
surviving corporation), or directly and/or indirectly through its Restricted
Subsidiaries, sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Restricted Subsidiaries taken as a whole) in one
or more related transactions to, another corporation, person or entity or permit
any of its Restricted Subsidiaries to enter into any such transaction or series
of transactions if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the properties or assets of the
Company and its Restricted Subsidiaries (determined on a consolidated basis for
the Company and its Restricted Subsidiaries taken as a whole) unless:
(a) either (i) the Company, in the case of a transaction involving the
Company, or such Restricted Subsidiary, in the case of a transaction
involving a Restricted Subsidiary, is the surviving corporation or (ii) in
the case of a transaction involving the Company, the entity or the person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (the "Surviving Entity") is a
corporation organized or existing under the laws of the United States, any
state thereof
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or the District of Columbia and assumes all the obligations of the Company
under the Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee;
(b) immediately after giving effect to such transaction and treating any
obligation of the Company or a Restricted Subsidiary in connection with or
as a result of such transaction as having been incurred as of the time of
such transaction, no Default or Event of Default has occurred and is
continuing;
(c) the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, incur
at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of the "--Limitation on
Indebtedness and Issuance of Disqualified Stock" covenant;
(d) if the Company is not the continuing obligor under the Indenture,
each Subsidiary Guarantor, unless it is the other party to the transaction
described above, has by supplemental indenture confirmed that its Note
Guarantee applies to the Surviving Entity's obligations under the Indenture
and the Notes;
(e) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of the "Limitation on Liens" covenant are complied with;
(f) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the Company (or of the Surviving Entity
if the Company is not the continuing obligor under the Indenture) is equal
to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction; and
(g) the Company delivers, or causes to be delivered, to the Trustee, in
form and substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each stating that such transaction
complies with the requirements of the Indenture.
The Indenture will provide that no Subsidiary Guarantor may consolidate with
or merge with or into any other person or convey, sell, assign, transfer, lease
or otherwise disposed of its properties and assets substantially as an entirely
to any other person (other than the Company or another Subsidiary Guarantor)
unless: (a) such Subsidiary Guarantor is released from its Note Guarantees
pursuant to the terms of the Indenture (see "Note Guarantees" above) or (b)(i)
subject to the provisions of the following paragraph, the person formed by or
surviving such consolidation or merger (if other than such Subsidiary Guarantor)
or to which such properties and assets are transferred assumes all of the
obligations of such Subsidiary Guarantor under the Indenture and its Note
Guarantee, pursuant to a supplemental indenture in form and substance
satisfactory to the Trustee and (ii) immediately after giving effect to such
transaction, no Default or Event of Default has occurred and is continuing.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
In the event of any transaction described in and complying with the
conditions listed in the first paragraph of this covenant in which the Company
is not the continuing obligor under the Indenture, the Surviving Entity will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and thereafter the Company will, except in the
case of a lease, be discharged from all its obligations and covenants under the
Indenture and Notes.
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EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(a) default in the payment of any interest or Liquidated Damages, if
any, on any Note when it becomes due and payable, and continuance of such
default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on)
any Note when due;
(c) failure to perform or comply with the Indenture provisions described
under the captions "--Consolidation, Merger and Sale of Assets,"
"--Covenants--Limitation on Indebtedness and Issuance of Disqualified Stock"
and "--Limitation on Restricted Payments" or failure to make a Change of
Control Offer or an Excess Proceeds Offer, in each case, within the time
periods specified in the Indenture;
(d) default in the performance, or breach, of any covenant or agreement
of the Company or any Subsidiary Guarantor contained in the Indenture or any
Note Guarantee (other than a default in the performance, or breach, of a
covenant or agreement that is specifically dealt with elsewhere herein), and
continuance of such default or breach for a period of 60 days after written
notice has been given to the Company by the Trustee or to the Company and
the Trustee by the holders of at least 25% in aggregate principal amount of
the Notes then outstanding;
(e) (i) an event of default has occurred under any mortgage, bond,
indenture, loan agreement or other document evidencing an issue of
Indebtedness of the Company or any Restricted Subsidiary, which issue has an
aggregate outstanding principal amount of not less than $5 million
("Specified Indebtedness"), and such default has resulted in such
Indebtedness becoming, whether by declaration or otherwise, due and payable
prior to the date on which it would otherwise become due and payable or (ii)
a default in any payment when due at final maturity of any such Specified
Indebtedness;
(f) failure by the Company or any of its Restricted Subsidiaries to pay
one or more final judgments the uninsured portion of which exceeds in the
aggregate $5 million, which judgment or judgments are not paid, discharged
or stayed for a period of 60 days;
(g) any Note Guarantee ceases to be in full force and effect or is
declared null and void or any such Subsidiary Guarantor denies that it has
any further liability under any Note Guarantee, or gives notice to such
effect (other than by reason of the termination of the Indenture or the
release of any such Note Guarantee in accordance with the Indenture); or
(h) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such holders will, declare the principal of and accrued interest and
Liquidated Damages, if any, on all of the outstanding Notes immediately due and
payable and, upon any such declaration, such principal and such interest will
become due and payable immediately.
If an Event of Default specified in clause (h) above occurs and is
continuing, then the principal of and accrued interest and Liquidated Damages,
if any, on all of the outstanding Notes will IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (i) the Company has paid or deposited
with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes,
(B) all unpaid principal of (and premium, if any, on)
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any outstanding Notes that has become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes, (C) to the
extent that payment of such interest is lawful, interest upon overdue interest
and overdue principal at the rate borne by the Notes and (D) all sums paid or
advanced by the Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel; and
(ii) all Events of Default, other than the non-payment of amounts of principal
of (or premium, if any, on) or interest on the Notes that have become due solely
by such declaration of acceleration, have been cured or waived. No such
rescission will affect any subsequent default or impair any right consequent
thereon.
No holder of any of the Notes has any right to institute any proceeding with
respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding within 60 days after receipt of such notice and the Trustee,
within such 60-day period, has not received directions inconsistent with such
written request by holders of a majority in aggregate principal amount of the
outstanding Notes. Such limitations do not apply, however, to a suit instituted
by a holder of a Note for the enforcement of the payment of the principal of,
premium, if any, or interest on such Senior Note on or after the respective due
dates expressed in such Note.
The holders of not less than a majority in aggregate principal amount of the
outstanding Notes may, on behalf of the holders of all of the Notes, waive any
past defaults under the Indenture, except a default in the payment of the
principal of (and premium, if any) or interest on any Note, or in respect of a
covenant or provision that under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 90 days after the occurrence thereof.
However, except in the case of a Default or an Event of Default in payment of
principal of (and premium, if any, on) or interest on any Notes, the Trustee may
withhold the notice to the holders of the Notes if a committee of its trust
officers in good faith determines that withholding such notice is in the
interests of the holders of the Notes.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company and the Subsidiary Guarantors of their
obligations under the Indenture and as to any default in such performance. The
Company is also required to notify the Trustee within five days of any Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such waiver is against public policy.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company and the Subsidiary Guarantor with respect to the outstanding Notes,
the Note Guarantees and the Indenture ("defeasance"). Such defeasance means that
the Company will be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes, except for (i) the rights of holders of
outstanding Notes to receive payments in respect of the principal of (and
premium, if any, on) and interest and Liquidated Damages, if any, on such Notes
when such payments are due, (ii) the Company's obligations to issue temporary
Notes, register the transfer or exchange of any Notes, replace mutilated,
destroyed, lost or stolen Notes, maintain an office or agency for payments in
respect of the Notes and segregate and hold
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such payments in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee and (iv) the defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to terminate the
obligations of the Company and any Subsidiary Guarantor with respect to certain
covenants set forth in the Indenture, including those described under "--Certain
Covenants" above, and any omission to comply with such obligations would not
constitute a Default or an Event of Default with respect to the Notes ("covenant
defeasance").
In order to exercise either defeasance or covenant defeasance, (a) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the holders of the Notes, money in an amount, or U.S.
Government Obligations (as defined in the Indenture) that through the scheduled
payment of principal and interest thereon will provide money in an amount, or a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Notes at maturity (or upon
redemption, if applicable) of such principal or installment of interest; (b) no
Default or Event of Default has occurred and is continuing on the date of such
deposit or, insofar as an event of bankruptcy under clause (h) of "Events of
Default" above is concerned, at any time during the period ending on the 91st
day after the date of such deposit; (c) such defeasance or covenant defeasance
may not result in a breach or violation of, or constitute a default under, the
Indenture or any material agreement or instrument to which the Company or any
Subsidiary Guarantor is a party or by which it is bound; (d) in the case of
defeasance, the Company must deliver to the Trustee an opinion of counsel
stating that the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or since the date hereof, there has been a
change in applicable federal income tax law, to the effect, and based thereon
such opinion must confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (e) in the case of covenant defeasance, the Company
must have delivered to the Trustee an opinion of counsel to the effect that the
Holders of the Notes outstanding will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; and (f) the Company must have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Company, the Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents as well as
certifications, legal opinions and other information and the Company may require
a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
SATISFACTION AND DISCHARGE
Upon the request of the Company, the Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Notes, as expressly provided for in the Indenture) and the Trustee, at the
expense of the Company, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture when (a) either (i) all the Notes
theretofore authenticated and delivered (other than destroyed, lost or stolen
Notes that have been replaced or paid and Notes that have been subject to
defeasance under "--Defeasance or Covenant Defeasance of Indenture") have been
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delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (A) have become due and payable, (B)
will become due and payable at maturity within one year or (C) are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company has irrevocably deposited or caused to
be deposited with the Trustee funds in trust for the purpose in an amount
sufficient to pay and discharge the entire Indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for principal (and
premium, if any, on) and interest on the Notes to the date of such deposit (in
the case of Notes that have become due and payable) or to the Stated Maturity or
redemption date, as the case may be; (b) the Company has paid or caused to be
paid all sums payable under the Indenture by the Company; and (c) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided in the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture, the Notes and any Note
Guarantee may be made by the Company, any affected Subsidiary Guarantor and the
Trustee with the consent of the holders of a majority in aggregate outstanding
principal amount of the Notes (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange offer for, Notes);
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
interest on, any Note, or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or change
the coin or currency in which any Note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of redemption, on or
after the redemption date);
(b) reduce the percentage in principal amount of outstanding Notes, the
consent of whose holders is required for any waiver of compliance with certain
provisions of, or certain defaults and their consequences provided for under,
the Indenture;
(c) waive a default in the payment of principal of, or premium, if any, or
interest on the Notes; or
(d) release any Subsidiary Guarantor that is a Significant Subsidiary from
any of its obligations under its Note Guarantee or the Indenture other than in
accordance with the terms of the Indenture.
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Without the consent of any holders, the Company and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental to the
Indenture for any of the following purposes: (1) to evidence the succession of
another person to the Company or any Subsidiary Guarantor and the assumption by
any such successor of the covenants of the Company or any Subsidiary Guarantor
in the Indenture and in the Notes; or (2) to add to the covenants of the Company
or any Subsidiary Guarantor for the benefit of the holders, or to surrender any
right or power herein conferred upon the Company or any Subsidiary Guarantor; or
(3) to add additional Events of Defaults; or (4) to provide for uncertificated
Notes in addition to or in place of the Certificated Notes; or (5) to evidence
and provide for the acceptance of appointment under the Indenture by a successor
Trustee; or (6) to secure the Notes or any Note Guarantee; or (7) to cure any
ambiguity, to correct or supplement any provision in the Indenture that may be
defective or inconsistent with any other provision in the Indenture, or to make
any other provisions with respect to matters or questions arising under the
Indenture, provided that such actions pursuant to this clause do not adversely
affect the interests of the holders in any material respect; or (8) to comply
with any requirements of the Commission in order to effect and maintain the
qualification of the Indenture under
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the Trust Indenture Act; or (9) to release any Subsidiary Guarantor from its
Note Guarantee in accordance with the provisions of the Indenture (including in
connection with a sale of all of the Capital Stock of such Subsidiary
Guarantor).
THE TRUSTEE
United States Trust Company of New York, the Trustee under the Indenture,
will be the initial paying agent and registrar for the Notes. The Trustee's
current address is 111 Broadway, Lower Level, New York, New York 10006.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. Under the Indenture, the holders of a majority in outstanding
principal amount of the Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein, contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that, if it
acquires any conflicting interest (as defined), it must eliminate such conflict
upon the occurrence of an Event of Default or else resign.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Burke Industries, Inc., 2250 South Tenth Street,
San Jose, CA 95112, Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the Closing Date with, or
on behalf of, The Depository Trust Company (the "Depositary") and registered in
the name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants" or the
"Depositary's Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants exchanging Old Notes for New
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Notes with portions of the principal amount of the Global Note and (ii)
ownership of the Notes evidenced by the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to own, transfer or pledge
Notes evidenced by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
CERTIFICATED NOTES
Any beneficial owner of Notes evidenced by the Global Note may obtain Notes
in the form of registered definitive Notes ("Certificated New Notes"). If the
Company notifies the Trustee in writing that the Depositary is no longer willing
or able to act as a depositary and the Company is unable to locate a qualified
successor within 90 days then, upon surrender by the Global Note Holder of its
Global Note, Notes in such form will be issued to each person that the Global
Note Holder and the Depositary identify as being the beneficial owner of the
related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, and interest) be made
by wire transfer of immediately available funds to the accounts specified by the
Global Note Holder. With respect to Certificated Notes, the Company will make
all payments of principal, premium, if any, and interest by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearinghouse or next-day funds. In
contrast, the Notes represented
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by the Global Note are eligible to trade in the PORTAL market and to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person (a) existing at the
time such person is merged with or into the Company or becomes a Subsidiary or
(b) assumed in connection with the acquisition of assets from such person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person or (b) any other person that owns,
directly or indirectly, 10% or more of such specified person's Capital Stock or
any executive officer or director of any such specified person or other person
or, with respect to any natural person, any person having a relationship with
such person by blood, marriage or adoption not more remote than first cousin.
For the purposes of this definition, "control", when used with respect to any
specified person, means the power to direct the management and policies of such
person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction or similar arrangement) (collectively, a
"transfer") by the Company or any Restricted Subsidiary other than in the
ordinary course of business, whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $1.0 million
or (b) for aggregate net proceeds in excess of $1.0 million. For the purposes of
this definition, the term "Asset Sale" does not include (i) any transfer of
properties or assets that is governed by the provisions of the Indenture
described under "--Consolidation, Merger and Sale of Assets", (ii) any transfer
of properties or assets between or among the Company and its Restricted
Subsidiaries pursuant to transactions that do not violate any other provision of
the Indenture, (iii) any transfer of properties or assets representing obsolete
or permanently retired equipment and facilities, (iv) a Restricted Payment or
Permitted Investment that is permitted by the covenant described above under the
caption "--Certain Covenants--Limitation on Restricted Payments" (including,
without limitation, any formation of or contribution of assets to a joint
venture), (v) leases or subleases, in the ordinary course of business, to third
parties of real property owned in fee or leased by the Company or its
Subsidiaries, (vi) the sale of Permitted Investments referred to in clause (a)
of the definition thereof or (vii) any exchange of like kind property pursuant
to Section 1031 of the Internal Revenue of 1986, as amended.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of interest
implicit in such transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the remainder of the
lease included in such sale and leaseback transaction (including any period for
which such lease has been extended or may, at the option of the lessor, be
extended).
"Average Life" means, as of the date of determination with respect to any
Indebtedness or Disqualified Stock, the quotient obtained by dividing (a) the
sum of the products of (i) the number of years from the date of determination to
the date or dates of each successive scheduled principal or liquidation value
payment of such Indebtedness or Disqualified Stock, respectively, multiplied by
(ii) the amount of each such principal or liquidation value payment by (b) the
sum of all such principal or liquidation value payments.
"Bank Credit Agreement" means the loan and security agreement entered into
among the Company, the Banks and NationsBank, N.A., as agent, on or prior to the
Closing Date, as such agreement may be
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amended, restated, supplemented, refinanced, replaced or otherwise modified from
time to time (including any such refinancing or replacement agented by a
different institution).
"Banks" means the banks and other financial institutions that from time to
time are lenders under the Bank Credit Agreement.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and its
Restricted Subsidiaries as of such date that are not more than 90 days past due,
and (b) 60% of the book value of all inventory owned by the Company and its
Subsidiaries as of such date, all calculated on a consolidated basis and in
accordance with GAAP. To the extent that information is not available as to the
amount of accounts receivable or inventory as of a specific date, the Company
may utilize the most recent available information provided to the Banks under
the Bank Credit Agreement for purpose of calculating the Borrowing Base.
"Capital Stock" of any person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents (however
designated) of such person's equity interest (however designated), whether now
outstanding or issued after the Closing Date.
"Capitalized Lease Obligation" means, with respect to any person, an
obligation incurred or assumed under or in connection with any capital lease of
real or personal property that, in accordance with GAAP, has been recorded as a
capitalized lease.
"Change of Control" means the occurrence of any of the following events:
(a) the consummation of any transaction (including, without limitation,
any merger or consolidation) (i) prior to a Public Equity Offering by the
Company, the result of which is that the Principals and their Related
Parties become the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed
to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition) of less than
50% of the Voting Stock of the Company (measured by voting power rather than
the number of shares) or (ii) after a Public Equity Offering of the Company,
any "person" (as such term is used in Section 13(d)(3) of the Exchange Act),
other than the Principals and their Related Parties, becomes the beneficial
owner (as defined above), directly or indirectly, of 35% or more of the
Voting Stock of the Company and such person is or becomes, directly or
indirectly, the beneficial owner of a greater percentage of the voting power
of the Voting Stock of the Company, calculated on a fully diluted basis,
than the percentage beneficially owned by the Principals and their Related
Parties;
(b) the Company, either individually or in conjunction with one or more
Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or the Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties of the
Company and the Subsidiaries, taken as a whole (either in one transaction or
a series of related transactions), including Capital Stock of the
Subsidiaries, to any person (other than the Company or a Restricted
Subsidiary);
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than in a transaction that complies with
the provisions described under "--Consolidation, Merger and Sale of Assets".
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"Consolidated Adjusted Net Income" means, for any period, the net income (or
net loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary or non-recurring gains or losses (less all fees and
expenses relating thereto), (b) any net after-tax gains or losses (less all fees
and expenses relating thereto) attributable to Asset Sales, (c) the portion of
net income (or loss) of any person (other than the Company or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Company or any
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Company or any
Restricted Subsidiary in cash during such period, (d) solely for purposes of the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments," the net income (or loss) of any person combined with the Company or
any Restricted Subsidiary on a "pooling of interests" basis attributable to any
period prior to the date of combination, and (e) the net income (but not the net
loss) of any Restricted Subsidiary to the extent that the declaration or payment
of dividends or similar distributions by such Restricted Subsidiary is at the
date of determination restricted, directly or indirectly, except to the extent
that such net income is actually paid to the Company or a Restricted Subsidiary
thereof by loans, advances, intercompany transfers, principal repayments or
otherwise; PROVIDED that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated Adjusted Net Income will be reduced (to the
extent not otherwise reduced in accordance with GAAP) by an amount equal to (A)
the amount of the Consolidated Adjusted Net Income otherwise attributable to
such Restricted Subsidiary multiplied by (B) the quotient of (1) the number of
shares of outstanding common stock of such Restricted Subsidiary not owned on
the last day of such period by the Company or any of its Restricted Subsidiaries
divided by (2) the total number of shares of outstanding common stock of such
Restricted Subsidiary on the last day of such period.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Adjusted Net Income for such period, plus (or, in the
case of clause (d) below, plus or minus) the following items to the extent
included in computing Consolidated Adjusted Net Income for such period: (a)
Fixed Charges for such period, plus (b) the provision for federal, state, local
and foreign taxes based on income or profits of the Company and its Restricted
Subsidiaries for such period, plus (c) the aggregate depreciation and
amortization expense of the Company and its Restricted Subsidiaries for such
period, plus (d) any other non-cash charges for such period, and minus non-cash
credits for such period, other than non-cash charges or credits resulting from
changes in prepaid assets or accrued liabilities in the ordinary course of
business; provided that fixed charges, income tax expense, depreciation and
amortization expense and non-cash charges and credits of a Restricted Subsidiary
will be included in Consolidated EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Adjusted Net Income for such period.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity of the Company and its Restricted Subsidiaries as set forth on the most
recently available quarterly or annual consolidated balance sheet of the Company
and its Restricted Subsidiaries, less any amounts attributable to Disqualified
Stock or any equity security convertible into or exchangeable for Indebtedness,
the cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries and less to the extent included in calculating such
stockholders' equity of the Company and its Restricted Subsidiaries, the
stockholders' equity attributable to Unrestricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors is required to deliver a
resolution of the Board of Directors, to make a
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finding or otherwise take action under the Indenture, a member of the Board of
Directors who does not derive any material direct or indirect financial benefit
from such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock that, either
by its terms, by the terms of any security into which it is convertible or
exchangeable or by contract or otherwise (i) is or upon the happening of an
event or passage of time would be, required to be redeemed prior to the final
Stated Maturity of the Notes, (ii) is redeemable at the option of the holder
thereof, at any time prior to such final Stated Maturity or (iii) at the option
of the holder thereof is convertible into or exchangeable for debt securities at
any time prior to such final Stated Maturity; provided that any Capital Stock
that would not constitute Disqualified Stock but for provisions therein giving
holders thereof the right to cause the issuer thereof to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes will not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in the "--Certain
Covenants--Limitation on Certain Asset Sales" and "--Redemption--Purchase of
Notes upon a Change of Control or Asset Sale" covenants described herein and
such Capital Stock specifically provides that the issuer will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"--Certain Covenants--Limitation on Certain Asset Sales" and
"--Redemption--Purchase of Notes upon a Change of Control or Asset Sale"
covenants described herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA for such period to Fixed Charges for such period.
"Fixed Charges" means, for any period, without duplication, the sum of (a)
the amount that, in conformity with GAAP, would be set forth opposite the
caption "interest expense" (or any like caption) on a consolidated statement of
operations of the Company and its Restricted Subsidiaries for such period,
including, without limitation, (i) amortization of debt discount, (ii) the net
cost of interest rate contracts (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation, (iv) amortization of debt
issuance costs and (v) the interest component of Capitalized Lease Obligations,
plus (b) cash dividends paid on Preferred Stock and Disqualified Stock by the
Company and any Restricted Subsidiary (to any person other than the Company and
its Restricted Subsidiaries), computed on a tax effected basis, plus (c) all
interest on any Indebtedness of any person guaranteed by the Company or any of
its Restricted Subsidiaries or secured by a lien on the assets of the Company or
any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that Fixed Charges will
not include any gain or loss from extinguishment of debt, including the
write-off of debt issuance costs.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as in effect on the date of
the Indenture.
"Hedging Obligations" means the obligations of any person under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to protect such
person against fluctuations in interest rates or the value of foreign
currencies.
"Indebtedness" means (without duplication), with respect to any person,
whether recourse is to all or a portion of the assets of such person and whether
or not contingent, (a) every obligation of such person for money borrowed, (b)
every obligation of such person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person, (d) every obligation of such person issued or
assumed as the deferred purchase price of property or services, (e) the
Attributable Debt in respect of every Capitalized Lease Obligation of such
person, (f) all Disqualified Stock of such person valued at its maximum fixed
repurchase price, plus accrued and unpaid dividends, (g) all obligations of
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such person under or in respect of Hedging Obligations and (h) every obligation
of the type referred to in clauses (a) through (g) of another person and all
dividends of another person the payment of which, in either case, such person
has guaranteed. For purposes of this definition, the "maximum fixed repurchase
price" of any Disqualified Stock that does not have a fixed repurchase price
will be calculated in accordance with the terms of such Disqualified Stock as if
such Disqualified Stock were purchased on any date on which Indebtedness is
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified Stock, such
fair market value will be determined in good faith by the board of directors of
the issuer of such Disqualified Stock. Notwithstanding the foregoing, (i) trade
accounts payable and accrued liabilities arising in the ordinary course of
business, (ii) any liability for federal, state or local taxes or other taxes
owed by such person and (iii) obligations with respect to performance and surety
bonds and completion guarantees in the ordinary course of business will not be
considered Indebtedness for purposes of this definition.
"Investment" in any person means, (i) directly or indirectly, any advance,
loan or other extension of credit (including, without limitation, by way of
guarantee or similar arrangement) or capital contribution to such person, the
purchase or other acquisition of any stock, bonds, notes, debentures or other
securities issued by such person, the acquisition (by purchase or otherwise) of
all or substantially all of the business or assets of such person, or the making
of any investment in such person, (ii) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (iii) the fair market value of the
Capital Stock (or any other Investment), held by the Company or any of its
Restricted Subsidiaries, of (or in) any person that has ceased to be a
Restricted Subsidiary. Investments exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A person will be deemed to own subject to a Lien any property that
such person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement, PROVIDED that an operating lease shall not constitute a Lien.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed for, cash or cash equivalents (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of (a) brokerage commissions and other fees and
expenses (including fees and expenses of legal counsel and investment banks)
related to such Asset Sale, (b) provisions for all taxes payable as a result of
such Asset Sale, (c) payments made to retire or otherwise prepay Indebtedness
where such Indebtedness is secured by the assets that are the subject of such
Asset Sale or otherwise required to be prepaid in connection therewith, (d)
amounts required to be paid to any person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest (by way of Capital Stock of
the Person owning such assets or otherwise) in the assets that are subject to
the Asset Sale and (e) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve required in accordance
with GAAP against any liabilities associated with such Asset Sale and retained
by the seller after such Asset Sale, including pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Permitted Business" means any business in which the Company or a Restricted
Subsidiary is permitted to engage under the covenant described under the caption
"--Certain Covenants--Line of Business." "Permitted Investments" means any of
the following:
(a) Investments in (i) securities with a maturity at the time of
acquisition of one year or less issued or directly and fully guaranteed or
insured by the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof);
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(ii) certificates of deposit, Eurodollar deposits or bankers' acceptances
with a maturity at the time of acquisition of one year or less of any
financial institution that is a member of the Federal Reserve System having
combined capital and surplus of not less than $500,000,000; (iii) any shares
of money market mutual or similar funds having assets in excess of
$500,000,000; and (iv) commercial paper with a maturity at the time of
acquisition of one year or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and having a rating (A) from
Moody's Investors Service, Inc. of at least P-1 or (B) from Standard &
Poor's Ratings Services of at least A-1;
(b) Investments by the Company or any Restricted Subsidiary in another
person, if as a result of such Investment (i) such other person becomes a
Wholly Owned Restricted Subsidiary that is a Subsidiary Guarantor or (ii)
such other person is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to, the Company or a
Restricted Subsidiary;
(c) Investments by the Company or a Restricted Subsidiary in the Company
or a Restricted Subsidiary that is a Subsidiary Guarantor;
(d) Investments in existence on the Closing Date;
(e) promissory notes received as a result of Asset Sales permitted under
the "--Certain Covenants--Limitation on Certain Asset Sales" covenant;
(f) any acquisition of assets solely in exchange for the issuance of
Qualified Equity Interests of the Company;
(g) stock, obligations or securities received in satisfaction of
judgments, in bankruptcy proceedings or in settlement of debts;
(h) Hedging Obligations otherwise permitted under the Indenture;
(i) loans or advances to officers or employees of the Company or any of
its Restricted Subsidiaries in the ordinary course of business not to exceed
$250,000 in the aggregate at any one time outstanding; and
(j) other Investments that do not exceed $4 million in the aggregate at
any time outstanding.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, partnership interests, participations, rights in or other equivalents
(however designated) of such person's preferred or preference stock, whether now
outstanding or issued after the Closing Date, and including, without limitation,
all classes and series of preferred or preference stock of such person.
"Principals" means (i) Lehman, (ii) each Affiliate of Lehman as of the
Closing Date, (iii) JFLEI, and (iv) each officer or employee (including their
respective immediate family members) of Lehman as of the Closing Date.
"Public Equity Offering" means an offer and sale of common stock (which is
Qualified Stock) of the Company pursuant to a registration statement that has
been declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any person means any and all Capital Stock of such
person, other than Disqualified Stock.
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"Related Party" with respect to any Principal means (A) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal or (B) trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which a person sells or transfers any property or asset
in connection with the leasing, or the resale against installment payments, of
such property or asset to the seller or transferor.
"Series A Preferred Stock" means the Series A Cumulative Redeemable
Preferred Stock of the Company, no par value.
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
together with its Subsidiaries, (a) for the most recent fiscal year of the
Company, accounted for more than 10% of the consolidated net sales of the
Company and its Subsidiaries or (b) as of the end of such fiscal year, was the
owner of more than 10% of the consolidated assets of the Company and its
Restricted Subsidiaries, in the case of either (a) or (b), as set forth on the
most recently available consolidated financial statements of the Company for
such fiscal year or (c) was organized or acquired after the beginning of such
fiscal year and would have been a Significant Subsidiary if it had been owned
during such entire fiscal year.
"Stated Maturity" means, when used with respect to any Senior Note or any
installment of interest thereon, the date specified in such Senior Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness or any installment of interest
thereon is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated in right of payment to the Notes or
the Note Guarantee issued by such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more other Subsidiaries of the Company.
"Subsidiary Guarantor" means any Restricted Subsidiary that is a party to a
Note Guarantee pursuant to the terms of the Indenture.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary in accordance
with the "Unrestricted Subsidiaries" covenant and (b) any Subsidiary of an
Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any person (irrespective of whether or not, at the time, stock of any other
class or classes has, or might have, voting power by reason of the happening of
any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all of
the outstanding voting securities (other than directors' qualifying shares or
shares of foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which are owned, directly or
indirectly, by the Company.
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DESCRIPTION OF NEW CREDIT FACILITY
GENERAL
Concurrently with the consummation of the Recapitalization, the Company
entered into a Loan and Security Agreement (the "New Credit Agreement") with
NationsBank, N.A., as administrative agent (the "Agent"), and other lending
institutions party thereto (the "Banks"), which agreement provides the Company
with a $15.0 million revolving credit facility (the "New Credit Facility"), to
be guaranteed by each existing and future domestic subsidiary of the Company (in
this context, the "Subsidiary Guarantors"). See "Use of Proceeds." The Prior
Offering and the New Credit Facility were conditioned upon each other. This
information relating to the New Credit Facility is qualified in its entirety by
reference to the complete text of the documents entered into or to be entered
into in connection therewith. The following is a description of the general
terms of the New Credit Facility.
SECURITY
Indebtedness of the Company under the New Credit Facility is secured by (i)
a first priority security interest in substantially all of the personal property
(including, without limitation, accounts receivable, inventory, machinery,
equipment, contracts and contract rights, trademarks, copyrights, patents,
license agreements and general intangibles) of the Company and its domestic
subsidiaries, whether now owned or hereafter acquired, (ii) a first priority
perfected pledge of 100% of the capital stock of its domestic subsidiaries and
66% of the Capital Stock of its non-United States Subsidiaries and (iii) a
mortgage lien on the Company's presently owned real property and hereinafter
acquired.
INTEREST
Indebtedness under the New Credit Facility bears interest at a floating rate
of interest equal to, at the Company's option, the Eurodollar Rate (as defined
in the New Credit Agreement) for one, two, three or six months, plus 2.50% or
NationsBank, N.A.'s Prime Rate. The "Prime Rate" is a fluctuating interest rate
equal to the higher of (i) the rate of interest announced publicly by the Agent
as its prime rate and (ii) a rate equal to 1/2 of 1% per annum above the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
determined for any day by the Agent. Interest based on the Base Rate shall be
payable monthly in arrears. Interest based on the Eurodollar Rate shall be
payable in arrears at the earlier of the (a) end of the applicable interest
period and (b) the first day of the month in which the Interest Payment Date
occurs.
BORROWING BASE
Pursuant to the terms of the New Credit Agreement, advances under the New
Credit Facility will be limited to the lesser of (a) $15.0 million and (b)(i)
85% of eligible accounts receivable plus (ii) 50% of eligible inventory minus
(iii) the aggregate amount of all undrawn letters of credit issued under the New
Credit Facility plus the aggregate amount of any unreimbursed drawings under any
outstanding letters of credit.
MATURITY
Loans made pursuant to the New Credit Facility may be borrowed, repaid and
reborrowed from time to time until the fifth anniversary of the Closing Date,
subject to the satisfaction of certain conditions on the date of any such
borrowing.
FEES
The Company is required to pay to the Banks in the aggregate a commitment
fee equal to .50% per annum, payable in arrears on a monthly basis, on the
committed undrawn amount of the New Credit
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Facility. The Agent and the Banks shall receive such other fees as have been
separately agreed upon with the Agent, including, without limitation, in respect
of letters of credit issued under the letter of credit subfacility.
LETTERS OF CREDIT SUBFACILITY
The New Credit Facility includes a subfacility for the issuance of letters
of credit up to a maximum aggregate amount at any one time outstanding not to
exceed $1.0 million. If any letter of credit is outstanding after the
termination of the New Credit Facility, the Company would be required to post a
standby letter of credit or deposit cash collateral in an amount sufficient to
reimburse the Banks for amounts drawn under any such outstanding letter of
credit.
CONDITIONS TO CLOSING AND EXTENSIONS OF CREDIT
The New Credit Agreement provides that the obligation of the Banks to close
and make the initial loans will be subject to the satisfaction of certain
conditions customary in transactions of this type, including, but not limited
to, the consummation of the Recapitalization, the placement by the Company of
the Notes, receipt by the Banks of customary opinions of counsel, corporate
documents, financial statements and a solvency letter, the absence of any
material adverse change and the absence of any default or event of default under
the New Credit Agreement. The obligation of the Banks to make subsequent loans
or extend letters of credit after the Closing will be subject to the
satisfaction of certain customary conditions including, but not limited to, the
absence of a default or event of default under the New Credit Agreement, all
representations and warranties under the New Credit Agreement being true and
correct in all material respects and the absence of a material adverse change.
COVENANTS
The New Credit Agreement contains customary covenants of the Company and the
subsidiary guarantors, including, without limitation, restrictions on (i) the
incurrence of debt, (ii) the sale of assets, (iii) mergers, acquisitions and
other business combinations, (iv) voluntary prepayment of other debt of the
Company, (v) transactions with affiliates (as defined in the New Credit
Agreement), (vi) investments, as well as prohibitions on the payment of
dividends to, or the repurchase or redemption of stock from, shareholders and
(vii) various financial covenants, including covenants requiring the maintenance
of fixed charge coverage and maximum funded debt to EBITDA ratios.
EVENTS OF DEFAULT; REMEDIES
The New Credit Agreement contains customary events of default under the New
Credit Facility, including the non-payment of principal or interest when due
under the notes issued in connection with the New Credit Facility or, subject to
applicable grace periods in certain circumstances, upon the non-fulfillment of
the covenants described above, certain changes in control of the ownership of
the Company, cross-defaults to certain other indebtedness, certain events of
bankruptcy and insolvency, ERISA, judgment defaults and failure of any guaranty
or security agreement supporting the New Credit Agreement to be in full force
and effect. If any such event of default occurs, the Agent will be entitled, on
behalf of the Banks, to take all actions permitted to be taken by a secured
creditor under the Uniform Commercial Code and to accelerate the amounts due
under the New Credit Facility and may require all such amounts outstanding
thereunder to be immediately paid in full.
INDEMNIFICATION
Under the New Credit Agreement, the Company has agreed to indemnify the
Agent, the Banks and related persons from and against any and all losses,
liabilities, claims, damages or expenses (including, without limitations, fees
and disbursements of counsel) that may be incurred by or asserted against any
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such indemnified party in connection with any investigation, litigation or other
proceeding relating to the New Credit Agreement or related documents, provided
that the Company is not liable for any such losses, liabilities, claims, damages
or expenses resulting from such indemnified party's own gross negligence or
willful misconduct. Finally, the New Credit Agreement contains customary
provisions protecting the Banks in the event of unavailability of funding,
illegality, capital adequacy requirements, increased costs, withholding taxes
and funding losses.
DESCRIPTION OF REDEEMABLE PREFERRED STOCK AND WARRANTS
REDEEMABLE PREFERRED STOCK
In connection with the consummation of the Recapitalization, the Company
issued (i) 16,000 shares of Redeemable Preferred Stock designated as Series A
11 1/2% Cumulative Redeemable Preferred Stock to MassMutual and Jackson
National, (ii) 2,000 shares of Redeemable Preferred Stock designated as Series B
11 1/2% Cumulative Redeemable Preferred Stock to Paribas and (iii) warrants to
purchase approximately 964,000 shares of common stock of the Company at an
initial exercise price of per share equal to one-half of the Recapitalization
Consideration to MassMutual, Paribas and Jackson National.
RANKING. The Redeemable Preferred Stock ranks prior to the Company's Common
Stock with respect to dividend rights and rights on liquidation, winding up or
dissolution of the Company, and to all other classes and series of equity
securities of the Company as may hereafter be issued, other than any class or
series of equity securities of the Company expressly designated as being on a
parity with ("Parity Securities") or senior to the Redeemable Preferred Stock.
Such other classes or series of equity securities of the Company not expressly
designated as being on a parity with or senior to the Redeemable Preferred Stock
are referred to hereafter as "Junior Securities." The rights of holders of
shares of the Redeemable Preferred Stock are subordinate to the rights of the
Company's general creditors. The Company may not create or issue other classes
of stock ranking on a parity with or senior to the Redeemable Preferred Stock
unless it receives approval or consent of the holders of at least a two-thirds
of the Redeemable Preferred Stock. See "--Voting Rights" below.
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DIVIDEND RIGHTS. Dividends shall be payable to holders of Redeemable
Preferred Stock, out of funds legally available therefor, at the annual rate per
share of 11.5% times the sum of (i) $1,000 and (ii) accrued but unpaid dividends
as of the immediately preceding Dividend Payment Date (as defined below).
Dividends shall be payable (A) at the annual rate per share of .115 shares of
Redeemable Preferred Stock per share of Redeemable Preferred Stock from the
original issue date of the Redeemable Preferred Stock (the "Issue Date") through
July 15, 2000, and (B) in cash after July 15, 2000.
Dividends on the Redeemable Preferred Stock will be payable quarterly on
each January 15, April 15, July 15 and October 15 of each year (each a "Dividend
Payment Date"), commencing October 15, 1997. Dividends payable for any period
less than a full quarterly period shall be computed on the basis of a 360-day
year with equal months of 30 days. Dividends for the first dividend period will
accrue from the Issue Date. Dividends shall be fully cumulative and shall accrue
on a quarterly basis (whether or not declared) from the Issue Date. Dividends
declared will be payable to holders of record as they appear on the stock books
of the Company at the close of business on such record dates, not exceeding 60
days nor fewer than 10 days preceding the Dividend Payment Date therefor.
If at any time after July 15, 2000, the cash dividends payable on the
Redeemable Preferred Stock shall have been in arrears and unpaid for four or
more successive Dividend Payment Dates, then until the date on which all such
dividends in arrears are paid in full, dividends shall accrue and be payable to
the holders of Redeemable Preferred Stock at the annual rate of 13.5% times the
sum of (i) $1,000 per share and (ii) accrued but unpaid dividends thereon. Upon
payment in full of all dividends in arrears, cash dividends will thereafter be
payable at the 11.5% annual rate set forth above.
In addition, no dividends in any form shall be declared or paid or set apart
for payment on any Junior Securities or Parity Securities for any dividend
period unless full dividends on the Redeemable Preferred Stock for the then
current dividend period shall have been paid or declared and set aside. When
dividends on the Redeemable Preferred Stock are in arrears, dividends declared
upon shares of the Redeemable Preferred Stock and Parity Securities shall be
declared PRO RATA based upon the respective amounts that would have been paid on
the Redeemable Preferred Stock and the Parity Securities had dividends been paid
in full.
So long as any shares of the Redeemable Preferred Stock are outstanding, the
Company shall not, without the prior consent of the holders of two-thirds of the
outstanding shares of Redeemable Preferred Stock, (i) make any payment on
account of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or retirement of, any Junior Securities (other
than dividends or distributions payable in additional shares of Junior
Securities to holders of Junior Securities); (ii) permit any corporation or
other entity directly or indirectly controlled by the Company to purchase or
redeem any Junior Securities; (iii) declare, pay or set apart for payment, or
permit any corporation or other entity directly or indirectly controlled by the
Company to declare, pay or set apart for payment, any dividend or make any
distribution or payment on any Junior Securities or Parity Securities, whether
directly or indirectly and whether in cash, obligations or shares of the Company
or other property (other than dividends or distributions payable in additional
shares of Junior Securities to holders of Junior Securities); or (iv) make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or retirement of, any Parity
Securities, whether directly or indirectly, and whether in cash, obligations,
shares of the Company or other property (other than payments solely of Junior
Securities), and shall not permit any corporation or other entity directly or
indirectly controlled by the Company to purchase or redeem any Parity
Securities, unless prior to or at the time of such payment or setting apart for
payment, the Company shall have repurchased, redeemed or retired shares of
Redeemable Preferred Stock on a PRO RATA basis with the Parity Securities as to
which such sinking fund or similar fund payment, or such purchase, redemption or
retirement, is being effected.
LIQUIDATION PREFERENCE. Holders of shares of Redeemable Preferred Stock
shall be entitled to receive the stated liquidation value of $1,000 per share
($18.0 million in the aggregate based on 18,000 shares of
107
<PAGE>
Redeemable Preferred Stock to be issued on the Issue Date), plus an amount per
share equal to any dividends accrued but unpaid, without interest (the
"Liquidation Preference"), in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, out of or to the
extent of the net assets of the Company legally available for distribution,
before any distributions are made with respect to any Common Stock of the
Company or any other Junior Securities. After payment of the full amount of the
Liquidation Preference, holders of shares of Redeemable Preferred Stock will not
be entitled to any further participation in any distribution of assets of the
Company.
Upon any such liquidation, dissolution or winding up of the Company, such
preferential amounts with respect to the Redeemable Preferred Stock and any
class or series ranking on a parity with the Redeemable Preferred Stock if not
paid in full shall be distributed PRO RATA in accordance with the aggregate
preferential amounts of the Redeemable Preferred Stock and such other classes or
series of stock.
OPTIONAL REDEMPTION. The Company may, at its option, redeem at any time,
out of funds legally available therefor, all or any portion of the shares (in
whole shares only) of the Redeemable Preferred Stock on a PRO RATA basis, at a
redemption price per share equal to 100% of the Liquidation Preference thereof
on the date of redemption.
MANDATORY REDEMPTION. On the date that is the one hundred and twenty-sixth
(126th) month anniversary of the Issue Date, the Company shall redeem any and
all outstanding shares of Redeemable Preferred Stock, out of funds legally
available therefor, at a redemption price per share equal to 100% of the
Liquidation Preference thereof on such date.
REDEMPTION UPON CHANGE OF CONTROL. Upon the occurrence of a Change of
Control (as defined in the Certificate of Determination for the Redeemable
Preferred Stock), the Redeemable Preferred Stock shall be redeemable at the
option of the holders thereof, in whole or in part, at a redemption price per
share equal to 100% of the Liquidation Preference on the date of redemption
provided, however, that the Company will not be obligated to redeem any
Redeemable Preferred Stock upon a Change of Control prior to repurchase or
redemption of such Notes then outstanding as the Company is required to
repurchase or has called for redemption in connection with Chance of Control
pursuant to the terms of the Indenture.
VOTING RIGHTS. The holders of shares of Redeemable Preferred Stock shall
not be entitled to any voting rights, except as required by applicable law and
except as set forth below:
Without the consent of the holders of at least two-thirds of the outstanding
shares of Redeemable Preferred Stock, the Company may not (i) amend its Articles
of Incorporation in any way that would adversely alter or change the powers,
preferences, special rights or economics of the Redeemable Preferred Stock, (ii)
create, authorize or issue any shares of capital stock ranking senior to or on a
parity with the Redeemable Preferred Stock or (iii) create, authorize or issue
any shares of capital stock constituting Junior Securities, unless such Junior
Securities are expressly subordinate in right of payment to the Redeemable
Preferred Stock and such Junior Securities have no additional rights (directly
or indirectly) upon the Company's failure to redeem such shares or to pay or
declare a dividend or make a distribution with respect thereto.
ADDITIONAL VOTING RIGHTS OF SERIES A REDEEMABLE PREFERRED STOCK. In
addition to the voting rights set forth above under the caption "--Voting
Rights," the holders of shares of Series A Redeemable Preferred Stock shall be
entitled to voting rights as set forth below:
Without the consent of the holders of at least two-thirds of the outstanding
shares of Series A Redeemable Preferred Stock, the Company may not enter into
any agreement which limits or otherwise adversely affects the Company's ability
to comply with its mandatory redemption obligations described above, including,
without limitation, any such agreement or plan entered into with respect to (i)
the sale of
108
<PAGE>
all or substantially all of the assets of the Company, (ii) the voluntary
liquidation, dissolution or winding up of the Company or (iii) the consolidation
or merger of the Company with any one or more other corporations, other than a
consolidation or merger in which the shareholders of the Company immediately
prior to such transaction will hold more than 50% of the equity securities of
the surviving entity immediately after the consummation of such transaction.
If at any time after October 15, 2000, any amount of cash dividends payable
on the Series A Redeemable Preferred Stock shall have been in arrears and unpaid
for four or more successive Dividend Payment Dates, then the holders of the
Series A Redeemable Preferred Stock, voting separately as a class and to the
exclusion of the holders of all other classes and series of stock of the
Company, shall have the right to elect the smallest number of directors
constituting one-third of the authorized number of directors, and the holders of
the Common Stock shall have the right to elect the remaining directors.
If the Company shall fail to redeem shares of Series A Redeemable Preferred
Stock in accordance with the mandatory redemption provisions described above,
then the holders of the Series A Redeemable Preferred Stock, voting separately
as a class and to the exclusion of the holders of all other classes and series
of stock of the Company, shall have the right to elect the smallest number of
directors constituting a majority of the authorized number of directors, and the
holders of the Common Stock shall have the right to elect the remaining
directors.
The right of the holders of Series A Redeemable Preferred Stock to elect
directors pursuant to the provisions described above shall continue until such
time as (i) all such dividends in arrears are paid in full or (ii) all shares of
Series A Redeemable Preferred Stock shall have been redeemed pursuant to the
mandatory redemption provisions described above, as the case may be.
TRANSFER RESTRICTIONS. There are no restrictions on the transferability of
the Redeemable Preferred Stock, except as required by applicable securities
laws.
WARRANTS
The Warrants issued in connection with the Recapitalization entitle the
holders thereof to purchase in the aggregate up to approximately 964,000 shares
of Common Stock of the Company (the "Warrant Shares"), or 20% of the outstanding
Common Stock of the Company on a fully diluted basis upon the completion of the
Transactions. The Warrants are immediately exercisable from and after the date
of issuance until February 20, 2008 at an exercise price per share equal to
one-half of the Recapitalization Consideration, payable in cash or by tendering
shares of Redeemable Preferred Stock. The exercise price and number of Warrant
Shares are both subject to adjustment in certain events. The Warrants will be
transferable separately from the Redeemable Preferred Stock.
There are no restrictions on the transferability of the Warrants, except as
required by applicable securities laws and as may be set forth in the
Shareholders' Agreement.
Unless and until the Warrants are exercised, the holders of the Warrants
have no right to vote on matters submitted to the shareholders of the Company.
The holders of the Warrants have no right to receive dividends; provided,
however, that upon exercise of the Warrants, the exercise price therefor shall
be reduced by an amount equal to the dividends in respect of the Common Stock
that the holder of the Warrants would have received had the Warrants been
exercised on the Issue Date. The holders of the Warrants are not entitled to
share in the assets of the Company in the event of liquidation or dissolution of
the Company or the winding up of the Company's affairs; provided, however, that
the holders of the Warrants are entitled to receive at least 30 days' prior
written notice of any such liquidation, dissolution or winding up of affairs and
shall be afforded the opportunity to exercise the Warrants prior to such
liquidation, dissolution or winding up of affairs.
REGISTRATION RIGHTS FOR WARRANT SHARES
The holders of the Warrant Shares are entitled to one "demand" registration
right at any time on or after the later of (i) August 20, 2000 and (ii) the
181st day after completion of the initial public offering by the Company of its
Common Stock, subject to additional customary rights and limitations. In
addition, the holders of the Warrant Shares are entitled to unlimited
"piggyback" registration rights after the date of the Company's initial public
offering of its Common Stock, subject to customary rights and limitations.
109
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the Expiration Date
and ending on the close of business 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale. In addition, until , 199 , all
dealers effecting transactions in the New Notes may be required to deliver a
Prospectus.
The Company will not receive any proceeds from any sales of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of New Notes and any
commissions or concessions received by such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
Prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the New Notes will be passed upon for the Company by Gibson,
Dunn & Crutcher, LLP, Los Angeles, California.
EXPERTS
The Consolidated financial statements of Burke Industries, Inc. at December
29, 1995 and January 3, 1997, and for each of the three years in the period
ended January 3, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
110
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Consolidated Statements of Income for the three fiscal years ended January 3, 1997......................... F-3
Consolidated Balance Sheets at December 29, 1995 and January 3, 1997....................................... F-4
Consolidated Statements of Shareholders' Equity for the three fiscal years ended January 3, 1997........... F-6
Consolidated Statements of Cash Flows for the three fiscal years ended January 3, 1997..................... F-7
Notes to Consolidated Financial Statements................................................................. F-8
Consolidated Statements of Income for the six months ended June 28, 1996 and July 4, 1997 (unaudited)...... F-19
Consolidated Balance Sheets at January 3, 1997 and July 4, 1997 (unaudited)................................ F-20
Consolidated Statements of Cash Flows for the six months ended June 28, 1996 and July 4, 1997
(unaudited).............................................................................................. F-21
Notes to Consolidated Financial Statements (unaudited)..................................................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Burke Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Burke
Industries, Inc. and subsidiaries as of December 29, 1995 and January 3, 1997,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three fiscal years in the period ended January 3,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Burke
Industries, Inc. and subsidiaries at December 29, 1995 and January 3, 1997, and
the consolidated results of their operations and their cash flows for each of
the three fiscal years in the period ended January 3, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
March 7, 1997
F-2
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales........................................................................ $ 44,370 $ 68,411 $ 72,466
Costs and expenses:
Cost of sales.................................................................. 29,998 49,226 49,689
Selling........................................................................ 5,143 6,161 6,824
General and administrative..................................................... 3,009 4,051 4,786
--------- --------- ---------
Income from operations........................................................... 6,220 8,973 11,167
Interest expense, net............................................................ 2,812 3,007 2,668
--------- --------- ---------
Income before income tax provision, discontinued operation, and extraordinary
loss........................................................................... 3,408 5,966 8,499
Income tax provision............................................................. 1,395 3,393 3,466
--------- --------- ---------
Income from continuing operations before discontinued operation, and
extraordinary loss............................................................. 2,013 2,573 5,033
Loss from discontinued operation, net of income tax benefit of $341 in 1994, $443
in 1995, and $205 in 1996...................................................... (511) (664) (308)
Loss on disposal of discontinued operation, net of income tax benefit of $356.... -- -- (624)
Extraordinary loss on debt settlement, net of income tax benefit of $547......... -- (815) --
--------- --------- ---------
Net income....................................................................... $ 1,502 $ 1,094 $ 4,101
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
F-3
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Trade accounts receivable, less allowance of $336 in 1995 and $189 in 1996.................. $ 9,856 $ 9,155
Inventories................................................................................. 7,218 8,616
Prepaid expenses and other current assets................................................... 552 630
Deferred income tax assets.................................................................. 1,238 1,014
--------- ---------
Total current assets...................................................................... 18,864 19,415
Property, plant, and equipment:
Land and improvements....................................................................... 1,884 1,884
Buildings and improvements.................................................................. 9,096 9,151
Equipment................................................................................... 10,788 12,329
Leasehold improvements...................................................................... 535 555
--------- ---------
22,303 23,919
Accumulated depreciation and amortization................................................... 7,748 9,101
--------- ---------
14,555 14,818
Construction-in-process....................................................................... 140 183
--------- ---------
14,695 15,001
Prepaid pension cost.......................................................................... 625 542
Goodwill, net................................................................................. 1,570 1,529
Note receivable from an affiliate of the principal shareholders............................... -- 4,066
Other assets.................................................................................. 132 120
Net assets of discontinued operation.......................................................... 3,843 --
--------- ---------
Total assets.............................................................................. $ 39,729 $ 40,673
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks outstanding in excess of funds deposited............................................. $ 1,716 $ 828
Trade accounts payable and accrued expenses................................................. 4,514 6,454
Accrued compensation and related liabilities................................................ 1,813 1,937
Income taxes payable........................................................................ 2,571 2,468
Current portion of long-term obligations.................................................... 2,848 2,400
--------- ---------
Total current liabilities................................................................. 13,462 14,087
Long-term obligations, less current portion................................................... 20,183 16,469
Other noncurrent liabilities.................................................................. 684 720
Deferred income tax liabilities............................................................... 3,440 3,457
Subordinated debt............................................................................. 1,620 1,657
SHAREHOLDERS' EQUITY:
Class A common stock, no par value:
Authorized shares--20,000
Issued and outstanding shares--9,431 in 1995 and 9,377 in 1996.......................... 5,633 6,716
Convertible Class B common stock, no par value:
Authorized shares--5,000
Issued and outstanding shares--none..................................................... -- --
Accumulated deficit......................................................................... (5,293) (2,433)
--------- ---------
Total shareholders' equity................................................................ 340 4,283
--------- ---------
Total liabilities and shareholders' equity................................................ $ 39,729 $ 40,673
--------- ---------
--------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
F-4
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A TOTAL
COMMON STOCK SHAREHOLDERS'
-------------------- ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
--------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Balance (deficit) at fiscal year ended 1993...................... 10,017 $ 6,648 $ (7,302) $ (654)
Net income..................................................... -- -- 1,502 1,502
Proceeds from sales of shares through employee stock plans..... 2 1 -- 1
--------- --------- ------------ -------------
Balance at fiscal year ended 1994................................ 10,019 6,649 (5,800) 849
Net income..................................................... -- -- 1,094 1,094
Increase in value of shareholder warrants...................... 587 (587) --
Repurchase of stock............................................ (588) (453) -- (453)
Repurchase of warrants......................................... -- (1,150) -- (1,150)
--------- --------- ------------ -------------
Balance at fiscal year ended 1995................................ 9,431 5,633 (5,293) 340
Net income..................................................... -- -- 4,101 4,101
Proceeds from sales of shares through employee stock plans..... 181 77 -- 77
Increase in value of shareholder warrants...................... -- 1,241 (1,241) --
Repurchase of stock............................................ (235) (235) -- (235)
--------- --------- ------------ -------------
Balance at fiscal year ended 1996................................ 9,377 $ 6,716 $ (2,433) $ 4,283
--------- --------- ------------ -------------
--------- --------- ------------ -------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements
F-5
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................................................ $ 1,502 $ 1,094 $ 4,101
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization:
Property, plant, and equipment................................................ 1,106 1,354 1,378
Goodwill and other............................................................ 164 134 41
Debt discount arising from warrants........................................... 275 259 37
Loss on disposal of discontinued operation...................................... -- -- 624
Extraordinary loss on debt settlement--noncash portion.......................... -- 1,362 --
Changes in net assets of discontinued operation................................. 398 (680) 1,401
Changes in operating assets and liabilities:
Trade accounts receivable..................................................... (675) (4,326) 701
Inventories................................................................... (524) (2,539) (1,398)
Prepaid expenses and other current assets..................................... (103) (68) (78)
Cash in escrow................................................................ 2,027 -- --
Prepaid pension cost.......................................................... 32 66 83
Other assets.................................................................. (26) (31) 12
Checks outstanding in excess of funds deposited............................... (97) 1,228 (888)
Trade accounts payable and accrued expenses................................... (436) 1,853 1,940
Accrued compensation and related liabilities.................................. 245 536 124
Deferred income taxes......................................................... 78 (462) 241
Income taxes payable.......................................................... (374) 1,798 (103)
Other noncurrent liabilities.................................................. 68 (142) 36
--------- --------- ---------
Net cash provided by operating activities......................................... 3,660 1,436 8,252
INVESTING ACTIVITIES
Purchases of property, plant, and equipment....................................... (335) (3,647) (1,684)
Proceeds from disposal of discontinued operation.................................. -- -- 1,818
Note receivable from an affiliate of the principal shareholders................... -- -- (4,066)
Proceeds from sale of equipment................................................... -- 123 --
--------- --------- ---------
Net cash used in investing activities............................................. (335) (3,524) (3,932)
FINANCING ACTIVITIES
Net borrowings (repayments) of long-term debt..................................... (3,326) 3,691 (4,162)
Repurchase of common stock and warrants........................................... -- (1,603) (235)
Proceeds from sales of shares through employee stock plans........................ 1 -- 77
--------- --------- ---------
Net cash provided by (used in) financing activities............................... (3,325) 2,088 (4,320)
--------- --------- ---------
Change in cash.................................................................... -- -- --
Cash at beginning of year......................................................... -- -- --
--------- --------- ---------
Cash at end of year............................................................... $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements
F-6
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Burke Industries, Inc. and its wholly owned subsidiaries (the Company)
develop, manufacture, and market various elastomer products for use in
commercial and military applications.
The Company operates within one industry segment, which includes the
developing, manufacturing and marketing of various elastomer products for use in
commercial and military applications.
The Company sells its products through a network of distributors or directly
to customers in the aerospace construction and defense, industries and other
commercial markets, primarily in North America. The Company performs ongoing
credit evaluations of its customers' financial condition and generally does not
require collateral.
One customer accounted for approximately 11.0% of net sales in fiscal 1996.
No other customer constituted 10% or more of net sales in any of the three
fiscal years ended in 1996.
Substantially all of the Company's hourly workers in San Jose, California
are represented by the International Association of Machinists and Aerospace
Workers through a collective bargaining agreement that expires October 2, 1997.
Substantially all of the Company's hourly workers in Taunton, Massachusetts
are represented by the United Electrical, Radio, and Machine Workers of America
through a collective bargaining agreement that expires June 5, 1997.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Burke Industries, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from sales of products is generally recognized upon shipment to
customers. For contracts relating to certain products, a portion of the revenue
is recognized upon completion of a part of the manufacturing process and upon
customer acceptance. The remaining revenue is recognized upon completion of the
manufacturing process and shipment.
WARRANTY
The Company generally warrants its roofing products for two years, for which
the related costs are not significant. In addition, the Company sells extended
warranties for ten to twenty years. Revenues received for extended warranties
are deferred and amortized over the period in which warranty costs are expected
F-7
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to be incurred. Warranty reserves and deferred warranty revenues are included in
accrued expenses and other noncurrent liabilities on the accompanying
consolidated balance sheets.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
over the estimated useful lives (three to forty years) of the assets using the
straight-line method. Leasehold improvements are amortized by the straight-line
method over the shorter of the estimated useful life of the asset or the term of
the related lease. Amortization of assets under capital leases is included in
depreciation expense.
FINANCIAL INSTRUMENTS
The carrying value of accounts receivable and payable and accrued
liabilities approximates fair value due to the short-term maturities of these
assets and liabilities.
ACCOUNTING PERIODS
The Company's fiscal year ends on the Friday closest to December 31. The
Company maintains a fifty-two/fifty-three week fiscal year cycle, which resulted
in a fifty-three week year in fiscal 1996. For convenience the accompanying
financial statements have been referred to as fiscal year ended 1994, 1995 and
1996 for the periods ended December 30, 1994, December 29, 1995 and January 3,
1997, respectively.
2. INVENTORIES
Inventories consist of the following at fiscal year ended:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials.............................................................. $ 2,850 $ 3,260
Work-in-process............................................................ 1,238 1,433
Finished goods............................................................. 3,130 3,923
--------- ---------
$ 7,218 $ 8,616
--------- ---------
--------- ---------
</TABLE>
3. GOODWILL
Goodwill is being amortized on a straight-line basis over forty years.
Accumulated amortization totaled $262,000 and $303,000 at fiscal year ended 1995
and 1996, respectively.
F-8
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt consists of the following at fiscal year ended:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Promissory note......................................................... $ 1,000 $ --
Line of credit with bank................................................ 9,134 5,099
Term loans payable to bank.............................................. 12,897 13,770
--------- ---------
Total senior long-term obligations...................................... 23,031 18,869
Less current portion.................................................... 2,848 2,400
--------- ---------
$ 20,183 $ 16,469
--------- ---------
--------- ---------
Senior subordinated note payable to an affiliate of the principal
shareholders.......................................................... $ 1,000 $ 1,000
Junior subordinated notes payable to shareholders, net of unamortized
discount of $130,000 in 1995 and $93,000 in 1996...................... 620 657
--------- ---------
Total subordinated debt................................................. $ 1,620 $ 1,657
--------- ---------
--------- ---------
Long-term debt is due as follows (in thousands):
1997............................................................................... $ 2,400
1998............................................................................... 2,400
1999............................................................................... 2,400
2000............................................................................... 13,326
---------
$ 20,526
---------
---------
</TABLE>
SENIOR LONG-TERM OBLIGATIONS
The Company maintains a credit facility with a bank, which provides
available borrowings up to a maximum of $30,000,000, subject to certain
limitations. Borrowings under this facility, which expire September 15, 2000
(thereafter, the facility automatically renews for one-year periods under
certain conditions), may be term loans, letters of credit, or a revolving line
of credit. All borrowings under this facility are secured by the Company's
accounts receivable, inventories, equipment, real estate, and general
intangibles.
The term loans under the credit facility bear interest payable monthly at
2.75% (2.25% after fiscal year ended 1996) to 3.50% above the London Interbank
Offer Rate (LIBOR) (5.69% at fiscal year ended 1996). One term loan ($2,417,000
at fiscal year ended 1996) is subject to a one-time reduction (from a 3.50%
increment to 3.00%) if the Company meets certain financial ratios at any time
after December 30, 1997. The term loans require aggregate monthly principal
payments of approximately $200,000 with all unpaid principal due September 15,
2000. The term loans also require that the proceeds from sales of certain
property or equipment be used to reduce the principal balance of the loans.
The credit facility also provides for a nonrevolving equipment line of
credit up to $3,000,000 that can be utilized for up to 100% of the value of the
equipment financed. Amounts drawn under this line are limited to $1,500,000 per
annum and are converted into notes once a year. Amounts drawn under this line as
well as under the notes bear an interest rate of 2.75% above LIBOR (2.25% after
fiscal year ended
F-9
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
1996). Included in term loans at fiscal year ended 1996 is approximately
$1,159,000 drawn under this line of which approximately $264,000 has been
converted into a term loan at fiscal year ended 1996.
The credit facility also provides for letters of credit not to exceed the
lesser of $1,100,000 or 17% of the fair value of the Company's interest in
certain property. There were no outstanding letters of credit at fiscal year
ended 1995 and 1996.
Under the facility, the Company may also borrow on a revolving line of
credit up to its borrowing base, representing certain accounts receivable,
inventories, and other assets up to a maximum of $30,000,000, less the amounts
of any outstanding term loans and letters of credit. At fiscal year ended 1996,
the Company had $4,686,000 available under the facility. Line of credit
borrowings bear interest computed daily and are payable monthly at LIBOR plus
2.75% (2.25% after fiscal year ended 1996).
The Company has maintained required minimum working capital, tangible net
worth, operating income, and financial ratios and is prohibited from
distributing dividends on the Company's common stock under certain covenants and
restrictions of the credit facility and senior subordinated note.
SUBORDINATED NOTES PAYABLE
The senior subordinated note payable to an affiliate of the principal
shareholders (senior note) and the junior subordinated notes payable to certain
shareholders (junior notes) are due October 10, 2000 and require monthly
interest payments at 12.14% with all unpaid principal due on October 10, 2000.
The senior and junior notes contain certain prepayment penalties; however,
the Company may not make principal payments on the junior notes without written
agreement from the shareholder under a subordination agreement between the
Company and the shareholders. The senior note is secured by substantially all of
the Company's tangible assets, subordinate to the security interests of the
nonsubordinated bank debt discussed below. The junior notes are subordinate to
and cross-defaulted with the senior note and nonsubordinated bank debt discussed
above.
The shareholders holding the junior notes hold warrants to purchase
approximately 1,700,000 shares of the Company's Class A common stock for $0.425
per share.
Interest expense consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest incurred................................................ $ 2,836 $ 3,039 $ 2,771
Capitalized...................................................... (11) (30) (19)
Interest income.................................................. (13) (2) (84)
--------- --------- ---------
Interest expense, net............................................ $ 2,812 $ 3,007 $ 2,668
--------- --------- ---------
--------- --------- ---------
</TABLE>
Included in interest expense is $1,388,000, $1,108,000 and $212,000 incurred
on subordinated shareholder notes in 1994, 1995 and 1996, respectively. There
was no interest payable to these shareholders at fiscal year ended 1995 and
1996.
The Company has met the specified minimum operating income and financial
ratios required to reduce the interest rate on most of its facility by 0.50%,
effective fiscal year ended 1996. Therefore, the
F-10
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND LEASE OBLIGATIONS (CONTINUED)
Company believes the fair value of the long-term debt at fiscal year ended 1996
approximates the carrying value of such debt at fiscal year ended 1996.
LEASE OBLIGATIONS
The Company also leases certain manufacturing, warehousing, and
administrative space under noncancelable operating leases. At fiscal year ended
1996, future minimum payments under noncancelable operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 1,097
1998................................................................ 1,015
1999................................................................ 976
2000................................................................ 897
2001................................................................ 387
---------
Total minimum lease payments........................................ $ 4,372
---------
---------
</TABLE>
Rental expense approximated $522,000, $1,006,000, and $1,143,000 in 1994,
1995, and 1996, respectively. Rental expense is before sublease income of
$206,000 in 1996. Future sublease rental income commitments aggregated
$1,616,000 at fiscal year ended 1996.
5. SHAREHOLDERS' EQUITY AND SHAREHOLDERS' TRANSACTIONS
COMMON STOCK
Class A common stock and convertible Class B common stock have identical
rights, terms and conditions except that convertible Class B common stock is
nonvoting.
The following summarizes the shares of common stock reserved for issuance at
January 3, 1997:
<TABLE>
<CAPTION>
CLASS A
COMMON
STOCK
---------------
<S> <C>
(IN THOUSANDS)
Exercise of warrants........................................................... 1,700
Exercise of options under the 1989 Stock Option Plan........................... 1,600
-----
3,300
-----
-----
</TABLE>
WARRANTS AND SHAREHOLDERS' TRANSACTIONS
At fiscal year ended 1994, a bank held warrants (bank warrants) to purchase
approximately 3,333,000 shares of convertible Class B common stock at $0.425 per
share.
On October 10, 1995, the Company and the bank owning the warrants entered
into a settlement agreement whereby the Company repurchased the outstanding
warrants and shares held by the bank and repaid the senior subordinated debt
owed to the bank. As a result of these transactions, an unamortized debt
discount of $950,000 and settlement fees of $412,000 have been expensed. These
amounts are shown as an extraordinary item in the 1995 income statement, net of
tax.
F-11
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY AND SHAREHOLDERS' TRANSACTIONS (CONTINUED)
The shareholder warrants, issued in connection with the junior subordinated
notes described in Note 4, expire on January 30, 2002. Any time after January
30, 1995, the Company may call or the shareholders may put all or a portion of
the warrants at a price based on the difference between the fair value of the
Class A common stock (determined by an agreed-upon independent appraiser) and
the exercise price of the warrants. The aggregate increase in the difference
between the fair value of the Class A common stock and the exercise price of the
shareholder warrants ($587,000 in 1995 and $1,241,000 in 1996) has been charged
to accumulated deficit.
On October 25, 1996, the Company loaned $4,000,000 to an affiliate of the
principal shareholders which note bears interest at the highest rate actually
charged to the Company under its credit facility with a bank. All unpaid
principal and interest are due on October 25, 2001. The Company is charged a
management fee by an affiliate of the principal shareholders which was $250,000
in each of the three fiscal years ended 1996.
STOCK OPTIONS
The Company accounts for its stock option plan in accordance with provisions
of the Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB Opinion No. 25). In 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (FAS 123), that provides an alternative to APB
Opinion No. 25. The Company will continue to account for its employee stock
plans in accordance with the provisions of APB Opinion No. 25 with footnote
disclosures of the material impact of FAS 123. The number of shares granted in
fiscal year ended 1995 and 1996 are not material, therefore, the effect of
applying the FAS 123 minimum value method to the Company's stock option grants
would not result in pro forma net income materially different from historical
amounts reported. Therefore, such pro forma information and weighted average
assumptions specified in FAS 123 are not separately presented herein. Future pro
forma net income results may be materially different from actual amounts
reported.
Under the 1989 Stock Option Plan (the Plan), incentive and nonqualified
options to purchase up to a total of 1,600,000 shares of Class A common stock
may be granted to officers and employees at the discretion of the Board of
Directors. Incentive stock options must be granted at not less than the fair
value of the Company's common stock at the date of grant, and nonqualified stock
options must be granted at not less than 85% of the fair value of the Company's
common stock at the date of grant. Options vest as determined by the Board of
Directors. Currently, substantially all outstanding options vest ratably over
five years from date of grant. During 1996, the Company granted 200,000
incentive options to two officers under the Plan which vested immediately on the
date of grant.
During 1996, the Company also granted 360,000 nonqualified options to two
officers which vested immediately on the date of grant.
F-12
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY AND SHAREHOLDERS' TRANSACTIONS (CONTINUED)
A summary of all stock option activity is as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE
OUTSTANDING PRICE PER SHARE
------------- -----------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE PRICE)
Balance at fiscal year ended 1993............................. 1,184 $ 0.425
Granted..................................................... 200 $ 0.425
Exercised................................................... (2) $ 0.425
Canceled.................................................... (4) $ 0.425
-----
Balance at fiscal year ended 1994............................. 1,378 $ 0.425
Granted..................................................... 25 $ 0.425
Exercised................................................... -- $ --
Canceled.................................................... (144) $ 0.425
-----
Balance at fiscal year ended 1995............................. 1,259 $ 0.425
Granted..................................................... 618 $ 1.500
Exercised................................................... (181) $ 0.425
Canceled.................................................... (96) $ 0.425
-----
Balance at fiscal year ended 1996............................. 1,600 $ 0.840
-----
-----
</TABLE>
There were approximately 1,564,000 options exercisable at fiscal year ended
1996. Options outstanding at fiscal year ended 1996 ranged in price from $0.425
to $1.500 and had a weighted average contractual life of fifty-three months.
6. DISCONTINUED OPERATION
On June 28, 1996, the Company disposed of certain of the assets related to
its custom-molded organic rubber products manufacturing operation for cash and
future consideration. The 1996 loss from the discontinued operation includes
results through June 28, 1996. Net sales of the discontinued operation were
$9,099,000, $8,984,000, and $4,279,000 in 1994, 1995, and 1996, respectively.
7. PENSION AND RETIREMENT PLANS
The Company maintains a defined benefit pension plan covering substantially
all of its hourly employees in San Jose, California. The benefits are based on
years of service and the benefit credit rates stated in the provisions of the
plan. The Company funds the plan at the minimum amount required to be paid under
the provisions of the Employee Retirement and Income Security Act of 1976
(ERISA). Contributions are intended to provide for benefits attributed to
service to date as well as for those expected to be earned in the future.
F-13
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PENSION AND RETIREMENT PLANS (CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets as of fiscal year end:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefit obligation................................................ $ 2,661 $ 2,713
Nonvested benefit obligation............................................. 114 183
--------- ---------
Accumulated benefit obligation............................................. $ 2,775 $ 2,896
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Plan assets at fair value, primarily listed stocks and U.S. bonds.......... $ 2,789 $ 2,920
Projected benefit obligation............................................... 2,775 2,896
--------- ---------
Plan assets in excess of projected benefit obligation...................... 14 24
Unrecognized net loss from past experience different from that assumed and
effects of changes in assumptions........................................ 406 352
Prior service cost not yet recognized in net periodic pension cost......... 205 166
--------- ---------
Prepaid pension cost....................................................... $ 625 $ 542
--------- ---------
--------- ---------
</TABLE>
Net periodic pension expense for 1994, 1995, and 1996 included the following
components:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost--benefits earned during the year....................... $ 68 $ 57 $ 65
Interest cost on projected benefit obligation....................... 169 183 193
Actual return on plan assets........................................ 30 (342) (233)
Net amortization and deferral....................................... (235) 168 58
--------- --------- ---------
Net periodic pension cost........................................... $ 32 $ 66 $ 83
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8.0% in 1994, 7.00% in 1995, and
7.75% in 1996. The expected long-term rate of return on plan assets was 8.50%
for all of the years presented.
The Company also maintains a defined contribution 401(k) plan covering
substantially all of its other regular employees. The employees become eligible
for participation after 1,000 hours of service. Participants may elect to
contribute up to 20% of their compensation to this plan, subject to Internal
Revenue Service (IRS) limits. The Company matches a portion of the employee's
contribution. The Company contributed approximately $75,000, $105,000, and
$113,000 to this plan in 1994, 1995, and 1996, respectively.
F-14
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The income tax provision recognized in the consolidated statements of
operations consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Deferred:
Federal........................................................ $ 49 $ (407) $ 150
State.......................................................... 29 (55) 91
--------- --------- ---------
78 (462) 241
Current:
Federal........................................................ 761 2,527 2,171
State.......................................................... 215 338 493
--------- --------- ---------
976 2,865 2,664
--------- --------- ---------
$ 1,054 $ 2,403 $ 2,905
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1996, the Company settled with the IRS certain issues relating to the
Company's income tax returns for 1988 through 1990. As of fiscal year ended
1995, the Company has fully provided for the taxes and interest payable as a
result of the settlement.
A reconciliation of the income tax provision at the U.S. federal statutory
rate (34%) to the income tax provision at the effective tax rate is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Income taxes computed at the U.S. federal statutory rate......... $ 869 $ 1,189 $ 2,382
State taxes (net of federal benefit)............................. 161 187 385
IRS settlement................................................... -- 1,000 --
Other individually immaterial items.............................. 24 27 138
--------- --------- ---------
Income tax provision............................................. $ 1,054 $ 2,403 $ 2,905
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-15
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
purposes. Significant components of the Company's deferred tax assets and
liabilities at fiscal years ended 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax liabilities:
Increase in assets as a result of acquisition in 1988.................. $ (3,141) $ (3,064)
Depreciation........................................................... (334) (380)
Other.................................................................. (137) (115)
--------- ---------
Total deferred tax liabilities........................................... (3,612) (3,559)
Deferred tax assets:
Receivable allowances and inventory valuation.......................... 483 387
State taxes............................................................ 117 199
Warranty reserve....................................................... 204 196
Accrued vacation....................................................... 258 255
Other.................................................................. 348 79
--------- ---------
Total deferred tax assets................................................ 1,410 1,116
Valuation allowance...................................................... -- --
--------- ---------
Net deferred tax liability............................................... $ (2,202) $ (2,443)
--------- ---------
--------- ---------
</TABLE>
In addition to the settlement described above, the Company received a
"Notice of Deficiency" from the IRS for 1992 and 1993, also related to the
reorganization of the Company in 1988, resulting in proposed tax deficiencies of
approximately $1,534,000. Penalties on these proposed deficiencies would be
$290,000. The Company filed a tax court petition contesting the proposed tax
deficiencies. The Company believes that it has meritorious legal defenses to the
proposed IRS adjustments. Based upon the Company's analysis of the issues,
management believes that an adequate provision has been made for additional
liabilities that may ultimately result.
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash paid for interest.......................................................... $ 2,438 $ 2,683 $ 1,950
Cash paid for income taxes...................................................... $ 1,395 $ 1,315 $ 2,771
Borrowings of long-term debt.................................................... $ 54,638 $ 101,393 $ 79,516
Repayments and settlement of long-term debt and capital lease obligations....... $ 57,964 $ 97,702 $ 83,678
Long-term capital lease obligations incurred in connection with the acquisition
of equipment.................................................................. $ 80 $ -- $ --
Note payable issued in connection with asset acquisition........................ $ -- $ 1,000 $ --
</TABLE>
F-16
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (UNAUDITED)
The Company has renewed its collective bargaining agreement with United
Electrical Radio, and Machine Workers of America, who represent the Company's
hourly workers in Tauton, Massachusetts, through June 6, 2000.
In August 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement"), pursuant to which the Company was recapitalized (the
"Recapitalization"). Pursuant to the Merger Agreement, all shares of the
Company's common stock, other than those retained by certain members of
management and certain other shareholders ("Continuing Shareholders"), were
converted into the right to receive cash based upon a formula. The Continuing
Shareholders agreed to retain approximately 15% of the common equity of the
Company. In order to finance the transactions contemplated by the
Recapitalization, the Company (i) issued $110 million of senior notes in a debt
offering; (ii) received $20.0 million in cash from an investor group for Common
Stock and (iii) received $18.0 million in cash for the issuance of Redeemable
Preferred Stock.
F-17
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
<S> <C> <C>
JULY 4,
JUNE 28, 1996 1997
------------- -----------
Net sales............................................................................. $ 35,159 $ 46,011
Costs and expenses:
Cost of sales....................................................................... 24,520 32,467
Selling............................................................................. 3,374 3,727
General and administrative.......................................................... 2,139 2,389
------------- -----------
Income from operations................................................................ 5,126 7,428
Interest expense, net................................................................. 1,406 1,013
------------- -----------
Income before income tax provision and discontinued operation......................... 3,720 6,415
Income tax provision.................................................................. 1,488 2,565
------------- -----------
Income from continuing operations before discontinued operation....................... 2,232 3,850
Loss from discontinued operation, net of income tax benefit of $205................... (308) --
Loss on disposal of discontinued operation, net of income tax benefit of $356......... (624) --
------------- -----------
Net income............................................................................ $ 1,300 $ 3,850
------------- -----------
------------- -----------
</TABLE>
The accompanying Notes to Consolidated Financial Statements (Unaudited)
are an integral part of these statements.
F-18
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 3, JULY 4,
1997 1997
----------- -----------
<S> <C> <C>
(1) (UNAUDITED)
ASSETS
Current assets:
Trade accounts receivable, less allowance of $189 in 1996 and $289 in 1997............. $ 9,155 $ 13,398
Inventories............................................................................ 8,616 8,957
Prepaid expenses and other current assets.............................................. 630 777
Deferred income tax assets............................................................. 1,014 1,014
----------- -----------
Total current assets................................................................. 19,415 24,146
Property, plant, and equipment:
Land and improvements.................................................................. 1,884 1,884
Buildings and improvements............................................................. 9,151 9,151
Equipment.............................................................................. 12,329 12,414
Leasehold improvements................................................................. 555 555
----------- -----------
23,919 24,004
Accumulated depreciation and amortization................................................ 9,101 9,781
----------- -----------
14,818 14,223
Construction-in-process.................................................................. 183 663
----------- -----------
15,001 14,886
Prepaid pension cost..................................................................... 542 542
Goodwill, net............................................................................ 1,529 1,511
Note receivable from an affiliate of the principal shareholders.......................... 4,066 4,255
Other assets............................................................................. 120 124
----------- -----------
Total assets......................................................................... $ 40,673 $ 45,464
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks outstanding in excess of funds deposited........................................ $ 828 $ 1,373
Trade accounts payable and accrued expenses............................................ 6,454 5,949
Accrued compensation and related liabilities........................................... 1,937 1,991
Income taxes payable................................................................... 2,468 2,398
Current portion of long-term obligations............................................... 2,400 2,400
----------- -----------
Total current liabilities............................................................ 14,087 14,111
Long-term obligations, less current portion.............................................. 16,469 17,369
Other noncurrent liabilities............................................................. 720 713
Deferred income tax liabilities.......................................................... 3,457 3,457
Subordinated debt........................................................................ 1,657 1,679
Shareholders' equity:
Class A common stock, no par value:
Authorized shares--20,000
Issued and outstanding shares--9,377 in 1996 and 9,399 in 1997....................... 6,716 11,818
Convertible Class B common stock, no par value:
Authorized shares--5,000
Issued and outstanding shares--none.................................................. -- --
Accumulated deficit.................................................................... (2,433) (3,683)
----------- -----------
Total shareholders' equity........................................................... 4,283 8,135
----------- -----------
Total liabilities and shareholders' equity........................................... $ 40,673 $ 45,464
----------- -----------
----------- -----------
</TABLE>
- --------------------------
(1) The information in this column was derived from the Company's audited
consolidated financial statements at January 3, 1997.
The accompanying Notes to Consolidated Financial Statements (Unaudited)
are an integral part of these statements.
F-19
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
<S> <C> <C>
JUNE 28, JULY 4,
1996 1997
----------- ---------
OPERATING ACTIVITIES
Net income.................................................................................... $ 1,300 $ 3,850
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization:
Property, plant, and equipment............................................................ 682 680
Goodwill.................................................................................. 21 18
Debt discounts arising from warrants...................................................... 19 22
Loss on disposal of discontinued operation.................................................. 624 --
Changes in net assets of discontinued operation............................................. 898 --
Changes in operating assets and liabilities:
Trade accounts receivable................................................................. (1,182) (4,243)
Inventories............................................................................... (261) (341)
Prepaid expenses and other current assets................................................. 128 (147)
Other assets.............................................................................. 11 (4)
Checks outstanding in excess of funds deposited........................................... (410) 545
Trade accounts payable and accrued expenses............................................... 2,091 (505)
Accrued compensation and related liabilities.............................................. 89 54
Income taxes payable...................................................................... (576) (70)
Other noncurrent liabilities.............................................................. -- (7)
----------- ---------
Net cash provided by (used in) operating activities........................................... 3,434 (148)
INVESTING ACTIVITIES
Purchases of property, plant, and equipment................................................... (1,064) (565)
Proceeds from disposal of discontinued operation.............................................. 950 --
Note receivable from an affiliate of the principal shareholders............................... -- (189)
----------- ---------
Net cash provided by (used in) investing activities........................................... (114) (754)
FINANCING ACTIVITIES
Net borrowings (repayments) of long-term debt................................................. (3,346) 900
Proceeds from sales of shares through employee stock plans.................................... 26 2
----------- ---------
Net cash provided by (used in) financing activities........................................... (3,320) 902
----------- ---------
Change in cash................................................................................ -- --
Cash at beginning of period................................................................... -- --
----------- ---------
Cash at end of period......................................................................... $ -- $ --
----------- ---------
----------- ---------
</TABLE>
The accompanying Notes to Consolidated Financial Statements (Unaudited)
are an integral part of these statements.
F-20
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND ACCOUNTING PERIODS
The accompanying consolidated financial statements of Burke Industries, Inc.
and subsidiaries (the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with Rule
10-01 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) considered necessary for fair presentation have
been included.
Operating results for the six months ended July 4, 1997 are not necessarily
indicative of the results that may be expected for the year ending January 2,
1998.
The Company uses a 52 to 53-week fiscal year ending on the Friday closest to
December 31. The Company also follows a 4/4/5 week quarterly cycle. The
six-month periods ended on June 28, 1996 and July 4, 1997.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 4,
JANUARY 3, 1997 1997
--------------- -----------
<S> <C> <C>
(IN THOUSANDS)
Raw materials................................................... $ 3,260 $ 3,489
Work-in-process................................................. 1,433 1,586
Finished goods.................................................. 3,923 3,882
------ -----------
$ 8,616 $ 8,957
------ -----------
------ -----------
</TABLE>
4. DISCONTINUED OPERATION
On June 28, 1996, the Company disposed of certain assets related to its
custom-molded organic rubber products manufacturing operations for cash and
future consideration. The 1996 loss from discontinued operation includes results
through June 28, 1996.
F-21
<PAGE>
BURKE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. SHAREHOLDERS' EQUITY
Changes in shareholders' equity from January 4, 1997 to July 4, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
-------------------- ACCUMULATED
SHARES AMOUNT DEFICIT
--------- --------- ------------
<S> <C> <C> <C>
Balance at January 4, 1997................................. 9,377 $ 6,716 $ (2,433)
Net income............................................... -- -- 3,850
Proceeds from sales of shares through employees stock
plans.................................................. 22 2
Increase in value of shareholder warrants................ -- 5,100 (5,100)
--------- --------- ------------
Balance at July 4, 1997.................................... 9,399 $ 11,818 $ (3,683)
--------- --------- ------------
--------- --------- ------------
</TABLE>
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ADDITIONAL COPIES OF THE PROSPECTUS, LETTER OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE AGENT AS FOLLOWS:
BY REGISTERED OR CERTIFIED MAIL:
UNITED STATES TRUST COMPANY OF NEW YORK
P.O. BOX 844
COOPER STATION
NEW YORK, NY 10276-0844
ATTN: CORPORATE TRUST SERVICES
BY FACSIMILE:
(212) 420-6152
BY OVERNIGHT COURIER:
UNITED STATES TRUST COMPANY OF NEW YORK
770 BROADWAY, 13TH FLOOR
NEW YORK, NEW YORK 10003
ATTN: CORPORATE TRUST SERVICES
BY HAND:
UNITED STATES TRUST COMPANY OF NEW YORK
111 BROADWAY
LOWER LEVEL
NEW YORK, NEW YORK 10006
ATTN: CORPORATE TRUST SERVICES
CONFIRM BY TELEPHONE 800-548-6565
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL)
NO BROKER DEALER OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFER
MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (90 DAYS FROM THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
OFFER TO EXCHANGE ALL OUTSTANDING 10% SENIOR NOTES DUE 2007 ($110,000,000
PRINCIPAL AMOUNT) FOR 10% SENIOR NOTES DUE 2007.
[LOGO]
PAYMENT OF PRINCIPAL AND INTEREST
UNCONDITIONALLY GUARANTEED BY ITS SUBSIDIARIES
---------------------
PROSPECTUS
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a California corporation. Section 317 of the California
Corporations Code authorizes the indemnification by a California corporation of
any person who was or is a party or is threatened to be made a party to any
proceeding by reason of that person's status as an agent of the corporation;
provided that no such indemnification may be provided for any person if he or
she shall (i) not have acted in good faith and in a manner the person reasonably
believed to be in the best interests of the corporation, or (ii) in any criminal
proceeding, not have had reasonable cause to believe his or her conduct was not
unlawful. In the case of actions brought by or in the right of the corporation,
indemnification may only be provided if the person acted in good faith, and in a
manner the person believe to be in the best interests of the corporation and its
shareholders. Indemnification must be provided to the extent that an agent has
been successful, on the merits or otherwise, in defense of an action of the type
described in the first and second sentences of this paragraph.
The Bylaws of the Company provide that it shall indemnify and hold harmless
any person who is or was a director or officer of the Company, or who is or was
serving at the request of the Board of Directors of the Company as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise (an "Agent"), from and
against any expenses, judgments, fines, settlements, and other amounts actually
and reasonably incurred in connection with any "proceeding" (as defined in
Section 317(a)) to the fullest extent permitted by applicable law. In the event
of such person's death, the right of indemnification under the Bylaws of the
Company shall extend to such person's legal representatives. The right of
indemnification under the Company's ByLaws is not exclusive of any other rights
such person may have whether by law or under any agreement, insurance policy,
vote of directors or shareholders, or otherwise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------
<C> <S>
1 Purchase Agreement, dated August 14, 1997, between the Company and the Initial Purchaser.*
2.1 Agreement and Plan of Merger, dated as of August 13, 1997, by and among the Company, the
Company Shareholders, JFLEI and MergerCo.
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Articles of Incorporation of Burke Flooring Products, Inc.
3.4 Bylaws of Burke Flooring Products, Inc.
3.5 Articles of Incorporation of Burke Rubber Company, Inc.
3.6 Bylaws of Burke Rubber Company, Inc.
3.7 Articles of Incorporation of Burke Custom Processing, Inc.
3.8 Bylaws of Burke Custom Processing, Inc.
4.1 Indenture among the Company, the Subsidiary Guarantors and United States Trust Company of
New York, relating to the Old Notes and the New Notes, dated as of August 20, 1997.
4.2 Form of Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement, dated August 20, 1997, between the Company and the Holders.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Gibson, Dunn & Crutcher LLP, including consent.*
8.1 Opinion of Gibson, Dunn & Crutcher LLP with regard to federal income tax consequences of
the Exchange Offer.*
10.1 Loan and Security Agreement, dated August 20, 1997, between the Company, the Lenders and
NationsBank, N.A.
10.2 Form of Revolving Note.
10.3 Subsidiary Guaranty, dated August 20, 1997, between the Company and the Subsidiaries.
10.4 Subsidiary Security Agreement, dated August 20, 1997, between the Company and the
Subsidiaries.
10.5 Stock Pledge Agreement, dated August 20, 1997.
10.6 Investment Agreement, dated August 20, 1997, between the Company and preferred
shareholders.
10.7 Shareholders' Agreement, dated August 20, 1997, between the Company and the shareholders.
10.8 Shareholders' Registration Rights Agreement, dated August 20, 1997, between the Company and
the shareholders.*
10.9 Warrantholders' Registration Rights Agreement, dated August 20, 1997, between the Company
and the warrantholders.
10.10 Form of Warrant Certificate.
10.11 Management Agreement, dated August 20, 1997, between the Company and J. F. Lehman &
Company.
10.12 Lease Agreement, dated April 30, 1997 between the Company and Senter Properties, LLC for
the premises at 2049 Senter Road, San Jose, CA.
10.13 Lease Agreement, dated May 1, 1996, between the Company and SSMRT Bensenville Industrial
Park (3), Inc. for the premises at 870 Thomas Drive, Bensenville, IL.
10.14 Lease Agreement, dated October 20, 1995, between the Company and Lincoln Property Company
for the premises at 13767 Freeway Drive, Santa Fe Springs, CA.
10.15 Lease Agreement, dated April 25, 1983, between the Company and Donald M. Hypes for the
premises at 14910 Carmenita Blvd., Norwalk, CA.
10.16 Lease Agreement, dated March 29, 1996, between the Company and S&M Development Co., a
general partnership for the premises at 13615 Excelsior Drive, Santa Fe Springs, CA.
10.17 Lease Agreement, dated June 5, 1995, between the Company and Stephen S. Gray, the duly
appointed Chapter 7 Trustee of the Estate of Haskon Corporation for the premises at 336
Weir Street, Taunton, MA.
10.18 Sublease Agreement, dated February 20, 1992, between Burke Rubber Company for the premises
at 107 South Riverside Drive, Modesto, CA.
10.19 Servicing Agreement, dated April 26, 1996, between the Company and Westland Technologies.
12.1 Statement re: Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges
and Preferred Stock Dividends.
21.1 Subsidiaries of the Company.
23.1 Consent of Gibson, Dunn & Crutcher (to be included in Exhibit 5.1) LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------
<C> <S>
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (see pages II-4 through II-8 of this Registration Statement).
25.1 Statement of Eligibility of United States Trust Company of New York, as trustee under the
Indenture filed as Exhibits 4.1 and 4.2, on Form T-1 (filed under separate cover).
99.1 Form of Letter of Transmittal to be used in connection with the Notes Exchange Offer.*
99.2 Notice of Guaranteed Delivery regarding Old Notes.*
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedule
The following financial statement schedule is filed with Part II of this
Registration Statement:
<TABLE>
<CAPTION>
Schedule Number Description of Schedule
- ------------------------------------- -------------------------------------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake with respect to the securities
offered by them:
1. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted as to directors, officers
and controlling persons of any Registrant pursuant to the provisions described
in Item 20 or otherwise, the Registrants have been advised that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Act and is, therefore unenforceable. In the event a claim for
indemnification against such liabilities (other than the payment by any
Registrant of expenses incurred or paid by a director, officer or controlling
person of such Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, such Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
2. The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
3. The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California on the 26th day of September, 1997.
BURKE INDUSTRIES, INC.,
a California corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Rocco C.
Genovese his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Director, Chief Executive
/s/ ROCCO C. GENOVESE Officer and President
- ------------------------------ (Principal Executive September 26, 1997
Rocco C. Genovese Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and September 26, 1997
David E. Worthington Accounting Officer)
/s/ REED C. WOLTHAUSEN
- ------------------------------ Director September 26, 1997
Reed C. Wolthausen
/s/ JOHN F. LEHMAN
- ------------------------------ Director September 26, 1997
John F. Lehman
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DONALD GLICKMAN
- ------------------------------ Director September 26, 1997
Donald Glickman
/s/ GEORGE SAWYER
- ------------------------------ Director September 26, 1997
George Sawyer
/s/ KEITH OSTER
- ------------------------------ Director September 26, 1997
Keith Oster
/s/ OLIVER C. BOILEAU
- ------------------------------ Director September 26, 1997
Oliver C. Boileau
/s/ THOMAS G. POWNALL
- ------------------------------ Director September 26, 1997
Thomas G. Pownall
/s/ BRUCE D. GORCHOW
- ------------------------------ Director September 26, 1997
Bruce D. Gorchow
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California on the 26th day of September, 1997.
BURKE FLOORING PRODUCTS, INC.,
a California corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese,
PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Rocco C.
Genovese his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROCCO C. GENOVESE
- ------------------------------ President (Principal September 26, 1997
Rocco C. Genovese Executive Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and September 26, 1997
David E. Worthington Accounting Officer)
/s/ KEITH OSTER
- ------------------------------ Director September 26, 1997
Keith Oster
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California on the 26th day of September, 1997.
BURKE RUBBER COMPANY, INC.,
a California corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese,
PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Rocco C.
Genovese his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROCCO C. GENOVESE
- ------------------------------ President (Principal September 26, 1997
Rocco C. Genovese Executive Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and September 26, 1997
David E. Worthington Accounting Officer)
/s/ KEITH OSTER
- ------------------------------ Director September 26, 1997
Keith Oster
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Jose, State of
California on the 26th day of September, 1997.
BURKE CUSTOM PROCESSING, INC., a
California corporation
By: /s/ ROCCO C. GENOVESE
-----------------------------------------
Rocco C. Genovese,
PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Rocco C.
Genovese his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ ROCCO C. GENOVESE
- ------------------------------ President (Principal September 26, 1997
Rocco C. Genovese Executive Officer)
/s/ DAVID E. WORTHINGTON Vice President--Finance
- ------------------------------ (Principal Financial and September 26, 1997
David E. Worthington Accounting Officer)
/s/ KEITH OSTER
- ------------------------------ Director September 26, 1997
Keith Oster
II-8
<PAGE>
INDEX TO FINANCIAL
STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. S-2
Schedule II--Valuation and Qualifying Accounts............................................................. S-3
</TABLE>
S-1
<PAGE>
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Burke Industries, Inc. and Subsidiaries
We have audited the consolidated financial statements of Burke Industries,
Inc. as of January 3, 1997 and December 29, 1995, and for each of the three
years in the period ended January 3, 1997, and have issued our report thereon
dated March 7, 1997 included elsewhere in this Registration Statement. Our
audits also included the financial statement schedule listed in Item 21(b) of
this Registration Statement. This Schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
San Jose, California
March 7, 1997
S-2
<PAGE>
SCHEDULE II
VALUATION & QUALIFYING ACCOUNTS
BURKE INDUSTRIES, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND (A) BALANCE AT
DESCRIPTION PERIOD EXPENSES DEDUCTIONS END OF PERIOD
- ------------------------------------------------------------ --------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
(deducted from accounts receivable)
Year ended January 3, 1997................................ $ 336 $ 225 $ 372 $ 189
Year ended December 29, 1995.............................. 95 367 126 336
Year ended December 30, 1994.............................. 75 100 80 95
</TABLE>
- ------------------------
(a) Includes write-offs and reversals
S-3
<PAGE>
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BURKE INDUSTRIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1 Purchase Agreement, dated August 14, 1997, between the Company and the Initial Purchaser.*
2.1 Agreement and Plan of Merger, dated as of August 13, 1997, by and among the Company, the Company
Shareholders, JFLEI and MergerCo.
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
3.3 Articles of Incorporation of Burke Flooring Products, Inc.
3.4 Bylaws of Burke Flooring Products, Inc.
3.5 Articles of Incorporation of Burke Rubber Company, Inc.
3.6 Bylaws of Burke Rubber Company, Inc.
3.7 Articles of Incorporation of Burke Custom Processing, Inc.
3.8 Bylaws of Burke Custom Processing, Inc.
4.1 Indenture among the Company, the Subsidiary Guarantors and United States Trust Company of New York,
relating to the Old Notes and the New Notes, dated as of August 20, 1997.
4.2 Form of Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement, dated August 20, 1997, between the Company and the Holders.
5.1 Opinion of Gibson, Dunn & Crutcher LLP, including consent.*
8.1 Opinion of Gibson, Dunn & Crutcher LLP with regard to federal income tax consequences of the Exchange
Offer.*
10.1 Loan and Security Agreement, dated August 20, 1997, between the Company, the Lenders and NationsBank,
N.A.
10.2 Form of Revolving Note.
10.3 Subsidiary Guaranty, dated August 20, 1997, between the Company and the Subsidiaries.
10.4 Subsidiary Security Agreement, dated August 20, 1997, between the Company and the Subsidiaries.
10.5 Stock Pledge Agreement, dated August 20, 1997.
10.6 Investment Agreement, dated August 20, 1997, between the Company and preferred shareholders.
10.7 Shareholders' Agreement, dated August 20, 1997, between the Company and the shareholders.
10.8 Shareholders' Registration Rights Agreement, dated August 20, 1997, between the Company and the
shareholders.*
10.9 Warrantholders' Registration Rights Agreement, dated August 20, 1997, between the Company and the
warrantholders.
10.10 Form of Warrant Certificate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.11 Management Agreement, dated August 20, 1997, between the Company and J. F. Lehman & Company.
10.12 Lease Agreement, dated April 30, 1997 between the Company and Senter Properties, LLC for the premises
at 2049 Senter Road, San Jose, CA.
10.13 Lease Agreement, dated May 1, 1996, between the Company and SSMRT Bensenville Industrial Park (3),
Inc. for the premises at 870 Thomas Drive, Bensenville, IL.
10.14 Lease Agreement, dated October 20, 1995, between the Company and Lincoln Property Company for the
premises at 13767 Freeway Drive, Santa Fe Springs, CA.
10.15 Lease Agreement, dated April 25, 1983, between the Company and Donald M. Hypes for the premises at
14910 Carmenita Blvd., Norwalk, CA.
10.16 Lease Agreement, dated March 29, 1996, between the Company and S&M Development Co., a general
partnership for the premises at 13615 Excelsior Drive, Santa Fe Springs, CA.
10.17 Lease Agreement, dated June 5, 1995, between the Company and Stephen S. Gray, the duly appointed
Chapter 7 Trustee of the Estate of Haskon Corporation for the premises at 336 Weir Street, Taunton,
MA.
10.18 Sublease Agreement, dated February 20, 1992, between Burke Rubber Company for the premises at 107
South Riverside Drive, Modesto, CA.
10.19 Servicing Agreement, dated June 27, 1996, between the Company and Westland Technologies.
12.1 Statement re: Computation of Ratios of Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Stock Dividends.
21.1 Subsidiaries of the Company.
23.1 Consent of Gibson, Dunn & Crutcher (to be included in Exhibit 5.1) LLP.
23.2 Consent of Ernst & Young LLP.
24.1 Powers of Attorney (see pages II-4 through II-8 of this Registration Statement).
25.1 Statement of Eligibility of United States Trust Company of New York, as trustee under the Indenture
filed as Exhibits 4.1 and 4.2, on Form T-1 (filed under separate cover).
99.1 Form of Letter of Transmittal to be used in connection with the Notes Exchange Offer.*
99.2 Notice of Guaranteed Delivery regarding Old Notes.*
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
J.F. LEHMAN EQUITY INVESTORS I, LP
JFL MERGER CO.,
BURKE INDUSTRIES, INC.,
AND
SHAREHOLDERS OF
BURKE INDUSTRIES, INC.
August 13, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE I. THE MERGER......................................................1
1.1. The Merger......................................................1
1.2. Effective Time..................................................2
1.3. Closing of the Merger...........................................2
1.4. Effects of the Merger...........................................4
1.5. Articles of Incorporation and Bylaws............................4
1.6. Directors.......................................................4
1.7. Officers........................................................4
1.8. Preferred Stock.................................................4
1.9. Exchange Offer..................................................4
1.10. Conversion of the Cancelled Shares..............................4
1.11. Continuing Shares...............................................5
1.12. Appraisal Rights................................................6
1.13. Payment of Merger Consideration.................................6
1.14. Exchange of Certificates........................................7
1.15. Stock Options; Warrants.........................................7
1.16. Additional Consideration........................................8
1.17. Payment of Shareholder Debt and Exercise Proceeds...............9
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS..................9
2.1. Title to Common Stock...........................................9
2.2. Requisite Consents; Nonviolation................................9
2.3. Due Incorporation; Requisite Power and Authority; Authorization
and Enforceability.............................................10
2.4. Capitalization.................................................10
2.5. Subsidiaries, Etc..............................................11
2.6. Financial Data.................................................11
2.7. No Material Changes............................................11
2.8. Undisclosed Liabilities........................................12
2.9. Governmental Authorizations....................................12
2.10. Litigation.....................................................12
2.11. Employee Benefit Plans.........................................12
2.12. Patent, Trademark and Related Matters..........................14
2.13. Real and Personal Property.....................................14
2.14. Insurance......................................................14
2.15. Tax Matters....................................................14
2.16. Environmental Matters..........................................16
2.17. Contracts......................................................17
2.18. Inventory......................................................18
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TABLE OF CONTENTS (cont.'d)
PAGE
2.19. Accounts Receivable............................................18
2.20. Condition of Plant and Equipment...............................18
2.21. Customers and Suppliers........................................18
2.22. Bank Accounts..................................................18
2.23. Labor Practices................................................19
2.24. Government Contracts...........................................19
2.25. Certain Business Practices.....................................20
2.26. Product Liability..............................................21
2.27. Disclosure in the Shareholders' Schedule.......................21
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF PARENT.......................21
3.1. Due Incorporation; Requisite Power and Authority...............21
3.2. Requisite Consents; Nonviolation...............................21
3.3. No Prior Activities............................................22
ARTICLE IV. CERTAIN TRANSACTIONS AND AGREEMENTS PRIOR TO THE CLOSING DATE..22
4.1. Cooperation; Confidentiality...................................22
4.2. Business Organization..........................................22
4.3. Further Assurances.............................................22
4.4. Shareholder Acknowledgment, Waiver and Voting Agreement........23
ARTICLE V. COVENANTS REGARDING POST-CLOSING ACTIVITIES....................23
5.1. Shareholders' Indemnification..................................23
5.2. Tax Indemnity..................................................25
5.3. Payment out of Escrow Account; Merger Consideration
Adjustment.....................................................26
5.4. Survival.......................................................26
5.5. Maintenance of Employee Benefit Plans..........................27
5.6. Employee Service Credit........................................27
ARTICLE VI. CONDITIONS TO OBLIGATIONS OF PARENT AND SHAREHOLDERS...........27
6.1. Government Approvals; Litigation...............................27
6.2. Permits and Approvals..........................................27
6.3. Consummation of Debt Issuance..................................27
6.4. Exchange Offer.................................................28
6.5. Escrow Agreement...............................................28
ARTICLE VII. CONDITIONS TO PARENT'S OBLIGATIONS.............................28
7.1. Representations and Warranties.................................28
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TABLE OF CONTENTS (cont.'d)
PAGE
7.2. Closing Deliveries.............................................28
7.3. Due Diligence Review...........................................28
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS......................28
8.1. Representations and Warranties; Performance....................28
8.2. Closing Deliveries.............................................29
ARTICLE IX. FEES AND EXPENSES..............................................29
9.1. Expenses.......................................................29
9.2. Fees or Commissions of Brokers................................29
ARTICLE X. TERMINATION....................................................29
10.1. Termination of Agreement.......................................29
10.2. Effect of Termination..........................................30
ARTICLE XI. MISCELLANEOUS..................................................30
11.1. Time of the Essence............................................30
11.2. Entire Agreement...............................................30
11.3. Press Release and Public Announcements.........................30
11.4. Counterparts...................................................30
11.5. Descriptive Headings...........................................30
11.6. Notices........................................................30
11.7. Arbitration....................................................31
11.8. Choice of Law..................................................32
11.9. Binding Effect; Benefits.......................................32
11.10. Assignability..................................................32
11.11. Waiver and Amendment...........................................32
11.12. Attorneys' Fees................................................32
11.13. Knowledge Standard.............................................32
11.14. Parent's Knowledge of Breach of Shareholders' Representation...32
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EXHIBITS
Exhibit A - List of Holders of Cancelled Shares and Continuing Shares
Exhibit B - Morrison & Foerster LLP Form of Opinion
Exhibit C - Gibson, Dunn & Crutcher LLP Form of Opinion
Exhibit D - Specified Indebtedness
Exhibit E - Escrow Agreement
Exhibit F - Management Bonuses
Exhibit G - Shareholders' Schedule
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as
of August 13, 1997, is entered into by and among J.F. Lehman Equity Investors
I, L.P., a Delaware limited partnership ("Parent"), JFL MergerCo., a
California corporation ("MergerCo"), Burke Industries, Inc., a California
corporation ("Burke"), and the other persons signatory hereto (each such
person hereinafter referred to as a "Shareholder," and collectively all such
persons hereinafter referred to as the "Shareholders").
RECITALS
WHEREAS, the Boards of Directors of Burke, Parent and MergerCo
have each (i) determined that the Merger (as defined below) is fair and in
the best interests of their respective shareholders and (ii) approved the
Merger in accordance with this Agreement;
WHEREAS, Shareholders own the aggregate number of issued and
outstanding shares of Common Stock, without par value (the "Common Stock"),
and options and warrants to purchase Common Stock of Burke, representing a
majority of the issued and outstanding Common Stock;
WHEREAS, Shareholders, by signing this Agreement, acknowledge
and agree that, pursuant to the Merger, certain shares of Common Stock set
forth on EXHIBIT A under the caption "Cancelled Shares" (the "Cancelled
Shares") will be cancelled and converted into the right to receive the merger
consideration described herein and certain shares of Common Stock set forth
on EXHIBIT A under the caption "Continuing Shares" (the "Continuing Shares")
will, through the process described below, become shares of common stock of
the corporation surviving the Merger; and
WHEREAS, Shareholders have unanimously determined that the
Merger is fair and in their best interests and have agreed to vote to adopt
and approve this Agreement.
AGREEMENT
In consideration of the mutual agreements, provisions and
covenants set forth below, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Parent, MergerCo,
Burke, and Shareholders hereby agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined below) and upon the
terms and subject to the conditions of this Agreement and in accordance with
the California General
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Corporation Law ("the CGCL"), MergerCo shall be merged with and into Burke
(the "Merger"). Following the Merger, Burke shall continue as the surviving
corporation (the "Surviving Corporation") and the separate corporate
existence of MergerCo shall cease.
1.2. EFFECTIVE TIME. Subject to the terms and conditions set forth in
this Agreement, an Agreement of Merger (the "Agreement of Merger") shall be
duly executed and acknowledged by MergerCo and Burke, together with the
required officers' certificates attached thereto, and thereafter delivered to
the Secretary of State of the State of California for filing pursuant to the
CGCL effective as of the Closing Date (as defined in Section 1.3). The
Merger shall become effective at such time as a properly executed and
certified copy of the Agreement of Merger is duly filed with the Secretary of
State of the State of California in accordance with the CGCL or such later
time as Parent and Burke may agree upon and set forth in the Agreement of
Merger (the time the Merger becomes effective being referred to herein as the
"Effective Time").
1.3. CLOSING OF THE MERGER.
(a) The closing of the Merger (the "Closing") shall take place
at 10:00 a.m. local time, at the offices of Gibson, Dunn & Crutcher LLP, 333
South Grand Avenue, Los Angeles, California 90071, on August 15, 1997, or at
such other time, date and place as the parties may mutually agree, but not
later than August 25, 1997 (the "Closing Date").
(b) At the Closing, the Shareholders shall deliver to Parent:
(i) certificates representing the Cancelled Shares duly
endorsed in blank for transfer or accompanied by duly executed stock powers
assigning the Cancelled Shares in blank, which certificates shall not bear
any legend restricting the transfer of such Cancelled Shares;
(ii) a certificate of good standing for Burke issued by
the Secretary of State of the State of California and a certificate of tax
good standing for Burke issued by the California Franchise Tax Board
certifying that such corporation is in good standing upon the records of
their respective offices, together with certificates to transact business as
a foreign corporation in each jurisdiction set forth in Section 2.3 of the
Shareholders' Schedule, each as of a date not more than ten (10) days prior
to the Closing Date;
(iii) a copy of the Articles of Incorporation and Bylaws
of Burke, as amended to date, and a certified copy of resolutions of the
Board of Directors of Burke authorizing all actions necessary to consummate
the transactions contemplated by this Agreement certified by the secretary or
an assistant secretary of Burke;
(iv) a certificate of Daniel P. Flamen, Timothy E.
Howard, Rocco C. Genovese, Reed C. Wolthausen and David E. Worthington
certifying that the conditions set forth in Section 7.1 have been fulfilled;
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(v) the written opinion of Morrison & Foerster LLP,
special counsel to the Shareholders, substantially in the form attached
hereto as EXHIBIT B, which opinion shall expressly state that Parent's
lenders and investors are entitled to rely thereon;
(vi) the official stock register and minute book of
Burke, certified by the secretary or an assistant secretary of Burke;
(vii) any consents, approvals or other authorizations
necessary to effect the transactions contemplated hereby; and
(viii) an executed counterpart of the Escrow Agreement.
(c) At the Closing, Parent shall deliver, or shall cause the
Surviving Corporation to deliver, to Shareholders:
(i) the Aggregate Merger Consideration;
(ii) certificates representing the Surviving Shares in
accordance with Section 1.14;
(iii) a long-form certificate of good standing for Parent
issued by the Secretary of State of the State of Delaware, a certificate of
good standing for MergerCo issued by the Secretary of State of the State of
California and a certificate of tax good standing for MergerCo issued by the
California Franchise Tax Board certifying that Parent or MergerCo, as the
case may be, is in good standing upon the records of their respective
offices, each as of a date not more than ten (10) days prior to the Closing
Date;
(iv) a certified copy of resolutions of the Board of
Directors of MergerCo and a certified copy of resolutions of the Managing
Members of JFL Investors, L.L.C., the sole general partner of Parent,
authorizing all actions necessary to consummate the transactions contemplated
by this Agreement;
(v) a certificate of Parent certifying that the
conditions set forth in Section 8.1 have been fulfilled;
(vi) the written opinion of Gibson, Dunn & Crutcher LLP,
special counsel to Parent, substantially in the form attached hereto as
EXHIBIT C; and
(vii) an executed counterpart of the Escrow Agreement.
(d) At the Closing, Parent shall repay or pay, as appropriate
(i) the aggregate amount, as of the Closing Date, of principal of, together
with any accrued but unpaid interest on, or prepayment penalties associated
with, the indebtedness of Burke set forth on EXHIBIT D hereto and (ii) the
bonuses and other expenses listed on EXHIBIT D hereto as of the Closing Date
(collectively, the "Specified Indebtedness").
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1.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the CGCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time all the properties, rights,
privileges, powers and franchises of Burke and MergerCo shall vest in the
Surviving Corporation and all debts, liabilities and duties of Burke and
MergerCo shall become the debts, liabilities and duties of the Surviving
Corporation.
1.5. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and Bylaws of the Surviving Corporation shall be amended and
restated at and as of the Effective Time to read the same as the Articles of
Incorporation and Bylaws of MergerCo immediately prior to the Effective Time
(except that the name of the Surviving Corporation shall remain unchanged as
"Burke Industries, Inc.").
1.6. DIRECTORS. The directors of MergerCo at the Effective Time shall
be the initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
1.7. OFFICERS. The officers of Burke at the Effective Time shall be
the initial officers of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
1.8. PREFERRED STOCK. Prior to the Closing, Burke shall create a
series of preferred stock designated the Series A Preferred Stock, no par
value, of Burke (the "Preferred Shares"). If all of the shareholders of
Burke entitled to vote on the Merger approve the Merger, Burke will not issue
any Preferred Shares.
1.9. EXCHANGE OFFER. Immediately prior to the Effective Time, each
Continuing Share shall be exchanged by the holders thereof for one Preferred
Share (the "Exchange Offer"). Each Shareholder surrendering pursuant to the
Exchange Offer a certificate representing Continuing Shares shall receive a
certificate representing a like number of Preferred Shares and, if such
certificate also represents Cancelled Shares, a certificate representing a
like number of Cancelled Shares. Any Continuing Shares not surrendered for
exchange pursuant to the Exchange Offer will be deemed Cancelled Shares for
all purposes in the Merger and in this Agreement. Notwithstanding the
foregoing, if all of the shareholders of Burke entitled to vote on the Merger
approve the Merger, the Exchange Offer will not take place.
1.10. CONVERSION OF THE CANCELLED SHARES.
(a) At the Effective Time, each Cancelled Share issued and
outstanding immediately prior to the Effective Time (which shall constitute
all of the issued and outstanding Common Stock, including those shares issued
pursuant to the exercise of the Company Stock Options (as defined below)
listed on Pages 2 and 3 of EXHIBIT A under the caption "Cancelled Shares,"
other than (i) shares of Common Stock held in Burke's treasury or by any of
Burke's subsidiaries, (ii) shares of Common Stock held by Parent, MergerCo or
any other subsidiary of Parent and (iii) the Continuing Shares, including
those shares issued pursuant to the exercise of
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the Company Stock Options listed on Pages 2 and 3 of EXHIBIT A under the
caption "Continuing Shares") shall, by virtue of the Merger and without any
action on the part of MergerCo, Burke or the holder thereof, be converted
into and shall become the right to receive an amount in cash, without
interest, equal to the Merger Consideration PLUS its pro rata share of the
aggregate Exercise Proceeds and the aggregate Shareholder Debt LESS its pro
rata share of the Transaction Expenses. The "Merger Consolidation" shall be
equal to the Aggregate Merger Consideration (as defined below) divided by the
number of Fully Diluted Shares (as defined below). The number of Fully
Diluted Shares shall be the number of outstanding shares of Common Stock PLUS
the number of outstanding Preferred Shares PLUS the number of shares of
Common Stock underlying the Warrant (as defined below), each determined as of
the Closing Date. The amount of the Merger Consideration is subject to
adjustment pursuant to Section 1.16. Notwithstanding the foregoing, if
between the date of this Agreement and the Effective Time, the Cancelled
Shares shall have been changed into a different number of shares or a
different class by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
then the Merger Consideration contemplated by the Merger shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(b) The consideration for the Merger (the "Aggregate Merger
Consideration") shall consist of:
(i) cash in the amount of (x) $137,500,000 MINUS (y) the
Specified Indebtedness (the "Cash Amount"), PLUS
(ii) the Tax Savings (as defined in Section 1.16).
(c) At the Effective Time, each outstanding share of the common
stock, par value $.01 per share, of MergerCo shall be converted into one
share of Common Stock.
(d) At the Effective Time, each share of Common Stock held in
the treasury of Burke and each share of Common Stock held by Parent, MergerCo
or any subsidiary of Parent, MergerCo or Burke immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of MergerCo, Burke or the holder thereof, be cancelled, retired and
cease to exist and no payment shall be made with respect thereto.
1.11. CONTINUING SHARES. Upon consummation of the Merger, each
Continuing Share, including those shares issued pursuant to the exercise of
the Company Stock Options listed on Pages 2 and 3 of EXHIBIT A under the
caption "Continuing Shares" or each Preferred Share will become the right to
receive (i) that portion of the Merger Consideration consisting of the Tax
Savings, (ii) its pro rata share of the aggregate Exercise Proceeds and the
aggregate Shareholder Debt LESS its pro rata share of the Transaction
Expenses and (iii) one share of Common Stock of the Surviving Corporation (a
"Surviving Share"). All such Surviving Shares will be registered on the
stock transfer books of the Surviving Corporation.
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1.12. APPRAISAL RIGHTS. The holders of Shares shall be entitled to such
appraisal rights as provided in the CGCL.
1.13. PAYMENT OF MERGER CONSIDERATION.
(a) The Merger Consideration shall be paid:
(i) On the Closing Date, by paying the Net Cash Amount
(as defined below) to either Daniel P. Flamen or Timothy E. Howard (acting
separately or jointly, the "Paying Agent"), as agent for and for the benefit
of the shareholders of Burke and the holders of the Company Stock Options as
more specifically set forth in the Shareholder Representative and Paying
Agent Agreement (the "Paying Agent Agreement") by wire transfer in
immediately available funds to the account designated by the Paying Agent and
provided to the Parent. The "Net Cash Amount" shall equal (A) ninety-five
percent (95%) of the Cash Amount LESS (B) the Cash Amount multiplied by the
aggregate number of outstanding Continuing Shares and Preferred Shares
immediately prior to the Effective Time DIVIDED by the number of Fully
Diluted Shares. From the Net Cash Amount paid to the Paying Agent hereunder
each holder shall receive the amount set forth opposite each holder's name on
EXHIBIT A hereto under the caption "Cash Distributed at Close," whether
listed on Page 1, 2 or 3 of EXHIBIT A, which amounts were determined in
accordance with the following formula:
Such holder's Fully Diluted Shares MULTIPLIED BY the Merger
Consideration LESS (x)(i) such holder's pro rata share of the Escrow
Amount as shown on EXHIBIT A, (ii) the number of such holder's
Continuing Shares or Preferred Shares, as the case may be, MULTIPLIED BY
the Cash Amount, DIVIDED BY the number of Fully Diluted Shares, (iii)
the exercise price of each Company Stock Option held by such holder
MULTIPLIED BY the number of shares of Common Stock subject to such
Company Stock Option (regardless of whether such Company Stock Option is
exercised or cancelled prior to the Effective Date) (the "Exercise
Proceeds"), (iv) the aggregate amount of any indebtedness (to the extent
not included in clause (iii)) owed to Burke by such holder as of the
Closing Date (the "Shareholder Debt") and (v) such holder's pro rata
share of the Transaction Expenses (as defined in the Paying Agent
Agreement) PLUS (y) such holder's pro rata share of the aggregate
Exercise Proceeds and the aggregate Shareholder Debt. For purposes of
this Agreement, "pro rata share" shall mean such holder's Fully Diluted
Shares divided by all of the Fully Diluted Shares.
(ii) Five percent (5%) of the Cash Amount (the "Escrow
Amount") by wire transfer in immediately available funds to an account (the
"Escrow Account") in the name of First Trust of California, National
Association, as escrow holder (the "Escrow Holder"), for the benefit of each
shareholder of Burke and each holder of a Company Stock Option in the
respective amounts set forth opposite each holder's name on EXHIBIT A hereto
under the caption "Escrow Withholding," to be distributed pursuant to the
Escrow Agreement, of even date herewith, among Parent, Escrow Holder and the
Shareholders in the form attached hereto as EXHIBIT E; and
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(iii) the Tax Savings shall be paid as described in and in
accordance with Section 1.16.
(b) In the event that any Certificate representing Cancelled
Shares shall have been lost, stolen or destroyed, the Parent shall issue in
exchange therefor, upon the making of an affidavit of that fact by the holder
thereof, such Merger Consideration as may be required pursuant to this
Agreement; PROVIDED, HOWEVER, that Parent may, in its discretion, require the
delivery of a suitable bond or indemnity.
(c) All Merger Consideration paid upon the surrender for
exchange of Shares in accordance with the terms hereof shall be deemed to
have been paid in full satisfaction of all rights pertaining to such Shares,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the Shares which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates are presented to the Surviving Corporation for any reason they
shall be cancelled and exchanged as provided in this Article I.
(d) Neither Parent nor the Surviving Corporation shall be liable
to any holder of Shares for cash delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
1.14 EXCHANGE OF CERTIFICATES. At the Closing, (i) Parent shall
receive one or more certificates representing the Surviving Shares upon
cancellation of the shares of common stock of MergerCo pursuant to the
Merger, (ii) each Shareholder holding a certificate representing both
Cancelled Shares and Continuing Shares or Preferred Shares, as the case may
be, shall, upon surrender of such certificate, receive one or more
certificates representing a number of Surviving Shares equal to the number of
Continuing Shares or Preferred Shares, as the case may be, represented by the
certificate surrendered and (iii) each Shareholder holding a certificate
representing Preferred Shares shall, upon surrender of such certificate,
receive one or more certificates representing a like number of Surviving
Shares.
1.15. STOCK OPTIONS; WARRANTS. Set forth on Page 2 and 3 of EXHIBIT A
are each outstanding option and/or warrant to purchase Common Stock issued
pursuant to any plans or agreements of Burke (a "Company Stock Option"), to
the extent vested in accordance with its terms (including by reason of the
transactions contemplated by this Agreement), as of the date hereof. As of
the Effective Time, each of the warrants listed on EXHIBIT A (a "Warrant")
shall be cancelled and each holder of a Warrant shall be entitled to receive
from Parent in exchange for each share of Common Stock subject to such
Warrant cash in an amount equal to the difference between (i) the sum of the
Merger Consideration PLUS the pro rata Exercise Proceeds and Shareholder Debt
and (ii) the sum of the exercise price per share of such Warrant and the pro
rata Transaction Expenses, payable pursuant to the terms of Section 1.13.
Immediately prior to the Effective Time (and the occurrence, if at all, of
the Exchange Offer), all of the Company Stock Options except the Warrants
will be exercised by, and the number of shares of Common Stock subject to
such exercised Company Stock Options will be issued to, the holders thereof,
either as Continuing Shares
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or as Cancelled Shares as indicated on Pages 2 and 3 of EXHIBIT A. At or
before the Effective Time, Burke shall cause to be effected any necessary
amendments to existing plans and agreement of Burke to give effect to the
provisions of this Section 1.15.
1.16 ADDITIONAL CONSIDERATION.
(a) Burke shall pay to the Paying Agent, for the benefit of the
holders of any Fully Diluted Shares, on a pro rata basis, as Merger
Consideration, any Tax Savings (as hereinafter defined) realized by Burke or
the Surviving Corporation as a result of (i) the exercise or cancellation of
compensatory stock options which are outstanding as of the date of this
Agreement; (ii) the write-off of any unamortized financing costs and the
payment of any amounts of original issue discount by Burke or the Surviving
Corporation with respect to financing outstanding on the date of this
Agreement; (iii) the prepayment of certain fees and expenses by Burke; or
(iv) the payment by Burke after the date of this Agreement and prior to the
Closing of any bonuses to employees of Burke, each as specifically enumerated
on EXHIBIT F hereto, as such Exhibit may be amended by a majority-in-interest
of the Shareholders and delivered to Parent at or before the Closing.
(b) For purposes of this Section 1.16, the term "Tax Savings"
means a reduction in federal, state or local income or franchise tax
liability, determined, as to any taxable period or estimate tax period, by
computing the tax liability of Burke or the Surviving Corporation on a
separate company basis with and without the deductions available to Burke or
the Surviving Corporation as a result of the items covered by Section
1.16(a). Payments hereunder shall be made not later than thirty (30) days
following the date the Tax Savings are realized, through a reduction in taxes
or estimated taxes payable or through the receipt of a refund. In the case
of a refund, "Tax Savings" shall include an allocable portion of the interest
received from the taxing authority with respect to the refund.
(c) Within thirty (30) days of the date Burke or the Surviving
Corporation files its federal income tax return for the period including the
Closing Date, and within thirty (30) days of the date the Surviving
Corporation files its federal income tax return for any succeeding taxable
year until all tax deductions described in Section 1.16(a)have been claimed
by Burke or the Surviving Corporation on its tax returns and all Tax Savings
with respect thereto have been paid (or the period during which such Tax
Savings may be claimed has expired), Parent shall provide to the Paying Agent
a statement of Burke or the Surviving Corporation's independent public
accountants identifying the deductions claimed by Burke or the Surviving
Corporation resulting therefrom. The Paying Agent may dispute the
calculation by notifying Burke or the Surviving Corporation's independent
public accountants, with a copy to Parent, in writing setting forth in
reasonable detail the basis for such dispute, within twenty (20) business
days of the receipt of the calculation. In the event of any such dispute,
Parent and the Paying Agent shall attempt to reconcile their differences, and
any joint resolution in writing and signed by the Parent and the Paying Agent
shall be final, binding and conclusive on Parent, the Surviving Corporation,
the Paying Agent and all of the shareholders of Burke and the holders of the
Company Stock Options. In the absence of such agreement, within twenty (20)
business days of the date of receipt by the Surviving Corporation's
independent public accountants of the Paying
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Agent written notice of such dispute, Parent and Surviving Corporation shall
refer the disputed items for resolution to Arthur Andersen LLP (the "Tax
Savings Accounting Firm"), which shall within twenty (20) business days of
such submission, determine and report to the Paying Agent and the Parent upon
the disputed items. Such report shall (i) include the Tax Savings Accounting
Firm's calculation of the Tax Savings and (ii) be final, binding and
conclusive on shareholders of Burke and the holders of the Company Stock
Options and Parent. Such Tax Savings shall be paid to each shareholder of
Burke and each holder of the Company Stock Options in the amount equal to the
quotient of the Tax Savings DIVIDED BY the number of Fully Diluted Shares,
MULTIPLIED BY the sum of number of such holder's shares of Common Stock PLUS
the number of shares of Common Stock subject of the Company Stock Options of
such holder.
1.17 PAYMENT OF SHAREHOLDER DEBT AND EXERCISE PROCEEDS. Upon the
consummation of the Merger, the obligations of the shareholders of Burke and
the holders of the Company Stock Options relating to the Shareholder Debt or
the Exercise Proceeds shall be satisfied from the deductions from the Net
Cash Amount described in Section 1.13 hereof and, therefore shall be fully
paid and extinguished.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
The Shareholders hereby represent and warrant to Parent, severally, but
not jointly, except as otherwise set forth in the schedule of exceptions
attached hereto as EXHIBIT G (the "Shareholders' Schedule"), as set forth
below; PROVIDED HOWEVER, that Shareholders who are no longer employed by
Burke or CHF Capital Partners shall only be deemed to give the
representations and warrants set forth in Sections 2.1, 2.2 and 2.3(b) as to
themselves and shall not be deemed to have given the other representations
and warranties contained in this Article II regarding the business and
operations of Burke.
2.1 TITLE TO COMMON STOCK. Each Shareholder individually represents
and warrants to Parent that Shareholder is the record and beneficial owner of
the Common Stock set forth opposite its name in EXHIBIT A and Shareholder
holds title to the Common Stock and holds title free and clear of all liens,
charges, encumbrances, marital property rights, pledges, mortgages, security
interests, assessments, restrictions, limitations or rights of first refusal
or first offer ("Encumbrances") (other than restrictions on transferability
generally imposed on securities under federal or state securities laws). The
sale and delivery of the Common Stock to Parent pursuant to the Merger
described in Article I hereof will vest in Parent legal and valid title to
the Common Stock, free and clear of any and all Encumbrances, other than
Encumbrances created by Parent.
2.2 REQUISITE CONSENTS; NONVIOLATION. Except as set forth in Section
2.2 of the Shareholders' Schedule, the execution and delivery of this
Agreement by each of Burke and Shareholders do not and the consummation by
each of Burke and Shareholders of the transactions contemplated by this
Agreement will not (a) require the consent, license, permit, approval,
authorization or other action by or any filing with any governmental person
or entity
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(except such approvals, permits or filings as may be required to
comply with applicable state securities laws), (b) violate or conflict with
(i) the provisions of the Articles of Incorporation or By-Laws of Burke, (ii)
any provision of law, rule or regulation by which Burke or any Shareholder is
bound or to which Burke or any of its properties or the Common Stock is
subject or (iii) any writ, judgment, order, injunction or decree applicable
to any Shareholder or Burke or (c) constitute a default under, violate or
conflict with, permit any third party to modify, terminate, accelerate or
rescind any term or provision of, or require the consent or approval of any
third party to any material contract, note, lease, mortgage, indenture or
other agreement to which Burke is a party or by which Burke is bound or to
which Burke or any of its properties is subject.
2.3 DUE INCORPORATION; REQUISITE POWER AND AUTHORITY; AUTHORIZATION
AND ENFORCEABILITY.
(a) Burke (i) has been duly organized and is validly existing
and in good standing as a corporation under the laws of the State of
California, (ii) is duly qualified to do business in and is in good standing
under the laws of the jurisdictions set forth in Section 2.3 of the
Shareholders' Schedule, which constitute every jurisdiction where the nature
of the business conducted by it makes such qualification necessary, except
where the failure to be so qualified will not adversely affect its business,
prospects or financial position of Burke and (iii) has all requisite
corporate power and authority to own or lease and to operate its properties
and carry on its business as presently conducted. Burke has made available
to Parent true and complete copies of its Articles of Incorporation and
By-Laws.
(b) Each Shareholder and Burke has the requisite power and
authority to execute and deliver and perform this Agreement and the
agreements, certificates, instruments or other documents to be executed and
delivered in connection herewith and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the related documents has been duly authorized by all requisite
action on the part of Burke. This Agreement has been duly and validly
executed and delivered by each Shareholder and Burke and, upon execution and
delivery by the Shareholders and Burke, will constitute the valid and binding
obligation of each Shareholder and Burke, enforceable against each
Shareholder and Burke in accordance with its terms, except to the extent that
such enforceability (i) may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors'
rights generally and (ii) is subject to general principles of equity.
2.4 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Burke
consists solely of (i) 15,000,000 shares of Class A Common Stock, without par
value, of which 9,398,870 shares are issued and outstanding and (ii)
5,000,000 shares of Convertible Class B Common Stock, without par value, none
of which is issued and outstanding. All of the issued and outstanding shares
of Class A Common Stock and Class B Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable. Other than the Common
Stock, Burke does not have outstanding any other voting or equity securities
or interests. Except as set forth in
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Section 2.4 of the Sellers Schedule, Burke has no outstanding obligations,
understandings or commitments regarding the issuance of any additional shares
of its capital stock, voting or equity securities or interests or other
securities, or any options, rights, warrants or securities exercisable for or
convertible into such shares, securities or interests. There are no
preemptive rights in respect of the shares of Common Stock of Burke.
2.5 SUBSIDIARIES, ETC. Except as set forth in Section 2.5 of the
Shareholders' Schedule, Burke does not own or control, directly or
indirectly, any beneficial equity interest in any corporation, partnership,
joint venture or other legal entity.
2.6 FINANCIAL DATA. Burke has made available to Parent unaudited
balance sheets of Burke as of July 4, 1997 (the "Balance Sheet") and April 4,
1997, and audited balance sheets of Burke as of December 27, 1996, December
29, 1995 and December 30, 1994 and the notes thereto, together with unaudited
statements of profit and loss and changes in financial position of Burke for
the quarters ended July 4, 1997 and April 4, 1997 and audited statements of
profit and loss and changes in financial position of Burke for the 1996, 1995
and 1994 fiscal years and the notes thereto (collectively, the "Financial
Statements"). The Financial Statements described above (a) were prepared in
accordance with the books and records of Burke, (b) were prepared in
accordance with GAAP consistently applied and (c) contain and reflect all
necessary adjustments and accruals for a fair presentation of the financial
position of Burke as of their respective dates and the results of Burke's
operations for the periods then ended.
2.7 NO MATERIAL CHANGES.
(a) Except as otherwise specifically disclosed in Section 2.7 of
the Shareholders' Schedule, since the date of the Balance Sheet, there has
not been (i) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the business or financial position of Burke;
(ii) any labor dispute adversely affecting the business or financial position
of Burke; (iii) any disposition of any capital asset of Burke having a net
book value in excess of $100,000; or (iv) any incurrence, discharge or
satisfaction of any obligation or liability of Burke other than in the
ordinary course of business.
(b) Since the date of the Balance Sheet, except in connection
with the transactions contemplated hereby, Burke has not engaged in any of
the following transactions: (i) issued or committed to issue any shares of
Common Stock (except upon exercise of duly issued stock options which were
outstanding as of such date) or other ownership interest, (ii) directly or
indirectly declared, paid or set aside for payment of any dividend or other
distribution in respect of its capital stock, or redeemed, purchased or
otherwise acquired or committed to acquire any shares or other ownership
interest of Burke, (iii) effected a split or reclassification of any shares
of Burke or a recapitalization of Burke, (iv) increased compensation or other
benefits available to any officer, employee, sales agent or representative of
Burke under any bonus or pension plan or other contract or commitment, other
than in the ordinary course of business in accordance with Burke's customary
practices (including normal periodic performance reviews and related
compensation and benefit increases) or as required by any pre-existing
contract, (v) other than in the ordinary course of business, created or
permitted
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to arise any lien or encumbrance upon any of the assets of Burke, except for
liens and encumbrances for Taxes not due, purchase money security interests
and mechanics' liens being disputed by Burke in good faith and by appropriate
proceedings or (vi) altered the manner of keeping Burke's books, accounts or
records or the accounting practices reflected therein.
2.8 UNDISCLOSED LIABILITIES. Burke has no material liabilities or
obligations (whether absolute, contingent or otherwise), except for (a) those
reflected, reserved against or otherwise disclosed in the Financial
Statements or the notes thereto and not heretofore paid or discharged, (b)
those that are set forth in Section 2.8 of the Shareholders' Schedule, (c)
those not required by GAAP to be reflected, reserved against or otherwise
disclosed in the Financial Statements or the notes thereto or (d) those
incurred in, or as a result of, the ordinary course of business of Burke
since the date of the Balance Sheet.
2.9 GOVERNMENTAL AUTHORIZATIONS. Burke is in compliance with all
material governmental licenses, permits, approvals and other governmental
authorizations ("Permits") necessary to permit the operation of the business
of Burke as presently conducted. To the knowledge of Shareholders, Burke is
in compliance with all federal, state and local laws, ordinances, rules and
regulations applicable to its businesses or properties and not otherwise
dealt with elsewhere in this Article II including building codes and zoning
ordinances and similar laws, currently in effect ("Applicable Laws"). To the
knowledge of Shareholders, neither any Shareholder nor Burke has received any
notification of any asserted present or past failure by Burke to comply with
any Applicable Law or Permit. To the knowledge of Shareholders, neither any
Shareholder nor Burke has received any notification of any proposed special
assessment or any proposed change in property tax, land use or zoning laws
affecting Burke's owned or leased real property.
2.10 LITIGATION. Except as set forth in Section 2.10 of the
Shareholders' Schedule, there is no pending or, to the knowledge of
Shareholders, threatened action, suit, arbitration, investigation or other
proceeding in any court or before any governmental commission or agency
against Burke, which would have an adverse effect on the business or
financial position of Burke. There is no order, judgment or decree of any
court or governmental authority or agency which specifically applies to Burke
which has or would have an adverse effect on the business or financial
position of Burke. No action, suit, arbitration proceeding, investigation or
other proceeding in any court or before or by any governmental commission or
agency questions or challenges the validity of this Agreement or any action
taken or to be taken pursuant to this Agreement or in connection with the
transactions contemplated hereby.
2.11 EMPLOYEE BENEFIT PLANS.
(a) Burke maintains no Employee Benefit Plan other than those
listed in Section 2.11 of the Shareholders' Schedule (the "Listed Plans").
To the knowledge of Shareholders:
(i) each Listed Plan is, and at all times while
maintained by Burke or any of its ERISA Affiliates has been, operated in
material compliance with all applicable provisions of law, including
provisions of ERISA and the regulations thereunder;
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(ii) each Listed Plan which is a Qualified Plan is, and
at all times while maintained by Burke has been, operated in compliance with
the applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations thereunder;
(iii) Burke and its ERISA Affiliates have made full and
timely payment of all amounts required to be contributed under the terms of
each Employee Benefit Plan and applicable law or required to be paid as
expenses under such Employee Benefit Plan;
(iv) no Listed Plan which is subject to the minimum
funding standards of Section 412 of the Internal Revenue Code has an
"accumulated funding deficiency" as described in that section;
(v) Burke has received no written communication from the
United States Department of Labor stating that any Listed Plan is in
violation of ERISA or the regulations thereunder;
(vi) Burke has received no written communication from the
Internal Revenue Service determining that any Listed Plan which is intended
to be a Qualified Plan is no longer a Qualified Plan;
(vii) no employee of Burke or former employee of Burke
shall accrue or receive additional benefits, service or accelerated rights to
payment under any Listed Plan, including the right to receive any parachute
payment as defined in Section 280G of the Code or become entitled to
severance, termination allowance or similar benefits as a direct result of
the transactions contemplated by this Agreement, except as set forth in
Section 2.11(a) of the Shareholders' Schedule;
(viii) there is no litigation pending by or against any
Listed Plan; and
(ix) Shareholders have heretofore made available to
Parent true and complete copies of each Form 5500, summary plan description
or other disclosure document related to each Listed Plan.
(b) As used in this Section 2.11, the term "Employee Benefit
Plan" means an "employee pension benefit plan" as defined in Section 3(2)(A)
of the Employee Retirement Income Security Act of 1974 ("ERISA"), other than
a Multiemployer Plan, and an "employee welfare benefit plan" as defined in
Section 3(l) of ERISA. As used in this Section 2.11, the term "Qualified
Plan" means a pension, profit sharing or stock bonus plan described in
Section 401 of the Internal Revenue Code. "ERISA Affiliate" of Burke means
any person that, together with Burke as of the relevant measuring date under
ERISA, was or is required to be treated as a single employer under Section
414 of the Code.
2.12 PATENT, TRADEMARK AND RELATED MATTERS.
(a) All registered patents, patent registration applications,
registered trademarks, trademark registration applications, registered
service marks, service mark
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registration applications registered in the name of Burke in the United
States Patent and Trademark Office or any state patent or trademark registry,
all material trade names used by Burke and all material license agreements in
which Burke is the licensee at the date of this Agreement (collectively, the
"Intellectual Property Rights") are listed in Section 2.12(a) of the
Shareholders' Schedule. Except to the extent, if any, set forth in Section
2.12(a) of the Shareholders' Schedule, such Intellectual Property Rights are
(i) in good standing, valid and adequate to permit Burke to conduct its
business as presently conducted, (ii) to the knowledge of Shareholders, not
infringing upon any intellectual property rights of other persons and (iii)
not the subject of any claims of infringement with respect to which Burke has
received notice.
(b) All of the material license agreements in which Burke is the
licensor at the date of this Agreement are listed in Section 2.12 of the
Shareholders' Schedule.
2.13 REAL AND PERSONAL PROPERTY. Section 2.13 of the Shareholders'
Schedule contains a list of all real and personal property owned or leased by
Burke as of the date hereof having, in the case of leased property, an annual
lease obligation in excess of $25,000 or, in the case of owned property, a
book value in excess of $100,000. All such property is owned in fee or held
under valid leases. There is no existing default on the part of Burke under
any of such leases nor, to the knowledge of Shareholders, any facts that
would, with the passage of time, constitute such a default.
2.14 INSURANCE. Section 2.14 of the Shareholders' Schedule lists all
material insurance policies covering Burke, its employees and directors, or
its properties. All such policies are in full force and effect, all premiums
with respect thereto covering all periods up to and including the Closing
Date have been paid or accrued, and no notice of cancellation or termination
has been received with respect to any such policy. Burke has not received
any notification that material changes are required in the conduct of Burke's
business as a condition to the continuation of coverage under or renewal of
any such policy. Burke has heretofore made available to Parent true and
complete copies of all such policies.
2.15 TAX MATTERS.
(a) DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(i) "Tax" or "Taxes" shall mean any and all taxes
(whether federal, state, local or foreign), including, without limitation,
income, profits, franchise, gross receipts, payroll, sales, employment, use,
property, withholding, excise, occupation, value added ad valorem transfer
and other taxes, duties or assessments of any nature whatsoever, together
with any interest, penalties or additions to tax imposed with respect
thereto.
(ii) "Tax Returns" shall mean any returns, reports and
forms required to be filed with any federal, state, local or foreign
government.
(b) TAX RETURNS FILED AND TAXES PAID. To the knowledge of
Shareholders, all Tax Returns required to be filed by Burke have been duly
filed on a timely basis and all Taxes
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shown to be payable on the Tax Returns or on subsequent assessments have been
paid in full on a timely basis or are being disputed in good faith by Burke.
Except as set forth on Section 2.15(b) of the Shareholders Schedule, to the
knowledge of Shareholders, there are no proposals or challenges by any Taxing
authority that will have the effect of increasing the Company's taxable
income or reducing the Company's Tax deductions after the Closing Date.
(c) TAX RESERVES. Burke's liability for unpaid Taxes for all
periods ending before the date of this Agreement has been accrued in the
Financial Statements, including income taxes and related deferred taxes,
applicable to all periods ending on or before the date of this Agreement in
conformity with GAAP, adjusted for operations and transactions in the
ordinary course of business of Burke since December 27, 1996, in accordance
with past custom and practice. Burke's liability for Taxes (other than
deferred taxes) accrued in the Financial Statements is sufficient to satisfy
all Tax Liabilities of the Company for all taxable periods ending on or
before the date of this Agreement.
(d) TAX RETURNS FURNISHED. For all periods ending on and after
December 31, 1992, Burke has made available to Parent true and complete
copies of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by Burke or on behalf of
Burke relating to Taxes and (ii) all pro-forma separate federal and state
income or franchise tax returns for Burke.
(e) TAX DEFICIENCIES; AUDITS; STATUTES OF LIMITATIONS. Except
as set forth in Section 2.15 of the Shareholders' Schedule, no deficiencies
have been asserted with respect to Taxes of Burke. Burke is neither a party
to any action or proceeding for assessment or collection of Taxes, nor to the
knowledge of Shareholders, has such event been asserted or threatened against
Burke or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Tax Returns of Burke.
Except as set forth in Section 2.15 of the Shareholders' Schedule, the Tax
Returns of Burke have never been audited by a government or taxing authority,
nor to the knowledge of Shareholders, is any such audit in process, pending
or threatened.
(f) TAX ELECTIONS AND SPECIAL TAX STATUS. Burke is not a party
to any safe harbor lease within the meaning of Section 168(f)(8) of the Code,
as in effect prior to amendment by the Tax Equity and Fiscal Responsibility
Act of 1982. Burke is not a "consenting corporation" under Section 341(f) of
the Code. Burke has not entered into any compensatory agreements with
respect to the performance of services which payment thereunder would result
in a nondeductible expense to Burke pursuant to Section 280G or Section 162
of the Code or any excise tax to the recipient of such payment pursuant to
Section 4999 of the Code. Burke is not a "United States real property
holding corporation" within the meaning of Section 897 of the Code.
(g) AFFILIATED CORPORATIONS. Burke has not been a member of an
affiliated group of corporations within the meaning of Section 1504 of the
Code.
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2.16 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(i) "Company Facility" means any real property or any
other facility presently or previously owned, operated or leased by Burke
since December 9, 1988.
(ii) "Hazardous Materials Laws" shall mean the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended (42 U.S.C. Section 9601 et seq.); the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.); Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.); any so-called "Superfund"
law; and any other law, regulation or order regulating, relating to or
imposing liability or standards of conduct, concerning protection of health
and safety or the environment.
(iii) Hazardous Materials" shall mean any hazardous
substance, pollutant, contaminant, flammable explosives, radioactive
materials, hazardous, toxic or dangerous wastes and any other chemicals,
materials or substances which are identified, defined or regulated pursuant
to any Hazardous Materials Laws, or the release, discharge or exposure to
which is prohibited, limited or regulated by any federal, state or local
government under Hazardous Materials Laws and any petroleum, waste oil and
petroleum by-products, asbestos in any form or urea formaldehyde.
(b) To the knowledge of Shareholders, Burke is in material
compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained
in (i) the Hazardous Materials Laws, (ii) any regulation, code, plan, order,
decree, judgment, notice or demand issued, entered, promulgated or approved
thereunder or (iii) to the knowledge of Shareholders, any proposed law, rule
or regulation which is not in effect as of the date hereof but would have
applicability to the business of Burke upon its effectiveness. Except as set
forth in Section 2.16(b) of the Shareholders' Schedule, to the knowledge of
Shareholders, no Hazardous Material has been generated, used, treated,
stored, released, disposed of, or discharged into the environment, on or from
any Company Facility, nor have Shareholders been notified that any Hazardous
Material has been released on of from any locations at which Burke arranged,
by contract, agreement or otherwise for use, disposal, storage, treatment,
transport for disposal or treatment, of any Hazardous Material. Except as set
forth in Section 2.16 of the Shareholder's Schedule, to the knowledge of
Shareholders, there is no Hazardous Materials deposited or contained in any
existing equipment or otherwise located at any Company Facility. To the
knowledge of Shareholders, Burke is not and will not be subject to any
liability to any third party for any Personal Injury of any person,
including, without limitation, any employee of Burke or former employee of
Burke (A) in any way arising out of any exposure prior to the Closing Date to
any Hazardous Material present at or generated by any Company Facility on or
prior to the Closing Date or (B) in any way arising out of any exposure after
the Closing Date to any Hazardous Material that was present at or generated
by any Company Facility at or prior to the Closing Date.
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(c) Section 2.16(c) of the Shareholders' Schedule sets forth a
true and complete list of each Company Facility. To the knowledge of
Shareholders, Section 2.16(c) of the Shareholders' Schedule sets forth a true
and complete list of each off-site location to which or at which Burke, or
any agent of Burke, including any employee or former employee of Burke, has
generated, used, stored or disposed of any Hazardous Material since December
9, 1988. To the knowledge of Shareholders, Schedule 2.16(c) of the
Shareholders' Schedule sets forth a true and complete list of each third
party to which or with which Burke, or any agent of Burke, including any
employee or former employee of Burke; has arranged, by contract, agreement or
otherwise for the disposal, storage, treatment, transport for disposal,
storage or treatment of any Hazardous Material since December 9, 1988, and of
each off-site location where such Hazardous Material was disposed, stored or
treated since December 9, 1988.
(d) To the knowledge of Shareholders, Burke has all
environmental permits, licenses, orders, variances, registrations and other
federal, state or local governmental authorizations required for the
handling, use, storage and disposition of Hazardous Materials under Hazardous
Materials Laws that are applicable to Burke's operations as presently
conducted.
(e) Except as set forth in Section 2.16(e) of the Shareholders'
Schedule, Burke has received no notice from any governmental authority that
Burke is in violation of any of the terms or conditions of its environmental
permits for the handling, use, storage or disposition of Hazardous Materials
under Hazardous Materials Laws.
(f) To the knowledge of Shareholders, true and complete copies
of all environmental reports prepared by third party environmental
consultants related to each Company Facility have previously been provided to
Parent.
2.17 CONTRACTS.
(a) Section 2.17(a) of the Shareholders' Schedule contains a
complete list of each contract of Burke which (i) is made with any officer,
director, shareholder of or any entity directly or indirectly controlling,
controlled by or under common control with Burke, or with any affiliate or
relative of any such officer, director or shareholder that remains executory
on the part of Burke or that has been consummated since January 1, 1994, (ii)
is a contract of employment, (iii) is made with any labor union, or other
labor organization, (iv) is a bank loan or other credit agreement, (v) other
than in connection with outstanding purchase orders, requires, individually,
annual payments of more than $50,000 or aggregate payments over the life of
the contract of more than $250,000, (vi) is for a remaining term of more than
one year and is not cancelable as to all its provisions upon 60 days or less
notice without payment of any material penalty or (vii) is entered into other
than in the ordinary course of business.
(b) To the knowledge of Shareholders, except as set forth in
Section 2.17(b) of the Shareholders' Schedule, as of the Closing Date, Burke
is not a party to any indenture, agreement, lease or other instrument which,
under the circumstances which exist as of the Closing Date, would be
reasonably likely to have a material adverse effect on the business or
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financial position of Burke if the obligations of the parties thereunder were
substantially performed.
(c) Burke has made available to Parent true and complete copies
of each contract listed in Section 2.17(a) of the Shareholders' Schedule.
Burke and, to the knowledge of Shareholders, each of the other parties to the
contracts set forth in Section 2.17(a) of the Shareholders' Schedule have
performed all material obligations required to be performed by them under
such contracts and, to the knowledge of Shareholders, no event has occurred
which would give any other party to any such contract the right to terminate
or otherwise fail to perform its obligations under the contracts.
2.18 INVENTORY. Except as set forth in Section 2.18 of the
Shareholders' Schedule, as of the date of the Balance Sheet, all inventory of
Burke consisted of a quality and quantity consistent with the past practices
of Burke net of any reserves reflected in the Balance Sheet. The values
reflected on the Balance Sheet of obsolete or substandard items of inventory,
as determined by Burke in consultation with Burke's accountants, have been
written down to realizable market values or written off, or adequate reserves
therefor have been established, all in accordance with GAAP.
2.19 ACCOUNTS RECEIVABLE. The accounts receivable of Burke reflected
in the Balance Sheet represent sales actually made in the ordinary course of
business, represent valid and enforceable claims, and have been properly
accrued in accordance with GAAP, net of any reserves reflected in the Balance
Sheet. Section 2.19 of the Shareholders' Schedule sets forth an accurate
aging schedule of all accounts receivable reflected in the Balance Sheet.
2.20 CONDITION OF PLANT AND EQUIPMENT. To the knowledge of
Shareholders, there are no material structural defects in the plants of
Burke. To the knowledge of Shareholders, except as set forth in Section 2.20
of the Shareholders' Schedule, the equipment of Burke is in good operating
condition and repair, ordinary wear and tear excepted.
2.21 CUSTOMERS AND SUPPLIERS. Section 2.21 of the Shareholders'
Schedule lists the ten largest customers of each of the aerospace, flooring
and commercial products divisions of Burke and the ten largest suppliers of
each of the aerospace, flooring and commercial products divisions of Burke
for the most recent fiscal year. To the knowledge of Shareholders, since
January 1, 1997, there has been no material adverse change in the business
relationship of Burke with any customer or supplier named on Section 2.21 of
the Shareholders' Schedule. To the knowledge of Shareholders and other than
in the ordinary course of business, no customer or supplier named on Section
2.21 of the Shareholders' Schedule has threatened or expressed an intention
to reduce materially the volume of its purchases from or sales to Burke or
otherwise materially modify its business relationship with Burke.
2.22 BANK ACCOUNTS. Section 2.22 of the Shareholders' Schedule sets
forth the names and locations of all banks, trust companies, brokerage firms
or other financial institutions at which Burke maintains an account, the
account number and type of such account, and the name of each person
authorized to draw thereon or make withdrawals therefrom.
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2.23 LABOR PRACTICES.
(a) Section 2.23(a) of the Shareholders' Schedule contains a
true and correct list of the ten most highly compensated employees of Burke
(based on annual salary and bonus).
(b) Section 2.23(b) of the Shareholders' Schedule lists each
collective bargaining agreement to which Burke is a party or by which it is
bound. Other than the Collective Bargaining Agreement for Burke's San Jose
facility, which expires October 1997 and the Collective Bargaining Agreement
for Burke HASKON which expires June 6, 2000, no collective bargaining
agreement is currently being negotiated by Burke and, to the knowledge of
Shareholders, no movement to designate a collective bargaining agent to
represent any of Burke's employees exists or is threatened. There are no
claims for unfair labor practices pending or, to the knowledge of
Shareholders, threatened, between Burke and any of its employees. No
strikes, work stoppages or other labor disputes involving Burke's other
employees are pending or, to the knowledge of Shareholders, threatened.
Except as set forth in Section 2.23(b) of the Shareholders Schedule, there is
not pending any grievance, procedure or arbitration proceeding under any
collective bargaining agreement covering Burke's employees or former
employees. Except as set forth in Section 2.23(b) of the Shareholders
Schedule, no charges, audits, investigations, or complaint proceedings are
pending before the Equal Employment Opportunity Commission or any state or
local agency responsible for the prevention of unlawful employment practices.
There is no labor strike, dispute, slowdown or stoppage actually pending or,
to the knowledge of Shareholders, threatened against Burke.
2.24 GOVERNMENT CONTRACTS.
(a) To the knowledge of Shareholders, with respect to each
Government Contract or Bid (in each case, as defined below) to which Burke or
any affiliate of Burke is a party: (i) Burke have fully complied with all
material terms and conditions and all applicable requirements of statute,
rule, regulation, order or agreement, whether incorporated expressly, by
reference or by operation of law; (ii) all representations and certifications
were current, accurate and complete when made, and Burke have fully complied
with all such representations and certifications; (iii) no allegation has
been made, either orally or in writing, that Burke is in breach or violation
of any statutory, regulatory or contractual requirement; (iv) no termination
for convenience, termination for default, cure notice or show cause notice
has been issued; (v) no material cost incurred by Burke or its subcontractors
has been questioned or disallowed; and (vi) other than in the ordinary course
of business, no money due to Burke has been (or has threatened to be)
withheld or set off.
(b) Neither Burke, any affiliate of Burke, nor any of Burke's
directors, officers, employees, agents or consultants is (or for the last
three years has been) (i) except as set forth in Section 2.24(b) of the
Shareholders' Schedule and to the knowledge of Shareholders, under
administrative, civil or criminal investigation, indictment or information,
audit or internal investigation with respect to any alleged irregularity,
misstatement or omission regarding a Government Contract or Bid; or (ii) to
the knowledge of Shareholders, suspended or debarred from doing business with
the U.S. Government or any state or local government or declared
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nonresponsible or ineligible for government contracting. Except as set forth
in Section 2.24(b) of the Shareholders' Schedule, to the knowledge of
Shareholders, neither Burke nor any affiliate of Burke has made a voluntary
disclosure to any U.S. Government, state or local government entity with
respect to any alleged irregularity, misstatement or omission arising under
or relating to any Government Contract or Bid. Except as set forth in Section
2.24(b) of the Shareholders' Schedule, to the knowledge of Shareholders,
Burke knows of no circumstances that would warrant the institution of
suspension or debarment proceedings or the finding of nonresponsibility or
ineligibility on the part of Burke in the future.
(c) To the knowledge of Shareholders, neither the U.S.
Government, any state or local government nor any prime contractor,
subcontractor or vendor is asserting any claim or initiating any dispute
proceeding against Burke, nor is Burke asserting any claim or initiating any
dispute proceeding, directly or directly, against any such party, concerning
any Government Contract or Bid. To the knowledge of Shareholders, there are
no facts of which Burke is aware upon which such a claim or dispute
proceeding may be based in the future.
(d) For purposes of this Section 2.24, the following terms shall
have the meanings set forth below:
(i) "Bid" means any outstanding quotation, bid or
proposal by Burke or any of their Affiliates which, if accepted or awarded,
would lead to a contract with the U.S. Government or any other entity,
including a prime contractor or a higher tier subcontractor to the U.S.
Government, for the design, manufacture or sale of products or the provision
of services by Burke.
(ii) "Government Contract" means any prime contract,
subcontract, teaming agreement or arrangement, joint venture, basic ordering
agreement, letter contract, purchase order, delivery order, Bid, change
order, arrangement or other commitment of any kind relating to the business
of Burke between Burke and (A) the U.S. Government, (B) any prime contractor
to the U.S. Government or (C) any subcontractor with respect to any contract
described in clause (A) or (B).
(iii) "U.S. Government" means the United States government
including any and all agencies, commissions, branches, instrumentalities and
departments thereof.
2.25 CERTAIN BUSINESS PRACTICES. To the knowledge of Shareholders,
none of Burke, any of its subsidiaries or any directors, officers, agents or
employees of Burke or any of its subsidiaries has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreig n
Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful
payment.
2.26 PRODUCT LIABILITY. Except as set forth in Section 2.26 of the
Shareholders' Schedule, to the knowledge of Shareholders, no action, suit,
arbitration or other proceeding, or claim, demand, demand letter, lien or
notice of noncompliance or violation has been asserted in
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writing against Burke and no event or circumstance has occurred that could
reasonably be expected to constitute the basis of any claim against Burke for
injury to any person or any property suffered as a result of the manufacture,
distribution or sale of any product or material by Burke, including any
claim arising out of the defective or unsafe nature, or allegedly defective
or unsafe nature, of any such product or material, other than any claim (i)
which would not have an adverse effect on the business or financial position
of Burke or (ii) for which the Company has established adequate reserves in
accordance with GAAP on the Balance Sheet and/or which is within the scope
and limits of coverage of a policy of insurance identified in Section 2.14 of
the Shareholder's Schedule.
2.27 DISCLOSURE IN THE SHAREHOLDERS' SCHEDULE. The disclosure in any
Section of the Shareholders' Schedule of an exception to any representation
and warranty shall constitute disclosure of such exception for all applicable
representations and warranties under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
The Parent hereby represents and warrants to Shareholders as follows:
3.1 DUE INCORPORATION; REQUISITE POWER AND AUTHORITY. Each of
Parent and MergerCo is a corporation duly organized, validly existing and in
good standing as a corporation under the laws of the State of Delaware and
the State of California and has all requisite power and authority to execute
and deliver this Agreement and to perform all transactions contemplated by
this Agreement. The execution and delivery of this Agreement by Parent and
MergerCo has been duly authorized and approved by all ne cessary corporate
action; this Agreement constitutes the valid and binding obligation of each
of Parent and MergerCo, enforceable against each of Parent and MergerCo in
accordance with its terms.
3.2 REQUISITE CONSENTS; NONVIOLATION. The execution and delivery of
this Agreement by each of Parent and MergerCo do not, and the consummation by
each of Parent and MergerCo of the transactions contemplated by this
Agreement will not, (a) require the consent, license, permit, approval,
authorization of or other action by or filing with, any governmental person
or entity (except such approvals, permits or filings as may be required to
comply with applicable state securities laws) or (b) violate or c onflict
with (i) the provisions of the Certificate of Incorporation or By-Laws of
either Parent or MergerCo, (ii) any provision of law, rule or regulation by
which either Parent or MergerCo is bound or to which Parent, MergerCo or any
of their respective properties is subject or (iii) any writ, judgment, order,
injunction or decree applicable to either Parent or MergerCo.
3.3 NO PRIOR ACTIVITIES. Except for obligations incurred in
connection with its incorporation or organization, and the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
MergerCo has neither incurred any obligation or liability nor
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engaged in any business or activity of any type or kind whatsoever or entered
into any agreement or any arrangement with any person.
ARTICLE IV
CERTAIN TRANSACTIONS AND AGREEMENTS
PRIOR TO THE CLOSING DATE
4.1 COOPERATION; CONFIDENTIALITY.
(a) Burke and Shareholders have provided Parent information
relating to Burke and Shareholders and have permitted Parent to make an
investigation of Burke and its business. To facilitate a smooth transition
in ownership, prior to the Closing Date, Parent, through its officers,
employees, counsel, accountants and other authorized representatives, may
continue to discuss Burke's business with Shareholders and Burke's officers,
employees, independent accountants, actuaries, customers, distributor s and
suppliers and other agents during Burke's normal business hours in a manner
that does not interfere with Burke's normal business or contravene any
agreement to which Burke is bound. Without limiting the foregoing, Burke
will provide Parent and its consultants and agents access to its real
properties for the purpose of, and will cooperate in, conducting Phase I
environmental assessments thereon.
(b) Parent agrees to hold in confidence, and to cause its
employees, agents, representatives and affiliated companies to hold in
confidence, all information provided to Parent or its representatives by
Shareholders or Burke before or after the date of this Agreement concerning
Burke's assets, liabilities and operations. Nothing contained in this
Agreement shall in any way diminish Parent's obligations under that certain
Confidentiality Agreement, dated April 4, 1997, by and between Parent and
Burke, and Parent shall continue to be bound by and will continue to abide by
the terms and conditions thereof in addition to its obligations as set forth
in this Agreement.
4.2 BUSINESS ORGANIZATION. Shareholders will cause Burke to use
reasonable efforts consistent with past practice through the Closing Date (i)
to preserve substantially intact its business organization, (ii) to keep
available the services of the present officers and employees of Burke, (iii)
to preserve the present relationships of Burke with all entities or persons
having significant business dealings with it, (iv) operate its business only
in the ordinary course, consistent with past practice, (in cluding, without
limitation, in respect of the level of working capital maintained by Burke)
and (v) continue in full force and effect all existing insurance policies (or
comparable insurance) of or relating to Burke.
4.3 FURTHER ASSURANCES. Each of the parties hereto agrees that it
will, from time to time after the date of the Agreement, execute and deliver
such other certificates, documents and instruments and take such other action
as may be reasonably requested by the other party to carry out the agreements
and consummate the transactions contemplated by this Agreement.
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4.4 SHAREHOLDER ACKNOWLEDGMENT, WAIVER AND VOTING AGREEMENT.
(a) Each Shareholder, by signing this Agreement, acknowledges
and agrees that, pursuant to the terms of the Merger set forth in this
Agreement, (i) (x) Cancelled Shares will receive the Merger Consideration
upon consummation of the Merger and (y) Continuing Shares or Preferred
Shares, as the case may be, will become Surviving Shares and (ii) in the
event the Exchange Offer does not take place, all shares of Common Stock will
not be treated equally in the Merger within the meaning of Section 110 1 of
the CGCL.
(b) Each Shareholder, by signing this Agreement, whether or not
the Exchange Offer takes place, waives any rights such Shareholder may have
under Section 1101 of the CGCL by reason of the fact that all shares of
Common Stock will not be treated equally in the Merger.
(c) Each Shareholder, by signing this Agreement, agrees to vote
all of its shares of Common Stock in favor of the adoption and approval of
this Agreement at any and all shareholder meetings held for such purpose and
to execute any and all written consents containing a resolution adopting and
approving this Agreement.
ARTICLE V
COVENANTS REGARDING POST-CLOSING ACTIVITIES
5.1 SHAREHOLDERS' INDEMNIFICATION. The provisions of this Section
5.1 shall apply to indemnification for all matters, other than matters
related to Taxes to which Section 5.2 is applicable.
(a) SHAREHOLDERS' INDEMNIFICATION. Subject to the limitation
of Section 5.1(c), Shareholders shall severally, but not jointly, indemnify
and hold Parent and Burke harmless from any liability, damage, deficiency,
loss, cost or expense (including but not limited to reasonable attorneys'
fees and expenses of investigation) actually incurred or paid by Parent or
Burke, arising out of or resulting from (i) the inaccuracy of any
representation or the breach of any warranty made in this Agreement by Burke
or Shareholders to Parent or (ii) any failure of Shareholders to perform or
comply with any of their covenants and agreements set forth in this Agreement.
(b) NOTIFICATION; CONTROL OF PROCEEDINGS.
(i) Parent shall with reasonable promptness give to the
Shareholders written notice if it becomes aware of any liability, loss,
damage, claim, cost and expense with respect to which indemnity may be
asserted pursuant to Section 5.1(a). If any claim is made by a third person
or an action or proceeding commenced for which Parent shall seek indemnity
from Shareholders, Parent shall give to the Shareholders reasonable written
notice of the claim and shall deliver to the Shareholders, withi n ten (10)
days after receipt thereof by Parent or Burke, copies of all notices and
documents (including court papers) relating to such claim.
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Notwithstanding the foregoing, any failure of the Parent to give prompt
written notice of any claim asserted by it or by any third party shall not
relieve the Shareholders of any indemnification obligation that the
Shareholders may have to Parent except to the extent that the Shareholders
shall have the right to defend against any claim asserted by a third-party at
their expense, and shall give written notice to Parent of the commencement of
such defense within twenty (20) business days after the giving of the written
notice of the claim by Parent.
(ii) Parent shall be entitled to participate with
Shareholders in the defense of any such third-party claim assumed by the
Shareholders and to employ counsel, at its own expense, separate from the
counsel employed by the Shareholders, but shall not be entitled in any way to
release, waive, settle, modify or pay such claim without the written consent
of the Shareholders. In the event Shareholders shall assume the defense of
any third-party claim, Parent shall cooperate in the defense of such action,
and the records of each shall be available to the other with respect to such
defense; PROVIDED, HOWEVER, that the Shareholders shall not, in the defense
of any such action, (A) consent to the entry of any judgment or enter into
any settlement where such entry of judgment or settlement does not include a
provision releasing Parent from all liability with respect to such action or
(B) settle any claim on terms which provide for (x) a criminal sanction or
fine, (y) injunctive relief or (z) monetary damages in excess of the amount
the Shareholders are obligated to pay under this Section 5.1, except, in any
case, with the written consent of Parent (which consent shall not be
unreasonably withheld).
(iii) In the event Shareholders do not accept the defense
of the matter as provided above, or do not notify Parent of their election to
defend such a matter within twenty (20) business days, Parent shall have the
right to defend against such liability in any manner it may deem appropriate;
but no Shareholder shall have any liability with respect to any compromise or
settlement effected without its prior written consent (which consent shall
not be unreasonably withheld).
(c) LIMITATION ON INDEMNIFICATION. Notwithstanding the
provisions of Sections 5.1(a) and 5.1(b) hereof, (i) Shareholders shall not
be liable to Parent on account of any warranty, representation or covenant
made by Shareholders in this Agreement or under any of their indemnities in
this Agreement unless (A) the amount of any single claim exceeds $10,000 and
(B) the aggregate amount of all claims against Shareholders for which
indemnification is sought exceeds $1,200,000 and then only for the am ount by
which such aggregate cumulative liability is in excess of $1,200,000; and
(ii) in no event shall Shareholders' obligations to Parent under Section
5.1(a) exceed, in the aggregate, $8,750,000; PROVIDED, HOWEVER, that the
limitations contained in this Section 5.1(b) shall not apply to any claims
based on a breach of the representations and warranties contained in Sections
2.1, 2.4, 2.24 and 2.25 or based on the fraud on the part of Shareholders.
5.2 TAX INDEMNITY.
(a) For purposes of this Article 5, the term "Tax Indemnitee"
shall mean and include Parent and any corporation or other entity which is,
directly or indirectly, controlled by
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Parent, or any successor in interest to, or transferee of, Parent, as the
case may be, as determined from time to time, including, without limitation,
Burke and any successor in interest to, or transferee of, Burke.
(b) Each of the Shareholders shall, severally but not jointly,
indemnify and hold harmless Burke and Parent on an after-tax basis from and
against the payment of all Taxes and any losses (including, without
limitation, reasonable expenses of investigation and attorneys' fees and
expenses) arising out of or incident to the imposition of any such Tax in
excess of Burke's current liability accruals for Taxes (excluding reserves
for deferred Taxes) reflected on the December 27, 1996 Financial State ments,
as adjusted for operations and transactions in the ordinary course of
business of Burke since December 27, 1996, in accordance with past custom and
practice:
(i) for which liability is or shall be incurred by an
affiliated group (as defined in Section 1504(a) of the Code as in effect
during the relevant period) of which Burke or any predecessor in interest has
been a member at any time prior to the Closing Date;
(ii) for which liability is or shall be incurred by Burke
or any predecessor in interest with respect to any taxable year or period
beginning prior to the Closing Date;
(iii) resulting from the breach of any representation or
warranty of Shareholders contained in Section 2.15 hereof; and
(iv) resulting from any disallowance, adjustment or
deferral of any of the items described in Section 1.16 hereof for which, and
solely to the extent that, payment with respect to such items has been made
to Shareholders.
(c) For purposes of computing the amount of the Tax liability
subject to indemnification pursuant to paragraph (ii) of subsection (b) and
the amount of Tax liability subject to reimbursement under subsection (d),
any taxable year or other period that begins before and ends after the
Closing Date shall be deemed to end at the close of business on the Closing
Date. Taxes attributable to pre-Closing and post-Closing periods shall be
computed based on a closing of the books method, except that per iodic Taxes
such as real and personal property Taxes shall be prorated.
(d) Burke shall cause to be prepared all returns which are in
respect of the Taxes of Burke or any predecessor-in-interest for taxable
years or periods beginning prior to the Closing Date but which are due to be
filed (taking into account any applicable extensions of time for filing)
after the Closing Date. In preparing such returns, Burke shall exercise its
judgment relating to the determination of the timing of items of income and
deduction in good faith and in a means consistent with prior practice. In
the case of any such return, Shareholders, upon proper notification and
satisfactory documentation of the amount of Tax due with respect to the
return in question, shall pay to Burke, within three (3) business days of
demand by Burke, the amount of Tax due to the extent that the Tax due exceeds
the amount of any accrual on the Closing Balance Sheet for such Tax due.
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(e) The Tax Indemnitee and Shareholders shall cooperate with
each other in the conduct of any audit or other proceedings involving Burke
or any entity with which it is consolidated or combined for any Tax purposes.
In the event a written claim shall be made by any governmental authority
which, if successful, would result in an obligation on the part of any of the
Shareholders to indemnify any Tax Indemnitee pursuant to this section, the
Tax Indemnitee shall within ten (10) business days of rec eipt of such claim
give notice to Shareholders of the same in writing specifying in reasonable
detail the basis of such claim, action or suit and the facts pertaining
thereto, and shall not make payment of the Tax claimed for at least thirty
(30) days after the giving of such notice. If any of Shareholders wishes to
contest such claim, Shareholders shall have the right to control and make all
decisions regarding such audit or contest, including selection of a forum for
contest, and the Tax Indemnitee agrees that in such event it shall execute,
deliver and file a power of attorney naming the Shareholders and its counsel
or appropriate agent as attorneys-in-fact for such audit or contest and such
other instruments or documents as may be reasonably requested by any the
Shareholders to carry out the provisions of this paragraph; provided,
however, that without the consent of Parent, the Shareholders shall not
settle or otherwise compromise any such audit or contest if it would have the
effect of materially increasing the Burke's liability for Taxes for any
taxable period after the Closing Date.
5.3 PAYMENT OUT OF ESCROW ACCOUNT; MERGER CONSIDERATION ADJUSTMENT.
(a) Any indemnification or reimbursement payments made pursuant
to this Article 5 shall be paid first from any amounts in the Escrow Account
and the balance shall be payable severally by the Shareholders pursuant to
the terms of the Escrow Agreement. Nothing herein shall be construed to
limit Parent's or Burke's recourse with respect to amounts owing to either of
them pursuant to this Article 5 to amounts held in the Escrow Account.
(b) Any indemnification payments made pursuant to this Article 5
shall be treated by the Parties as a purchase price adjustment unless
determined otherwise in a final determination as defined in Section 1313 of
the Code.
5.4 SURVIVAL.
(a) The indemnification obligations of Shareholders under
Section 5.1 shall terminate on March 31, 1998 as to any claim not asserted
prior to such date, except that the indemnification obligations of
Shareholders for a breach of Sections 2.1, 2.4, 2.24 or 2.25 shall terminate
upon the expiration of the applicable statute of limitations.
(b) The indemnification obligation of Shareholders under Section
5.2 and an other, covenants, agreements, representations and warranties
relating to Taxes contained in this Agreement shall survive until all
applicable statutes of limitations (including extensions thereof) have
expired with respect to each taxable period or item that is the subject of
such indemnification, covenant, agreement, representation or warranty.
5.5 MAINTENANCE OF EMPLOYEE BENEFIT PLANS. Parent shall not cause
the loss to Burke employees who remain with Burke subsequent to the Closing
Date of any of the sick
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leave, compensatory time and vacation time accruals actually accrued by them
prior to the Closing Date to which they are entitled as of the Closing Date.
5.6 EMPLOYEE SERVICE CREDIT. Parent agrees to provide the Company
employees with full credit for time of service as an employee of the Company
for purposes of determining eligibility and vesting under the Company's
employee benefit plans and programs.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PARENT AND SHAREHOLDERS
The obligations of Parent and Shareholders to consummate the
transactions contemplated by this Agreement on the Closing Date shall be
subject to the satisfaction of the following conditions, except to the extent
such conditions are waived in writing by Parent and a majority-in-interest of
the Shareholders:
6.1 GOVERNMENT APPROVALS; LITIGATION. All requisite governmental
approvals and authorizations necessary for the consummation of the
transactions contemplated hereby shall have been duly issued or granted. No
action or proceeding by any governmental authority challenging the
transactions contemplated by this Agreement shall be pending or threatened
against any party. No unfavorable decree or order shall exist that would
prevent or make the consummation of any of the transactions contemplated by
th is Agreement unlawful or would result in the payment of damages or other
consequences materially adverse to Shareholders or to the business, prospects
or financial position of Parent or Burke.
6.2 PERMITS AND APPROVALS. Parent, Shareholders and Burke each shall
have received all consents, waivers, approvals, licenses, or other
authorizations required for the execution, delivery and performance of this
Agreement by the parties hereto.
6.3 CONSUMMATION OF DEBT ISSUANCE. By the Closing Date, debt
securities in the principal amount of at least $95,000,000 shall have been
issued or bridge financing in a like principal amount shall have been
obtained, in either case for the purpose of paying the Merger Consideration
and on terms reasonably acceptable to Parent.
6.4 EXCHANGE OFFER. If the Shareholders do not constitute all of the
holders of the Cancelled Shares, an exchange offer shall have been
consummated in accordance with Section 4.4.
6.5 ESCROW AGREEMENT. The Escrow Holder shall have delivered an
executed counterpart of the Escrow Agreement.
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ARTICLE VII
CONDITIONS TO PARENT'S OBLIGATIONS
The obligations of Parent to consummate the transactions
contemplated by this Agreement on the Closing Date shall be subject to the
following conditions, except to the extent such conditions are waived by
Parent, such waiver to be evidenced by Parent's consummation of the
transaction contemplated hereby:
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations
and warranties of the Shareholders set forth in this Agreement shall be true
as of the Closing Date with the same effect as though made at such time.
Shareholders shall have performed and complied with all agreements, covenants
and conditions required by this Agreement to be performed or complied with by
them prior to or at the Closing.
7.2 CLOSING DELIVERIES. Parent shall have received the deliveries
set forth in Section 1.3(b).
7.3 DUE DILIGENCE REVIEW. Parent shall be reasonably satisfied with
its legal, business and financial due diligence review of Burke, which
condition shall be deemed satisfied unless written notice is given to
Shareholders by Parent on or before July 31, 1997.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS
The obligations of Shareholders to consummate the transactions
contemplated by this Agreement on the Closing Date shall be subject to the
following conditions, except to the extent such conditions are waived by
Shareholders, such waiver to be evidenced by Shareholders' consummation of
the transaction contemplated hereby:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE. The representations
and warranties of Parent set forth in this Agreement shall be true in all
material respects as of the Closing Date, with the same effect as though made
at such time. Parent shall have performed and complied in all material
respects with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
8.2 CLOSING DELIVERIES. Shareholder shall have received the
deliveries set forth in Section 1.3(c).
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ARTICLE IX
FEES AND EXPENSES
9.1 EXPENSES. Each of the Parent and Shareholders shall pay such
party's own expenses incurred in connection with the negotiation and
consummation of the transactions contemplated by this Agreement. Without
limiting the foregoing, all fees and expenses of Morrison & Foerster LLP and
$50,000 of the fees and expenses of Ernst & Young LLP incurred in connection
with the transactions contemplated by this Agreement and all out-of-pocket
expenses of the Shareholders shall be borne by the Shareholders.
9.2 FEES OR COMMISSIONS OF BROKERS. Shareholders and Burke hereby
represent to Parent that they have not dealt with any broker or finder in
this transaction other than Bowles Hollowell Conner & Co., whose fees and
expenses shall be paid by Shareholders. Parent hereby represents to
Shareholders that it has not dealt with any broker or finder in this
transaction.
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may be terminated at any time before the Closing Date, as
follows, and in no other manner:
(a) by mutual consent of Parent and a majority-in-interest of
the Shareholders;
(b) by either Parent or a majority-in-interest of the
Shareholders if the Closing shall not have occurred on or before 5:00 p.m.,
Pacific Time, on August 25, 1997; PROVIDED that the right to terminate this
Agreement under this Section 10.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or results in, the failure of the Closing to have occurred within
such period;
(c) by either Parent or a majority-in-interest of Shareholders
if there has been a material breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the other party and
such breach of a covenant or agreement has not been cured within fifteen (15)
days after notice of such breach has been given to the other party; or
(d) by either Parent or a majority-in-interest of Shareholders
if (i) there shall be a final, non-appealable order of a federal or state
court in effect preventing consummation of the transaction, or (ii) there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the MergerCo by any
governmental entity which would make consummation of the transaction illegal.
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10.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement by any party pursuant to Section 10.1, this Agreement shall become
void and have no effect, and there shall be no obligations or liability on
the part of any party or its respective officers and directors, except as set
forth in Section 4.1 and Article IX.
ARTICLE XI
MISCELLANEOUS
11.1 TIME OF THE ESSENCE. Time is of the essence in this Agreement.
11.2 ENTIRE AGREEMENT. This Agreement, including the Shareholders'
Schedule, contains the entire agreement of the parties hereto, and supersedes
any prior written or oral agreements between them concerning the subject
matter contained herein. There are no representations, agreements,
arrangements or understandings, oral or written, between any of the parties
to this Agreement, relating to the subject matter contained in this
Agreement, which are not fully expressed herein. The Shareholders' Schedu le
and each Exhibit attached to this Agreement or delivered pursuant to this
Agreement is incorporated herein by this reference and constitutes a part of
this Agreement.
11.3 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. None of Burke,
Shareholders nor Parent shall issue any press release or make any public
announcement concerning the matters set forth in this Agreement (other than
as required by applicable disclosure rules or regulations) without the
consent of the other party. Burke, Shareholders and Parent will cooperate to
jointly prepare and issue any press release which may be issued to announce
the entering into this agreement or the closing of the transaction co
ntemplated by this Agreement.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
11.5 DESCRIPTIVE HEADINGS. The Article and Section headings in this
Agreement are for convenience only and shall not affect the meanings or
construction of any provision of this Agreement.
11.6 NOTICES. Any notices required or permitted to be given under
this Agreement shall be in writing and shall be deemed sufficiently given (i)
on the date delivered personally, (ii) five (5) days after posting by
registered or certified mail, postage prepaid or (iii) on the date
transmitted by telecopier with confirmation of receipt, addressed as follows:
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If to Parent or
MergerCo, to: J.F. Lehman & Company
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Telecopier: 212-634-1155
with a copy to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Telecopier: 213-229-7520
If to Shareholders, to: c/o CHF Capital Partners
485 Ramona Street
Palo Alto, California 94301
Attention: Timothy E. Howard or Daniel P. Flamen
Telecopier: 415-328-8301
with a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
Attention: William D. Sherman, Esq.
Telecopier: 415-494-0792
If to Burke, to: Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Attention: Rocco C. Genovese
Telecopier: 408-995-5163
with a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
Attention: William D. Sherman, Esq.
Telecopier: 415-494-0792
or to such other address or addresses as a party shall have previously
designated by notice to the other parties given in accordance with this
Section.
11.7 ARBITRATION. Any dispute under this Agreement which is not
settled by mutual agreement among the parties hereto, shall be finally
settled by binding arbitration, conducted by and in accordance with the rules
then in effect of the American Arbitration Association. The costs of the
arbitration, including administrative and arbitrators' fees, shall be shared
equally by the parties. Each party shall bear its own costs and attorneys'
and witness' fees. The prevailing party in any arbitration, as determined by
the arbitration panel, shall be entitled to an award
31
<PAGE>
against the other party in the amount of the prevailing party's costs and
reasonable attorneys' fees. In making any such award, the arbitration panel
shall take into consideration the outcome of the proceeding and the
reasonableness of the conduct of each such party in connection with the
dispute, in light of the facts known to such party at the time such party
engaged in such conduct. The arbitration panel shall not have authority to
award punitive damages hereunder. The arbitration shall be held in San
Francisco County, California.
11.8 CHOICE OF LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of California.
11.9 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties and their respective successors
and permitted assigns. Nothing in this Agreement, express or implied, is
intended to confer on any person other than the parties or their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
11.10 ASSIGNABILITY. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by any party without the prior written
consent of the other party and any attempted assignment without such consent
shall be void; PROVIDED, HOWEVER, that this Agreement may be assigned by
Parent to an affiliate of Parent which shall have been formed for the purpose
of consummating the transactions contemplated hereby; and PROVIDED, FURTHER,
that Parent or such affiliate may assign its rights under this Agreement
(including its rights to any indemnity hereunder) to any lender as collateral
security.
11.11 WAIVER AND AMENDMENT. Any term or provision of this Agreement
may be waived at any time by the party which is entitled to the benefits
thereof. The waiver by any party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach. The parties may, by mutual agreement in writing, amend this
Agreement in any respect.
11.12 ATTORNEYS' FEES. In the event of any action or proceeding to
enforce the terms and conditions of this Agreement, the prevailing party
shall be entitled to an award of reasonable attorneys' and experts' fees and
costs, in addition to such other relief as may be granted.
11.13 KNOWLEDGE STANDARD. Whenever this document refers to the
"knowledge" of any person, the term shall mean the actual knowledge of such
person, after due investigation.
11.14 PARENT'S KNOWLEDGE OF BREACH OF SHAREHOLDERS' REPRESENTATION.
If, at any time prior to the Closing, Parent obtains actual knowledge of any
facts or circumstances, not described in the Shareholders' Schedule, that
constitute a breach of a representation and warranty of Shareholders
contained in this Agreement, Parent shall advise Burke and Shareholders of
the existence of such facts and circumstances and that such facts and
circumstances constitute a breach of a representation and warranty as so on
as practicable after Parent obtains such knowledge and in any event prior to
the Closing and Stockholders shall have the right to cure such breach or
amend the Shareholders' Schedule prior to the Closing. Failure of Parent to
so
32
<PAGE>
notify Shareholders, however, will not constitute a modification, alteration,
limitation on or waiver of any of Shareholders' obligations hereunder.
33
<PAGE>
IN WITNESS WHEREOF, this Agreement and Plan of Merger has been executed
by the parties hereto as of the day and year first above written.
PARENT:
J.F. LEHMAN EQUITY INVESTORS I, L.P.
a Delaware limited partnership
By: JFL Management, L.L.C.
its sole general partner
By: a managing member
By: /s/ Donald Glickman
--------------------------
Name: Donald Glickman
MERGERCO:
JFL MERGER CO.
By: /s/ Keith Oster
-------------------------------------------
Name: Keith Oster
Title: Chief Financial Officer and
Vice President
BURKE:
BURKE INDUSTRIES, INC.
By: /s/ Rocco C. Genovese
-------------------------------------------
Name: Rocco C. Genovese
Title: Chief Executive Officer
34
<PAGE>
SHAREHOLDERS:
COMANN, HOWARD & FLAMEN,
a partnership
By: CHF Corporation,
its General Partner
By: /s/ Daniel P. Flamen
--------------------------
Name: Daniel P. Flamen
Title: President
/s/ Tyler K. Comann
------------------------------------
Tyler K. Comann
/s/ Timothy E. Howard
------------------------------------
Timothy E. Howard
/s/ Daniel P. Flamen
------------------------------------
Daniel P. Flamen
/s/ Rocco C. Genovese
------------------------------------
Rocco C. Genovese
/s/ Reed C. Wolthausen
------------------------------------
Reed C. Wolthausen
/s/ Robert F. Pitman
------------------------------------
Robert F. Pitman
/s/David E. Worthington
------------------------------------
David E. Worthington
/s/ Anne G. Howe
------------------------------------
Anne G. Howe
35
<PAGE>
/s/ Robert G. Engle
------------------------------------
Robert G. Engle
/s/ Craig A. Carnes
------------------------------------
Craig A. Carnes
/s/ Robert P. Harrison
------------------------------------
Robert P. Harrison
/s/ Hisham Alameddine
------------------------------------
Hisham Alameddine
/s/ Michael Moshfegh
------------------------------------
Michael Moshfegh
/s/ Ronald A. Steiben
------------------------------------
Ronald A. Steiben
MS VENTURES II
By:
---------------------------------
Name:
Title:
THE HOWARD FAMILY REVOCABLE TRUST
By:
---------------------------------
Name:
Title:
/s/ Raymond P. Brown
------------------------------------
Raymond P. Brown
/s/ Douglas L. Bartlett
------------------------------------
Douglas L. Bartlett
36
<PAGE>
/s/ Claude C. Corkadel
------------------------------------
Claude C. Corkadel
/s/ Robert W. Fugate
------------------------------------
Robert W. Fugate
/s/ Billy R. Gibson
------------------------------------
Billy R. Gibson
/s/ Dennis H. Gerber
------------------------------------
Dennis H. Gerber
/s/ Kristin C. Swanson
------------------------------------
Kristin C. Swanson
/s/ Larry D. Sims
------------------------------------
Larry D. Sims
/s/ Robert R. Catalano
------------------------------------
Robert R. Catalano
/s/ Stephen L. Brown, II
------------------------------------
Stephen L. Brown, II
/s/ James H. Caravayo
------------------------------------
James H. Caravayo
/s/ Frank M. Perovich
------------------------------------
Frank M. Perovich
/s/ Jose Perez
------------------------------------
Jose Perez
/s/ Tair Chiou
------------------------------------
Tair Chiou
37
<PAGE>
/s/ Richard McKenna
------------------------------------
Richard McKenna
/s/ Judy A. Emrich
------------------------------------
Judy A. Emrich
/s/ Albert H. Lee, Jr.
------------------------------------
Albert H. Lee, Jr.
/s/ Melanee G. Powell
------------------------------------
Melanee G. Powell
/s/ Gary Filler
------------------------------------
Gary Filler
/s/ Melchiore S. Bandanza
------------------------------------
Melchiore S. Bandanza
/s/ Moussa Moshfegh
------------------------------------
Moussa Moshfegh
/s/ Francis R. Cote
------------------------------------
Francis R. Cote
/s/ Hassan Khadgenoori
------------------------------------
Hassan Khadgenoori
/s/ Peter A. Sheehan
------------------------------------
Peter A. Sheehan
/s/ Rogella Castillo
------------------------------------
Rogella Castillo
/s/ William L. Adair
------------------------------------
William L. Adair
38
<PAGE>
/s/ Alex Ingram
------------------------------------
Alex Ingram
/s/ Paul O. Keller
------------------------------------
Paul O. Keller
/s/ Stephen C. Roades
------------------------------------
Stephen C. Roades
/s/ Mark T. Sorenson
------------------------------------
Mark T. Sorenson
/s/ Leroy J. Borders
------------------------------------
Leroy J. Borders
/s/ Daniel L. Garrison
------------------------------------
Daniel L. Garrison
/s/ Donna V. McKnight
------------------------------------
Donna V. McKnight
/s/ Priscilla Nordyke
------------------------------------
Priscilla Nordyke
/s/ Juanita R. O'Brien
------------------------------------
Juanita R. O'Brien
/s/ Roseann Dybas
------------------------------------
Roseann Dybas
39
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
BURKE INDUSTRIES, INC.
Article One: The name of this corporation is:
BURKE INDUSTRIES, INC.
Article Two: The purpose of this corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated by
the California Corporations Code.
Article Three:
3(A) AUTHORIZED CAPITAL Stock. The corporation is authorized to issue
two classes of capital stock, to be designated Preferred Stock, without par
value, and Common Stock, without par value. The corporation is authorized to
issue 50,000 shares of Preferred Stock and 20,000,000 shares of Common Stock.
3(B) RIGHT, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF PREFERRED
STOCK. The Preferred Stock may be issued in any number of series, as determined
from time to time by the Board of Directors of the Corporation. The Board of
Directors may by resolution fix the designation of, and the rights, preferences,
privileges and restrictions granted to or imposed upon and the number of shares
of any such series of Preferred Stock. The Board of Directors may thereafter in
the same manner increase or decrease the number of shares of any such series of
Preferred Stock (but not below the number of shares of such series of Preferred
Stock then outstanding).
3(C) SERIES A 11.5% CUMULATIVE REDEEMABLE PREFERRED STOCK. The Board
of Directors has designated a series of Preferred Stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
1. DESIGNATION AND AMOUNT. The shares of such series of Preferred
Stock shall be designated as "Series A 11.5% Cumulative Redeemable Preferred
Stock" (the "Series A Preferred Stock"), and the number of shares constituting
such series shall be 30,000. The initial liquidation preference of the Series A
Preferred Stock shall be $1,000 per share (the "Stated Liquidation Value").
<PAGE>
2. RANK. The Series A Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and dissolution, rank
(i) senior to the Corporation's common stock, without par value (the "Common
Stock"), and to all classes and series of stock of the Corporation now or
hereafter authorized, issued or outstanding which by their terms expressly
provide that they are junior to the Series A Preferred Stock or which do not
specify their rank (collectively with the Common Stock, the "Junior
Securities"), (ii) on a parity with the Series B 11.5% Cumulative Redeemable
Preferred Stock, without par value (the "Series B Preferred Stock") and with
each other class of capital stock or series of Preferred Stock issued by the
Corporation after the date hereof the terms of which specifically provide that
such class or series will rank on a parity with the Series A Preferred Stock as
to dividend distributions and distributions upon the liquidation, winding up and
dissolution of the Corporation (collectively referred to as "Parity Securities")
and (iii) junior to each other class of capital stock or other series of
Preferred Stock issued by the Corporation after the date hereof the terms of
which have been approved by the requisite number of holders of Series A
Preferred Stock as provided in Section 3(C)8(b) hereof and which specifically
provide that such class or series will rank senior to the Series A Preferred
Stock as to dividend distributions or distributions upon the liquidation,
winding up and dissolution of the Corporation (collectively referred to as
"Senior Securities").
3. DIVIDENDS.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, dividends payable quarterly in arrears on
January 15, April 15, July 15 and October 15 of each year (each such date, a
"Dividend Payment Date"), except that if any Dividend Payment Date is not a
Business Day, then such quarterly dividend shall be payable on the next
succeeding Business Day and such next succeeding Business Day will be the
Dividend Payment Date. Dividends shall be payable to holders of Series A
Preferred Stock at the annual rate of 11.5% times the sum of (i) the Stated
Liquidation Value and (ii) accrued but unpaid dividends as of the immediately
preceding Dividend Payment Date. Dividends shall be payable (A) at the annual
rate of .115 shares of Series A Preferred Stock per share of Series A Preferred
Stock from the Issue Date through the July 15, 2000 Dividend Payment Date and
(B) in cash after the July 15, 2000 Dividend Payment Date, with the first such
cash dividend payable to the holders of Series A Preferred Stock on October 15,
2000. Dividends shall be payable only to holders of record at the close of
business on the date specified by the Board of Directors at the time such
dividend is declared (the "Record Date"), in preference to dividends on the
Junior Securities, commencing on the Dividend Payment Date next succeeding the
Issue Date. Any such Record Date shall be not less than 10 days and not more
than 60 days prior to the relevant Dividend Payment Date. All dividends paid
with respect to shares of Series A Preferred Stock shall be paid PRO RATA to the
holders entitled thereto. Dividends on the Series A Preferred Stock shall
accrue and be cumulative on a quarterly basis (whether or not declared and
whether or not funds are legally available for the payment thereof) from the
Issue Date.
<PAGE>
(b) Dividends payable on the Series A Preferred Stock for any period
less than a full quarterly dividend period shall be computed on the basis of a
360-day year of twelve 30-day months.
(c) Fractional shares of Series A Preferred Stock shall be issued to
the extent necessary to make dividend payments in shares of Series A Preferred
Stock. Each fractional share of Series A Preferred Stock outstanding shall be
entitled to a ratably proportionate amount of all dividends accruing with
respect to each outstanding share of Series A Preferred Stock and all of such
dividends with respect to such outstanding fractional shares shall be fully
cumulative and shall accrue (whether or not declared) and shall be payable in
the same manner and at such times as provided for in Section 3(C)3(a) above with
respect to dividends on each outstanding share of Series A Preferred Stock.
(d) Until the earlier of (i) the date upon which no shares of Series
A Preferred Stock are outstanding and (ii) July 16, 2000, the Corporation shall
reserve and keep available out of its authorized or unissued Series A Preferred
Stock solely for the purpose of paying dividends thereon as provided for herein,
such number of shares of Series A Preferred Stock as shall from time to time be
sufficient for such purpose. The Board of Directors of the Corporation shall,
from time to time, if necessary, propose to the shareholders of the Corporation
amendments to the Corporation's Articles of Incorporation to increase its
authorized capital stock and take such other actions as may be necessary to
permit the issuance from time to time of shares of Series A Preferred Stock upon
the declaration of any dividend payable in additional shares of Series A
Preferred Stock.
(e) So long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not, without the prior consent of the holders
of at least two-thirds of the shares of outstanding Series A Preferred Stock and
Series B Preferred Stock, voting together as a single series, (i) make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or retirement of, any Junior
Securities (other than dividends or distributions payable in additional shares
of Junior Securities to holders of Junior Securities); (ii) permit any
corporation or other entity directly or indirectly controlled by the Corporation
to purchase or redeem any Junior Securities; (iii) declare, pay or set apart for
payment, or permit any corporation or other entity directly or indirectly
controlled by the Corporation to declare, pay or set apart for payment, any
dividend or make any distribution or payment on any Junior Securities or Parity
Securities, whether directly or indirectly and whether in cash, obligations or
shares of the Corporation or other property (other than dividends or
distributions payable in additional shares of Junior Securities to holders of
Junior Securities); or (iv) make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the purchase, redemption
or retirement of, any Parity Securities, whether directly or indirectly, and
whether in cash, obligations, shares of the Corporation or other property (other
than payments solely of Junior Securities), and shall not permit any corporation
or other entity directly or indirectly controlled by the Corporation to purchase
or redeem any Parity Securities, unless prior to or at the time of such payment
or setting apart for payment, the Corporation shall have repurchased,
<PAGE>
redeemed or retired shares of Series A Preferred Stock on a PRO RATA basis, in
proportion to the respective Liquidation Preferences (as defined in these
Amended and Restated Articles of Incorporation or in the applicable Certificate
of Determination) of the Series A Preferred Stock and the Parity Securities as
to which such sinking fund or similar fund payment, or such purchase, redemption
or retirement, is being effected.
(f) Whenever dividends on the Series A Preferred Stock are in
arrears, the Corporation shall not declare dividends on or make any other
distribution in respect of any Parity Securities, except dividends paid on a PRO
RATA basis on the Series A Preferred Stock and all other capital stock ranking
on a parity as to dividends and on which dividends are payable in arrears, in
proportion to the respective amounts of dividends in arrears upon all such
outstanding shares of Series A Preferred Stock and such other series of capital
stock.
(g) If at any time after October 15, 2000 any cash dividends payable
on the Series A Preferred Stock shall have been in arrears and unpaid for four
(4) or more successive Dividend Payment Dates, then until the date on which all
such dividends in arrears are paid in full, dividends shall accrue and be
payable to the holders of Series A Preferred Stock at the annual rate of 13.5%
times the sum of (i) the Stated Liquidation Value and (ii) accrued but unpaid
dividends thereon. Upon payment in full of all such dividends in arrears, cash
dividends will thereafter be payable as set forth in Section 3(C)3(a) above.
4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
shareholders an amount in cash equal to 100% of the Stated Liquidation Value for
each share outstanding, plus an amount in cash equal to all accrued but unpaid
dividends thereon, without interest, to the date of liquidation, dissolution or
winding up (such amount the "Liquidation Preference"), before any payment shall
be made or any assets distributed to the holders of any of the Junior
Securities. If the assets of the Corporation are not sufficient to pay in full
the Liquidation Preference payable to the holders of outstanding shares of the
Series A Preferred Stock and any Parity Securities, then the holders of all such
shares shall share ratably in such distribution of assets in accordance with the
amount which would be payable on such distribution if the amounts to which the
holders of outstanding shares of Series A Preferred Stock and the holders of
outstanding shares of such Parity Securities are entitled were paid in full.
(b) For the purposes of this Section 3(C)4, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Corporation nor the consolidation or merger of the Corporation with any one
or more other corporations shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the
<PAGE>
Corporation, unless such voluntary sale, conveyance, exchange or transfer shall
be in connection with a plan of liquidation, dissolution or winding up of the
Corporation.
5. REDEMPTION.
(a) OPTIONAL REDEMPTION. The Corporation may, at its option, redeem
at any time, out of funds legally available therefor, in the manner provided in
Section 3(C)6 hereof, all or any portion of the shares of the Series A Preferred
Stock, at a redemption price per share equal to 100% of the Liquidation
Preference thereof on the date of redemption; PROVIDED, HOWEVER, that any such
optional redemption by the Corporation shall be on a PRO RATA basis and for
whole shares of Series A Preferred Stock and Series B Preferred Stock; PROVIDED,
FURTHER, HOWEVER, that the Corporation may redeem fractional shares of Series A
Preferred Stock pursuant to this Section 3(C)5(a) in the event that after such
redemption a holder of Series A Preferred Stock would be left with less than one
full share of Series A Preferred Stock.
(b) MANDATORY REDEMPTION. On February 20, 2008, the Corporation
shall redeem any and all outstanding shares of Series A Preferred Stock, out of
funds legally available therefor, at a redemption price per share equal to 100%
of the Liquidation Preference thereof on such date.
(c) REDEMPTION UPON CHANGE OF CONTROL. Upon the occurrence of a
Change of Control, the Series A Preferred Stock shall be redeemable at the
option of the holders thereof, in whole or in part, at a redemption price per
share equal to 100% of the Liquidation Preference on the date of redemption;
PROVIDED, HOWEVER, that the Corporation will not be obligated to redeem, and
will not redeem or call for redemption, any Series A Preferred Stock upon a
Change of Control until it has repurchased or redeemed such of the $110,000,000
original principal amount of 10% Senior Notes Due 2007 of the Corporation (the
"Notes") then outstanding as it is required to repurchase or has called for
redemption in connection with such Change of Control pursuant to the terms of
the Indenture among the Corporation, certain of its subsidiaries and U.S. Trust
Company of New York, N.A. relating to the Notes. Subject to the foregoing
proviso, the Corporation shall redeem, out of funds legally available therefor,
the number of shares specified in the holders' notices of election to redeem
pursuant to Section 3(C)6(b) hereof on the date fixed for redemption.
6. PROCEDURE FOR REDEMPTION.
(a) In the event that the Corporation shall redeem shares of Series A
Preferred Stock pursuant to Sections 3(C)5(a) or 3(C)5(b) hereof, notice of such
redemption shall be mailed by first-class mail, postage prepaid, and mailed not
less than 30 days nor more than 60 days prior to the redemption date to the
holders of record of the shares to be redeemed at their respective addresses as
they shall appear in the records of the Corporation; PROVIDED, HOWEVER, that
failure to give such notice or any defect therein or in the mailing thereof
shall not affect the validity of the proceeding for the redemption of any shares
so to be redeemed except as to the holder to whom the Corporation has failed
<PAGE>
to give such notice or except as to the holder to whom notice was defective.
Each such notice shall state: (i) the redemption date; (ii) the number of
shares of Series A Preferred Stock to be redeemed and, if less than all the
shares held by such holders are to be redeemed, the number of such shares to be
redeemed from such holders; (iii) the redemption price and form of
consideration; (iv) the place or places where certificates for such shares are
to be surrendered for payment of the redemption price; and (v) that dividends on
the shares to be redeemed will cease to accrue on such redemption date. Any
redemption of less than all the shares of Series A Preferred Stock pursuant to
Section 3(C)5(a) shall be made on a PRO RATA basis to all holders of Series A
Preferred Stock.
(b) If a Change of Control should occur, then, subject to Section
3(C)5(c) above, within 30 days of the occurrence of such Change of Control, the
Corporation shall give written notice by first-class mail, postage prepaid, to
each holder of Series A Preferred Stock at its address as it appears in the
records of the Corporation, which notice shall set forth (in addition to the
information required by the next succeeding paragraph): (i) each holder's right
to require the Corporation to redeem shares of Series A Preferred Stock held by
such holder as a result of such Change of Control; (ii) the redemption price;
(iii) the redemption date (which date shall be no earlier than 30 days and no
later than 60 days from the date the notice in respect of such Change of Control
is mailed); (iv) the procedures to be followed by such holder in exercising its
right of redemption, including the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on the redemption
date. In the event a holder of shares of Series A Preferred Stock shall elect
to require the Corporation to redeem any or all of such shares of Series A
Preferred Stock, such holder shall deliver, within 20 days of the mailing to it
of the Corporation's notice described in this Section 3(C)6(b), a written notice
stating such holder's election and specifying the number of shares to be
redeemed pursuant to Section 3(C)5(c) hereof.
(c) Notice by the Corporation having been mailed as provided in
Section 3(C)6(a) hereof, or notice of election having been mailed by the holders
as provided in Section 3(C)6(b) hereof, and provided that on or before the
applicable redemption date funds necessary for such redemption shall have been
set aside by the Corporation, separate and apart from its other funds, in trust
for the PRO RATA benefit of the holders of the shares of Series A Preferred
Stock and Series B Preferred Stock so called for or entitled to redemption, so
as to be and to continue to be available therefor, then, from and after the
redemption date, dividends on the shares of Series A Preferred Stock so called
for or entitled to redemption shall cease to accrue, and said shares shall no
longer be deemed to be outstanding and shall not have the status of shares of
Series A Preferred Stock, and all rights of the holders thereof as shareholders
of the Corporation (except the right to receive the applicable redemption price
and any accrued and unpaid dividends from the Corporation to the date of
redemption) shall cease, unless the Corporation defaults in the payment of the
redemption price, in which case all rights of the holders of Series A Preferred
Stock shall continue until the redemption price is paid. Upon surrender of the
<PAGE>
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall so require and a
notice by the Corporation shall so state), such shares shall be redeemed by the
Corporation at the applicable redemption price as aforesaid. In case fewer than
all the shares represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed shares
without cost to the holder thereof. Any funds set aside in trust for the
holders of Series A Preferred Stock pursuant to this Section 3(C)6(c) which
remain unclaimed on the second anniversary of the applicable redemption date
shall be released or repaid to the Company, after which the holders of shares
called for redemption shall be entitled to receive payment of the redemption
price only from the Corporation.
7. REACQUIRED SHARES. Shares of Series A Preferred Stock that have
been issued and reacquired in any manner, including shares reacquired by
purchase or redemption, shall (upon compliance with any applicable provisions of
the laws of the State of California) have the status of authorized and unissued
shares of the class of Preferred Stock undesignated as to series and, subject to
the approval of the holders of the Series A Preferred Stock as provided in
Section 3(C)8(b) hereof, may be redesignated and reissued as part of any series
of Preferred Stock other than the Series A Preferred Stock.
8. VOTING RIGHTS.
In addition to any voting rights provided by law, the holders of
Series A Preferred Stock shall have the following voting rights:
(a) VOTING UPON AMENDMENT TO ARTICLES OF INCORPORATION. The Articles
of Incorporation of the Corporation shall not be amended in any manner that
would adversely alter or change the powers, preferences, special rights or
economics of the Series A Preferred Stock as set forth herein without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series A Preferred Stock and of Series B Preferred Stock, voting together as
a single series.
(b) OTHER VOTING RIGHTS. Without the affirmative vote or consent of
the holders of at least two-thirds of the outstanding shares of Series A
Preferred Shares and Series B Preferred Stock, voting together as a single
series, the Corporation shall not after the Issue Date (i) create, authorize or
issue any Senior Securities or Parity Securities or (ii) create, authorize or
issue any Junior Securities, unless such Junior Securities are expressly
subordinate in right of payment (of liquidation preference and dividends) to the
Series A Preferred Stock, the Series B Preferred Stock and such Junior
Securities have no additional rights (directly or indirectly) upon the
Corporation's failure to redeem such Junior Securities or to pay or declare a
dividend or make a distribution with respect thereto.
(c) CONSENT WITH RESPECT TO CERTAIN AGREEMENTS. Without the
affirmative vote or consent of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, the Corporation shall not after
the Issue Date enter into any agreement which will limit or otherwise adversely
affect the Corporation's ability to
<PAGE>
comply with its redemption obligations under Section 3(C)5(b) hereof, including,
without limitation, any such agreement or plan entered into with respect to
(i) the sale of all or substantially all of the assets of the Corporation,
(ii) the voluntary liquidation, dissolution or winding up of the Corporation or
(iii) the consolidation or merger of the Corporation with any one or more other
corporations, other than a consolidation or merger in which the shareholders of
the Corporation immediately prior to such transaction will hold more than 50% of
the equity securities of the surviving entity immediately after the consummation
of such transaction.
(d) VOTING SHIFT UPON CERTAIN EVENTS:
(i) CASH DIVIDENDS IN ARREARS. If at any time after October 15,
2000 any cash dividends payable on the Series A Preferred Stock shall have
been in arrears and unpaid for four (4) or more successive Dividend Payment
Dates, then the holders of the outstanding shares of Series A Preferred
Stock, voting separately as a class and to the exclusion of the holders of
all other classes and series of stock of the Corporation, shall have the
right, in addition to any other rights to elect directors which the holders
of Series A Preferred Stock may have, to elect the smallest number of
directors constituting one-third of the authorized number of directors, and
the holders of the shares of Common Stock shall have the right to elect the
remaining directors.
(ii) DEFAULT IN MANDATORY REDEMPTION. If the Corporation shall
fail to redeem shares of Series A Preferred Stock in accordance with the
mandatory redemption provisions of Section 3(C)5(b) hereof, then then the
holders of the outstanding shares of Series A Preferred Stock, voting
separately as a class and to the exclusion of the holders of all other
classes and series of stock of the Corporation, shall have the right, in
addition to any other rights to elect directors which the holders of Series
A Preferred Stock may have, to elect the smallest number of directors
constituting a majority of the authorized number of directors, and the
holders of the shares of Common Stock shall have the right to elect the
remaining directors.
(iii) TERMINATION OF RIGHT OF SERIES A PREFERRED STOCK TO
ELECT DIRECTORS. The right of the holders of Series A Preferred Stock to
elected directors of the Corporation shall continue until, (A) in the case
of a voting right arising pursuant to Section 3(C)8(d)(i), until the date
on which all such dividends in arrears are paid in full, and (B) in the
case of a voting right arising pursuant to Section 3(C)8(d)(ii), such time
as the Liquidation Preference owing to holders of Series A Preferred Stock
shall have been paid in full, at which time such special voting right of
the holders of Series A Preferred Stock shall terminate, subject to
revesting (with respect to the voting right set forth in Section
3(C)8(d)(i)) in the event of each and every recurrence of any event
triggering such shift in voting rights.
<PAGE>
(iv) MECHANICS FOR ELECTION OF DIRECTORS; NOTICE. Whenever such
voting right set forth in Section 3(C)8(d)(i) or 3(C)8(d)(ii) shall have
vested as aforesaid, such right may be exercised initially either at a
special meeting of the holders of Series A Preferred Stock, at any annual
meeting of shareholders held for the purpose of electing directors or by
the written consent of the holders of Series A Preferred Stock without a
meeting, and thereafter at such annual meeting or by written consent. At
any time after such voting power referred to in this Section 3(C)8(d)(i) or
3(C)8(d)(ii) shall have been so vested in shares of Series A Preferred
Stock and such right shall not already have been exercised by written
consent as aforesaid, the Secretary of the Corporation may, and upon the
written request of the holders of record of at least 10% of the outstanding
shares of Series A Preferred Stock entitled to vote thereon (addressed to
the Secretary of the Corporation at the principal office of the
Corporation) shall, call a special meeting of the shareholders of the
Corporation for the purpose of electing all of the members of the board of
directors. Such call shall be made by notice to each holder by first-class
mail, postage prepaid at its address as it appears in the records of the
Corporation, and such notice shall be mailed at least 10 days but no more
than 20 days before the date of the special meeting, or as required by law.
Such meeting shall be held at the earliest practicable date upon the notice
required for special meetings of shareholders at the place designated by
the Secretary of the Corporation. If such meeting shall not be called by a
proper officer of the Corporation within 15 days after receipt of such
written request by the Secretary of the Corporation, then the holders of
record of at least 10% of the shares of Series A Preferred Stock then
outstanding and entitled to vote thereon may call such meeting at the
expense of the Corporation, and such meeting may be called by such holders
upon the notice required for special meetings of shareholders and shall be
held at the place designated in such notice.
(v) QUORUM. At any meeting held for the purpose of electing
directors at which the holders of Series A Preferred Stock shall have the
right to elect directors as provided in this Section 3(C)8(d), the presence
in person or by proxy of the holders of a majority of the then outstanding
shares of Series A Preferred Stock entitled to vote thereon shall be
required and be sufficient to constitute a quorum of such series for the
election of directors by such series. At any such meeting or adjournment
thereof, (A) the absence of a quorum of the holders of Series A Preferred
Stock shall not prevent the election of directors other than the directors
to be elected by the holders of Series A Preferred Stock, and the absence
of a quorum or quorums of the holders of capital stock entitled to elect
such other directors shall not prevent the election of the directors to be
elected by the holders of Series A Preferred Stock, and (B) in the absence
of a quorum of the holders of Series A Preferred Stock, a majority of the
holders of Series A Preferred Stock present in person or by proxy shall
have the power to adjourn the meeting for the election of directors which
such holders are entitled to elect, from time to time, without notice
(except as required by law) other than announcement at the meeting, until a
quorum shall be present.
<PAGE>
(vi) TERM; TERMINATION. Upon any termination of the aforesaid
voting rights in accordance with Section 3(C)8(d)(iii) hereof, provided
such right shall not already have been exercised by written consent, the
Secretary of the Corporation may, and upon the written request of the
holders of record of at least 10% of the outstanding shares of capital
stock of the Corporation entitled to vote thereon (addressed to the
Secretary of the Corporation at the principal office of the Corporation)
shall, call a special meeting of the shareholders of the Corporation for
the purpose of electing all of the members of the board of directors. Such
call shall be made by notice to each holder by first-class mail, postage
prepaid at its address as it appears in the records of the Corporation, and
such notice shall be mailed at least 10 days but no more than 20 days
before the date of the special meeting, or as required by law. Such
meeting shall be held at the earliest practicable date upon the notice
required for special meetings of shareholders at the place designated by
the Secretary of the Corporation. If such meeting shall not be called by a
proper officer of the Corporation within 15 days after receipt of such
written request by the Secretary of the Corporation, then the holders of
record of at least 10% of the shares of capital stock then outstanding and
entitled to vote thereon may call such meeting at the expense of the
Corporation, and such meeting may be called by such holders upon the notice
required for special meetings of shareholders and shall be held at the
place designated in such notice.
(vii) VACANCY. In case of a vacancy occurring in the office
of any director so elected pursuant to Section 3(C)8(d)(i) or 3(C)8(d)(ii)
hereof, the holders of a majority of the Series A Preferred Stock then
outstanding and entitled to vote may, at a special meeting of the holders
or by written consent as provided above, elect a successor to hold office
for the unexpired term of such director.
Except as set forth herein, holders of shares of Series A Preferred Stock shall
have no special voting rights and their consent shall not be required (except to
the extent they are otherwise entitled to vote as set forth in these Amended and
Restated Articles of Incorporation or by law) for taking any corporate action.
To extent permissible under applicable law, each vote of the holders of Series A
Preferred Stock shall be a vote of the holders of Series A Preferred Stock and
Series B Preferred Stock, voting together as a single series, if the and to the
extent that the holders of Series B Preferred Stock are permitted to so vote.
9. REMEDIES. Any holder of Series A Preferred Stock may proceed to
protect and enforce its rights and the rights of other holders by any available
remedy by proceeding at law or in equity to protect and enforce any such rights,
whether for the specific enforcement of any provision in these Amended and
Restated Articles of Incorporation or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
<PAGE>
10. DEFINITIONS. For the purposes of this Section 3(C) of these
Amended and Restated Articles of Incorporation, the following terms shall have
the meanings indicated:
"Affiliate" shall mean, with respect to any specified person, (a) any
other person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified person or (b) any other person
that owns, directly or indirectly, 10% or more of such specified person's
capital stock or any executive officer or director of any such specified person
or other person or, with respect to any natural person, any person having a
relationship with such person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control," when used
with respect to any specified person, means the power to direct the management
and policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Beneficial Owner" shall have the meaning ascribed to such term or the
term "beneficial ownership" in Rule 13d-3 and Rule 13d-5 under the Exchange Act,
except that a person shall be deemed have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
"Change of Control" shall mean such time after the Issue Date as
either:
(i) prior to the initial public offering by the Corporation of
any class of its common stock, the consummation of any transaction the
result of which is that the Principals and their Related Parties
become the Beneficial Owners, in the aggregate, of less than 50% of
the Common Stock of the Corporation;
(ii) after the initial public offering by the Corporation of any
class of its common stock, any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act), other than the Principals and
their Related Parties, becomes, directly or indirectly, the Beneficial
Owner, by way of merger, consolidation or otherwise, of 35% or more of
the Common Stock of the Corporation and such person is or becomes,
directly or indirectly, the Beneficial Owner of a greater percentage
of the voting power of the Common Stock of the Corporation, calculated
on a fully diluted basis, than the percentage Beneficially Owned by
the Principals and their Related Parties; or
<PAGE>
(iii) the Corporation effects the sale, lease or transfer of
all or substantially all of the assets of the Corporation to any
person or group.
"Issue Date" shall mean the first date on which shares of Series A
Preferred Stock are issued.
"Junior Securities" shall have the meaning set forth in Section 3(C)2
hereof.
"Liquidation Preference" shall have the meaning set forth in
Section 3(C)4 hereof.
"Parity Securities" shall have the meaning set forth in Section 3(C)2
hereof.
"Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
"Principals" shall mean (i) J.F. Lehman & Company ("Lehman"),
(ii) each Affiliate of Lehman as of the Issue Date, (iii) J.F. Lehman Equity
Investors I, L.P. and (iv) each officer or employee (including their respective
immediate family members) of Lehman as of the Issue Date.
"Related Party" shall mean with respect to any Principal (A) any
controlling shareholder or 80% (or more) owned subsidiary of such Principal or
(B) any trust, corporation, partnership or other entity, the beneficiaries,
shareholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
3(D) SERIES B 11.5% CUMULATIVE REDEEMABLE PREFERRED STOCK. The Board
of Directors has designated a series of Preferred Stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
1. DESIGNATION AND AMOUNT. The shares of such series of Preferred
Stock shall be designated as "Series B 11.5% Cumulative Redeemable Preferred
Stock" (the "Series B Preferred Stock"), and the number of shares constituting
such series shall be 5,000. The initial liquidation preference of the Series B
Preferred Stock shall be $1,000 per share (the "Stated Liquidation Value").
2. RANK. The Series B Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and dissolution, rank
(i) senior to the Corporation's common stock, without par value (the "Common
Stock"), and to all classes and series of stock of the Corporation now or
hereafter authorized, issued or outstanding which by their terms expressly
provide that they are junior to the Series B Preferred Stock or which do not
specify their rank (collectively with the Common Stock, the "Junior
Securities"), (ii) on a parity with the Series A Preferred Stock and with each
other class of
<PAGE>
capital stock or series of Preferred Stock issued by the Corporation after the
date hereof the terms of which specifically provide that such class or series
will rank on a parity with the Series B Preferred Stock as to dividend
distributions and distributions upon the liquidation, winding up and dissolution
of the Corporation (collectively referred to as "Parity Securities") and
(iii) junior to each other class of capital stock or other series of Preferred
Stock issued by the Corporation after the date hereof the terms of which have
been approved by the requisite number of holders of Series B Preferred Stock as
provided in Section 3(D)8(b) hereof and which specifically provide that such
class or series will rank senior to the Series B Preferred Stock as to dividend
distributions or distributions upon the liquidation, winding up and dissolution
of the Corporation (collectively referred to as "Senior Securities").
3. DIVIDENDS.
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, dividends payable quarterly in arrears on
January 15, April 15, July 15 and October 15 of each year (each such date, a
"Dividend Payment Date"), except that if any Dividend Payment Date is not a
Business Day, then such quarterly dividend shall be payable on the next
succeeding Business Day and such next succeeding Business Day will be the
Dividend Payment Date. Dividends shall be payable to holders of Series B
Preferred Stock at the annual rate of 11.5% times the sum of (i) the Stated
Liquidation Value and (ii) accrued but unpaid dividends as of the immediately
preceding Dividend Payment Date. Dividends shall be payable (A) at the annual
rate of .115 shares of Series B Preferred Stock per share of Series B Preferred
Stock from the Issue Date through the July 15, 2000 Dividend Payment Date and
(B) in cash after the July 15, 2000 Dividend Payment Date, with the first such
cash dividend payable to the holders of Series B Preferred Stock on October 15,
2000. Dividends shall be payable only to holders of record at the close of
business on the date specified by the Board of Directors at the time such
dividend is declared (the "Record Date"), in preference to dividends on the
Junior Securities, commencing on the Dividend Payment Date next succeeding the
Issue Date. Any such Record Date shall be not less than 10 days and not more
than 60 days prior to the relevant Dividend Payment Date. All dividends paid
with respect to shares of Series B Preferred Stock shall be paid PRO RATA to the
holders entitled thereto. Dividends on the Series B Preferred Stock shall
accrue and be cumulative on a quarterly basis (whether or not declared and
whether or not funds are legally available for the payment thereof) from the
Issue Date.
(b) Dividends payable on the Series B Preferred Stock for any period
less than a full quarterly dividend period shall be computed on the basis of a
360-day year of twelve 30-day months.
(c) Fractional shares of Series B Preferred Stock shall be issued to
the extent necessary to make dividend payments in shares of Series B Preferred
Stock. Each fractional share of Series B Preferred Stock outstanding shall be
entitled to a ratably
<PAGE>
proportionate amount of all dividends accruing with respect to each outstanding
share of Series B Preferred Stock and all of such dividends with respect to such
outstanding fractional shares shall be fully cumulative and shall accrue
(whether or not declared) and shall be payable in the same manner and at such
times as provided for in Section 3(D)3(a) above with respect to dividends on
each outstanding share of Series B Preferred Stock.
(d) Until the earlier of (i) the date upon which no shares of Series
B Preferred Stock are outstanding and (ii) July 16, 2000, the Corporation shall
reserve and keep available out of its authorized or unissued Series B Preferred
Stock solely for the purpose of paying dividends thereon as provided for herein,
such number of shares of Series B Preferred Stock as shall from time to time be
sufficient for such purpose. The Board of Directors of the Corporation shall,
from time to time, if necessary, propose to the shareholders of the Corporation
amendments to the Corporation's Articles of Incorporation to increase its
authorized capital stock and take such other actions as may be necessary to
permit the issuance from time to time of shares of Series B Preferred Stock upon
the declaration of any dividend payable in additional shares of Series B
Preferred Stock.
(e) So long as any shares of the Series B Preferred Stock are
outstanding, the Corporation shall not, without the prior consent of the holders
of at least two-thirds of the shares of outstanding Series A Preferred Stock and
the Series B Preferred Stock, voting together as a single series, (i) make any
payment on account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or retirement of, any Junior
Securities (other than dividends or distributions payable in additional shares
of Junior Securities to holders of Junior Securities); (ii) permit any
corporation or other entity directly or indirectly controlled by the Corporation
to purchase or redeem any Junior Securities; (iii) declare, pay or set apart for
payment, or permit any corporation or other entity directly or indirectly
controlled by the Corporation to declare, pay or set apart for payment, any
dividend or make any distribution or payment on any Junior Securities or Parity
Securities, whether directly or indirectly and whether in cash, obligations or
shares of the Corporation or other property (other than dividends or
distributions payable in additional shares of Junior Securities to holders of
Junior Securities); or (iv) make any payment on account of, or set apart for
payment money for a sinking or other similar fund for, the purchase, redemption
or retirement of, any Parity Securities, whether directly or indirectly, and
whether in cash, obligations, shares of the Corporation or other property (other
than payments solely of Junior Securities), and shall not permit any corporation
or other entity directly or indirectly controlled by the Corporation to purchase
or redeem any Parity Securities, unless prior to or at the time of such payment
or setting apart for payment, the Corporation shall have repurchased, redeemed
or retired shares of Series B Preferred Stock on a PRO RATA basis, in proportion
to the respective Liquidation Preferences (as defined in these Amended and
Restated Articles of Incorporation or in the applicable Certificate of
Determination) of the Series B Preferred Stock and the Parity Securities as to
which such sinking fund or similar fund payment, or such purchase, redemption or
retirement, is being effected.
<PAGE>
(f) Whenever dividends on the Series B Preferred Stock are in
arrears, the Corporation shall not declare dividends on or make any other
distribution in respect of any Parity Securities, except dividends paid on a PRO
RATA basis on the Series B Preferred Stock and all other capital stock ranking
on a parity as to dividends and on which dividends are payable in arrears, in
proportion to the respective amounts of dividends in arrears upon all such
outstanding shares of Series B Preferred Stock and such other series of capital
stock.
(g) If at any time after October 15, 2000 any cash dividends payable
on the Series B Preferred Stock shall have been in arrears and unpaid for four
(4) or more successive Dividend Payment Dates, then until the date on which all
such dividends in arrears are paid in full, dividends shall accrue and be
payable to the holders of Series B Preferred Stock at the annual rate of 13.5%
times the sum of (i) the Stated Liquidation Value and (ii) accrued but unpaid
dividends thereon. Upon payment in full of all such dividends in arrears, cash
dividends will thereafter be payable as set forth in Section 3(D)3(a) above.
4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series B Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
shareholders an amount in cash equal to 100% of the Stated Liquidation Value for
each share outstanding, plus an amount in cash equal to all accrued but unpaid
dividends thereon, without interest, to the date of liquidation, dissolution or
winding up (such amount the "Liquidation Preference"), before any payment shall
be made or any assets distributed to the holders of any of the Junior
Securities. If the assets of the Corporation are not sufficient to pay in full
the Liquidation Preference payable to the holders of outstanding shares of the
Series B Preferred Stock and any Parity Securities, then the holders of all such
shares shall share ratably in such distribution of assets in accordance with the
amount which would be payable on such distribution if the amounts to which the
holders of outstanding shares of Series B Preferred Stock and the holders of
outstanding shares of such Parity Securities are entitled were paid in full.
(b) For the purposes of this Section 3(D)4, neither the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Corporation nor the consolidation or merger of the Corporation with any one
or more other corporations shall be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, unless such voluntary
sale, conveyance, exchange or transfer shall be in connection with a plan of
liquidation, dissolution or winding up of the Corporation.
5. REDEMPTION.
(a) OPTIONAL REDEMPTION. The Corporation may, at its option, redeem
at any time, out of funds legally available therefor, in the manner provided in
Section 3(D)6
<PAGE>
hereof, all or any portion of the shares of the Series B Preferred Stock, at a
redemption price per share equal to 100% of the Liquidation Preference thereof
on the date of redemption; PROVIDED, HOWEVER, that any such optional redemption
by the Corporation shall be on a PRO RATA basis and for whole shares of Series A
Preferred Stock and Series B Preferred Stock; PROVIDED, FURTHER, HOWEVER, that
the Corporation may redeem fractional shares of Series B Preferred Stock
pursuant to this Section 3(D)5(a) in the event that after such redemption a
holder of Series B Preferred Stock would be left with less than one full share
of Series B Preferred Stock.
(b) MANDATORY REDEMPTION. On February 20, 2008, the Corporation
shall redeem any and all outstanding shares of Series B Preferred Stock, out of
funds legally available therefor, at a redemption price per share equal to 100%
of the Liquidation Preference thereof on such date.
(c) REDEMPTION UPON CHANGE OF CONTROL. Upon the occurrence of a
Change of Control, the Series B Preferred Stock shall be redeemable at the
option of the holders thereof, in whole or in part, at a redemption price per
share equal to 100% of the Liquidation Preference on the date of redemption;
PROVIDED, HOWEVER, that the Corporation will not be obligated to redeem, and
will not redeem or call for redemption, any Series B Preferred Stock upon a
Change of Control until it has repurchased or redeemed such of the $110,000,000
original principal amount of 10% Senior Notes Due 2007 of the Corporation (the
"Notes") then outstanding as it is required to repurchase or has called for
redemption in connection with such Change of Control pursuant to the terms of
the Indenture among the Corporation, certain of its subsidiaries and U.S. Trust
Company of New York, N.A. relating to the Notes. Subject to the foregoing
proviso, the Corporation shall redeem, out of funds legally available therefor,
the number of shares specified in the holders' notices of election to redeem
pursuant to Section 3(D)6(b) hereof on the date fixed for redemption.
6. PROCEDURE FOR REDEMPTION.
(a) In the event that the Corporation shall redeem shares of Series B
Preferred Stock pursuant to Sections 3(D)5(a) or 3(D)5(b) hereof, notice of such
redemption shall be mailed by first-class mail, postage prepaid, and mailed not
less than 30 days nor more than 60 days prior to the redemption date to the
holders of record of the shares to be redeemed at their respective addresses as
they shall appear in the records of the Corporation; PROVIDED, HOWEVER, that
failure to give such notice or any defect therein or in the mailing thereof
shall not affect the validity of the proceeding for the redemption of any shares
so to be redeemed except as to the holder to whom the Corporation has failed to
give such notice or except as to the holder to whom notice was defective. Each
such notice shall state: (i) the redemption date; (ii) the number of shares of
Series B Preferred Stock to be redeemed and, if less than all the shares held by
such holders are to be redeemed, the number of such shares to be redeemed from
such holders; (iii) the redemption price and form of consideration; (iv) the
place or places where certificates for such shares are to be surrendered for
payment of the redemption price; and (v) that
<PAGE>
dividends on the shares to be redeemed will cease to accrue on such redemption
date. Any redemption of less than all the shares of Series B Preferred Stock
pursuant to Section 3(D)5(a) shall be made on a PRO RATA basis to all holders of
Series B Preferred Stock.
(b) If a Change of Control should occur, then, subject to Section
3(D)5(c) above, within 30 days of the occurrence of such Change of Control, the
Corporation shall give written notice by first-class mail, postage prepaid, to
each holder of Series B Preferred Stock at its address as it appears in the
records of the Corporation, which notice shall set forth (in addition to the
information required by the next succeeding paragraph): (i) each holder's right
to require the Corporation to redeem shares of Series B Preferred Stock held by
such holder as a result of such Change of Control; (ii) the redemption price;
(iii) the redemption date (which date shall be no earlier than 30 days and no
later than 60 days from the date the notice in respect of such Change of Control
is mailed); (iv) the procedures to be followed by such holder in exercising its
right of redemption, including the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accrue on the redemption
date. In the event a holder of shares of Series B Preferred Stock shall elect
to require the Corporation to redeem any or all of such shares of Series B
Preferred Stock, such holder shall deliver, within 20 days of the mailing to it
of the Corporation's notice described in this Section 3(D)6(b), a written notice
stating such holder's election and specifying the number of shares to be
redeemed pursuant to Section 3(D)5(c) hereof.
(c) Notice by the Corporation having been mailed as provided in
Section 3(D)6(a) hereof, or notice of election having been mailed by the holders
as provided in Section 3(D)6(b) hereof, and provided that on or before the
applicable redemption date funds necessary for such redemption shall have been
set aside by the Corporation, separate and apart from its other funds, in trust
for the PRO RATA benefit of the holders of the shares of Series B Preferred
Stock and Series B Preferred Stock so called for or entitled to redemption, so
as to be and to continue to be available therefor, then, from and after the
redemption date, dividends on the shares of Series B Preferred Stock so called
for or entitled to redemption shall cease to accrue, and said shares shall no
longer be deemed to be outstanding and shall not have the status of shares of
Series B Preferred Stock, and all rights of the holders thereof as shareholders
of the Corporation (except the right to receive the applicable redemption price
and any accrued and unpaid dividends from the Corporation to the date of
redemption) shall cease, unless the Corporation defaults in the payment of the
redemption price, in which case all rights of the holders of Series B Preferred
Stock shall continue until the redemption price is paid. Upon surrender of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall so require and a
notice by the Corporation shall so state), such shares shall be redeemed by the
Corporation at the applicable redemption price as aforesaid. In case fewer than
all the shares represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed shares
without cost to the holder thereof. Any funds set aside in trust for the
holders of
<PAGE>
Series B Preferred Stock pursuant to this Section 3(D)6(c) which remain
unclaimed on the second anniversary of the applicable redemption date shall be
released or repaid to the Corporation, after which the holders of shares called
for redemption shall be entitled to receive payment of the redemption price only
from the Corporation.
7. REACQUIRED SHARES. Shares of Series B Preferred Stock that have
been issued and reacquired in any manner, including shares reacquired by
purchase or redemption, shall (upon compliance with any applicable provisions of
the laws of the State of California) have the status of authorized and unissued
shares of the class of Preferred Stock undesignated as to series and, subject to
the approval of the holders of the Series B Preferred Stock as provided in
Section 3(D)8(b) hereof, may be redesignated and reissued as part of any series
of Preferred Stock other than the Series B Preferred Stock.
8. VOTING RIGHTS.
In addition to any voting rights provided by law, the holders of
Series B Preferred Stock shall have the following voting rights:
(a) VOTING UPON AMENDMENT TO ARTICLES OF INCORPORATION. The Articles
of Incorporation of the Corporation shall not be amended in any manner that
would adversely alter or change the powers, preferences, special rights or
economics of the Series B Preferred Stock as set forth herein without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series A Preferred Stock and of Series B Preferred Stock, voting together as
a single series.
(b) OTHER VOTING RIGHTS. Without the affirmative vote or consent of
the holders of at least two-thirds of the outstanding shares of Series A
Preferred Shares and Series B Preferred Stock, voting together as a single
series, the Corporation shall not after the Issue Date (i) create, authorize or
issue any Senior Securities or Parity Securities or (ii) create, authorize or
issue any Junior Securities, unless such Junior Securities are expressly
subordinate in right of payment (of liquidation preference and dividends) to the
Series A Preferred Stock, the Series B Preferred Stock and such Junior
Securities have no additional rights (directly or indirectly) upon the
Corporation's failure to redeem such Junior Securities or to pay or declare a
dividend or make a distribution with respect thereto.
Except as set forth herein, holders of shares of Series B Preferred Stock shall
have no special voting rights and their consent shall not be required (except to
the extent they are otherwise entitled to vote as set forth in these Amended and
Restated Articles of Incorporation or by law) for taking any corporate action.
To extent permissible under applicable law, each vote of the holders of Series B
Preferred Stock shall be a vote of the holders of Series A Preferred Stock and
Series B Preferred Stock, voting together as a single series.
9. REMEDIES. Any holder of Series B Preferred Stock may proceed to
protect and enforce its rights and the rights of other holders by any available
remedy by
<PAGE>
proceeding at law or in equity to protect and enforce any such rights, whether
for the specific enforcement of any provision in these Amended and Restated
Articles of Incorporation or in aid of the exercise of any power granted herein,
or to enforce any other proper remedy.
10. DEFINITIONS. For the purposes of this Section 3(D) of these
Amended and Restated Articles of Incorporation, the following terms shall have
the meanings indicated:
"Affiliate" shall have the meaning ascribed to such term in Section
3(C)10.
"Beneficial Owner" shall have the meaning ascribed to such term or the
term "beneficial ownership" in Section 3(C)10.
"Business Day" shall have the meaning ascribed to such term in
Section 3(C)10.
"Change of Control" shall have the meaning ascribed to such term in
Section 3(C)10.
"Issue Date" shall mean the first date on which shares of Series B
Preferred Stock are issued.
"Junior Securities" shall have the meaning set forth in Section 3(D)2
hereof.
"Liquidation Preference" shall have the meaning set forth in
Section 3(D)4 hereof.
"Parity Securities" shall have the meaning set forth in Section 3(C)2
hereof.
"Person" shall have the meaning ascribed to such term in Section
3(C)10.
"Principals" shall have the meaning ascribed to such term in Section
3(C)10.
"Related Party" shall have the meaning ascribed to such term in
Section 3(C)10.
Article Four: The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
California law.
Article Five: The corporation is authorized to provide
indemnification of its agents (as such term is defined in Section 317 of the
California General Corporation Law) to the fullest extent permissible under
California law.
<PAGE>
BYLAWS FOR THE REGULATION
OF
BURKE INDUSTRIES, INC.,
A CALIFORNIA CORPORATION
ARTICLE I
PRINCIPAL EXECUTIVE OFFICE
The principal executive office of the corporation shall be
2250 South Tenth Street, San Jose, California 95112.
ARTICLE II
MEETING OF SHAREHOLDERS
Section 2.01 ANNUAL MEETINGS. Theannual meeting of
shareholdersshall be held on the 15th day of June in each year (or, should such
day fall upon a legal holiday, then on the first day thereafter which is not a
legal holiday) at 10:00 o'clock A.M., or at such other time and on such other
date as the board of directors shall determine. At each annual meeting,
directors shall be elected and any other proper business may be transacted.
Section 2.02 SPECIAL MEETINGS. Special meetings of
shareholders may be called by the board of directors, the chairman of the board
(if there be such an officer), the president, or the holders of shares entitled
to cast not less than ten percent (10%) of the votes at such meeting. Each
special meeting shall be held at such date and time as is requested by the
person or persons calling the meeting within the limits fixed by law.
Section 2.03 PLACE OF MEETINGS. Each annual or special
meeting of shareholders shall be held at such location as may be determined by
the board of directors, or if no such determination is made, at such place as
may be determined by the chief executive officer, or by any other officer
authorized by the board of directors or the chief
<PAGE>
executive officer to make such determination. If no location is so
determined, any annual or special meeting shall be held at the principal
executive office of the corporation.
Section 2.04 NOTICE OF MEETINGS. Notice of each annual or
special meeting of shareholders shall contain such information, and shall be
given to such persons at such time, and in such manner, as the board of
directors shall determine, or if no such determination is made, as the chief
executive officer, or any other officer so authorized by the board of directors
or the chief executive officer, shall determine, subject to the requirements of
applicable law.
Section 2.05 CONDUCT OF MEETINGS. Subject to the
requirements of applicable law, all annual and special meetings of shareholders
shall be conducted in accordance with such rules and procedures as the board of
directors may determine and, as to matters not governed by such rules and
procedures, as the chairman of such meeting shall determine. The chairman of
any annual or special meeting of shareholders shall be designated by the board
of directors and, in the absence of any such designation, shall be the chief
executive officer of the corporation.
Section 2.06 INFORMAL ACTION BY SHAREHOLDERS. An action
required or permitted to be taken at a meeting of Shareholders may be taken
without a meeting if a consent, in writing, setting forth such action, is signed
by all the Shareholders entitled to vote on the subject matter thereof and any
other Shareholders entitled to notice of a meeting of Shareholders (but not to
vote thereat) have waived in writing any rights which they may have to dissent
from such action, and such consents and waivers are filed with the minutes of
proceedings of the Shareholders. Such consents and waivers may be signed by
different Shareholders on separate counterparts.
2
<PAGE>
ARTICLE III
DIRECTORS
Section 3.01 NUMBER. The number of directors of the
corporation shall be nine (9) until changed in accordance with applicable law.
Section 3.02 MEETINGS OF THE BOARD. Each regular and
special meeting of the board shall be held at a location determined as follows:
The board of directors may designate any place, within or without the State of
California, for the holding of any meeting. If no such designation is made, (i)
any meeting called by a majority of the directors shall be held at such
location, within the county of the corporation's principal executive office, as
the directors calling the meeting shall designate; and (ii) any other meeting
shall be held at such location, within the county of the corporation's principal
executive office, as the chief executive officer may designate, or in the
absence of such designation, at the corporation's principal executive office.
Subject to the requirements of applicable law, all regular and special meetings
of the board of directors shall be conducted in accordance with such rules and
procedures as the board of directors may approve and, as to matters not governed
by such rules and procedures, as the chairman of such meeting shall determine.
The chairman of any regular or special meeting shall be designated by the
directors and, in the absence of any such designation, shall be the chief
executive officer of the corporation.
Members of the board of directors (or any committee
appointed by the board) may participate in a meeting by means of conference
telephone or similar communications equipment whereby all persons participating
in the meeting can hear each other, and participation in such meeting in such
manner shall constitute presence in person at such meeting.
3
<PAGE>
Any action required or permitted to be taken at any meeting
of the Board of Directors may be taken without a meeting, if a consent in
writing to such action is signed by all of the Directors and such written
consents may be signed by different Directors on separate counterparts.
Section 3.03 INFORMAL ACTION BY DIRECTORS. Any action
required or permitted to be taken at any meeting of the Board of Directors may
be taken without a meeting, if a consent in writing to such action is signed by
all of the Directors and such written consents may be signed by different
Directors on separate counterparts.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS,
OFFICERS, AND OTHER CORPORATE AGENTS
Section 4.01 INDEMNIFICATION. This corporation shall
indemnify and hold harmless any person who is or was a director or officer of
this corporation, or is or was serving at the request of the Board of Directors
of this Corporation as a director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise
(an "Agent"), from and against any expenses, judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
"proceeding" (as defined in Section 317(a)) to the fullest extent permitted by
applicable law. The corporation shall advance to its agents expenses incurred
in defending any proceeding prior to the final disposition thereof to the
fullest extent and in the manner permitted by applicable law.
Section 4.02 RIGHT TO INDEMNIFICATION. This section shall
create a right of indemnification for each person referred to in Section 4.01,
whether or not the proceeding
4
<PAGE>
to which the indemnification relates arose in whole or in part prior to adoption
of such section and in the event of death such right shall extend to such
person's legal representatives. The right of indemnification hereby given shall
not be exclusive of any other rights such person may have whether by law or
under any agreement, insurance policy, vote of directors or shareholders, or
otherwise.
Section 4.03 INSURANCE. The corporation shall have power
to purchase and maintain insurance on behalf of any agent of the corporation
against any liability asserted against or incurred by the agent in such capacity
or arising out of the agent's status as such whether or not the corporation
would have the power to indemnify the agent against such liability.
ARTICLE V
OFFICERS
Section 5.01 OFFICERS. The corporation shall have a
president, a chief financial officer, a secretary, and such other officers,
including a chairman of the board, as may be designated by the board. Unless
the board of directors shall otherwise determine, the president shall be the
chief executive officer of the corporation. Officers shall have such powers and
duties as may be specified by, or in accordance with, resolutions of the board
of directors. In the absence of any contrary determination by the board of
directors, the chief executive officer shall, subject to the power and authority
of the board of directors, have general supervision, direction, and control of
the officers, employees, business, and affairs of the corporation.
Section 5.02 LIMITED AUTHORITY OF OFFICERS. No officer of
the corporation shall have any power or authority outside the normal day-to-day
business of the
5
<PAGE>
corporation to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable in connection with any transaction unless so
authorized by the board of directors.
ARTICLE VI
WAIVER OF ANNUAL REPORTS
So long as the corporation has less than 100 holders of
record of its shares (determined as provided in Section 605 of the California
General Corporation Law), no annual report to shareholders shall be required,
and the requirement to the contrary of Section 1501 of the California General
Corporation Law is hereby expressly waived.
ARTICLE VII
AMENDMENTS
New bylaws may be adopted or these bylaws may be amended or
repealed by the shareholders or by the directors.
6
<PAGE>
CERTIFICATE OF ASSISTANT SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Assistant
Secretary of Burke Industries, Inc., a California corporation; and
2. That the foregoing bylaws, comprising six (6) pages,
constitute the bylaws of said corporation as duly adopted by action of the board
of directors of the corporation duly taken as of August __, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed the seal of said corporation as of this __ day of August, 1997.
/s/ Keith Oster
-------------------------------
Keith Oster, Assistant Secretary
Seal
<PAGE>
ARTICLES OF INCORPORATION
OF
BURKE FLOORING PRODUCTS, INC.
KNOW ALL MEN BY THESE PRESENTS:
THAT WE, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a corporation under the laws of the State of
California.
AND WE HEREBY CERTIFY:
ONE: That the name of this Corporation is:
BURKE FLOORING PRODUCTS, INC.
TWO: The purposes for which this corporation is formed are:
(a) The specific business in which the corporation intends
primarily to engage is that of the manufacture and sale at wholesale and retail
of any and all kinds of rubber, vinyl and other types of floor coverings and
adhesives and accessories incidental to the use and application of floor
coverings.
(b) To own, operate, maintain, manage, equip, improve, repair,
alter, and otherwise deal with, use and enjoy, to invent, design, develop,
assemble, build, construct, fabricate, manufacture, buy, import, lease as lessee
and otherwise acquire, to mortgage, deed in trust, pledge and otherwise
encumber, and to sell, export, lease as lessor and otherwise dispose of goods,
wares, merchandise and personal property of every sort, nature and description;
to
<PAGE>
purchase, acquire, own, hold, lease, either as lessor or lessee, sell, exchange,
subdivide, mortgage, deed in trust, plant, improve, cultivate, develop,
construct, maintain, equip, operate and generally deal in any and all lands,
improved and unimproved, dwelling houses, apartment houses, hotels, boarding
houses, business blocks, office buildings, garages, stations, warehouses,
manufacturing works and plants and other buildings of any kind or description,
real, personal and mixed, wheresoever situated, including water and water
rights.
(c) To acquire, by purchase or otherwise the goodwill, business,
property rights, franchises and assets of every kind, with or without
undertaking either wholly or in part the liabilities of any person, firm,
association or corporation, and to acquire any business as a going concern or
otherwise (1) by purchase of the assets thereof wholly or in part, (2) by
acquisition of the shares or any part thereof, or (3) in any other manner, and
to pay for the same in cash or in the shares or bonds or other evidences of
indebtedness of this corporation, or otherwise to hold, maintain, and operate,
or in any manner dispose of, the whole or any part of the goodwill, business,
rights and property so acquired, and to conduct in any lawful manner the whole
or any part of any business so acquired, and to exercise all the powers
necessary or convenient in and about the management of such business.
(d) To buy, contract for, lease, and in any and all other ways
acquire, take, hold and own, and to sell, mortgage, pledge, deed in trust, lease
and otherwise dispose of patents, licenses and pro-
-2-
<PAGE>
cesses or rights thereunder, and franchise rights, governmental, state,
territorial, county and municipal grants and concessions of every character
of which this corporation may deem advantageous in the prosecution of its
business, or in the maintenance, operation, development or extension of its
properties.
(e) To enter into, make, perform and carry out contracts of every kind
for any lawful purpose without limit to amount, with any person, firm,
association or corporation, municipality, county, parish, state, territory,
government or other municipal or governmental subdivision.
(f) From time to time to apply for, acquire by assignment, purchase,
transfer or otherwise, exercise, carry out and enjoy any benefit, rights,
privilege, prerogative or power conferred by, acquired under or granted by any
statute, ordinance, order, license, power, authority, franchise, commission,
right or privilege which any government or authority or governmental agency or
corporation or other public body may be empowered to enact, make or grant; to
pay for, aid in, and contribute toward carrying the same into effect and to
appropriate any of this corporation's shares, and/or assets to defray the
costs, charges and expenses thereof.
(g) To borrow money; to issue bonds, notes, debentures or other
obligations of this corporation from time to time for any of the objects or
purposes of this corporation, and to secure the same by mortgage, pledge, deed
of trust or otherwise, or to issue the same unsecured.
-3-
<PAGE>
(h) To lend money; to purchase, acquire, own, hold, guarantee, sell,
assign, transfer, mortgage, pledge or otherwise dispose of and deal in shares,
bonds, notes, debentures, or other securities or evidences of indebtedness of
any other person, corporation or association, whether domestic or foreign, and
whether now or hereafter organized or existing; and while the holder thereof to
exercise all the rights, powers and privileges of ownership including the right
to vote thereon, to the same extent as a natural person might or could do.
(i) To promote or to aid in any manner, financially or otherwise, any
person, corporation or association of which any shares, bonds, notes, debentures
or other securities or evidences of indebtedness are held directly or indirectly
by this corporation; and for this purpose to guarantee the contracts, dividends,
shares, bonds, debentures, notes and other obligations of such persons,
corporations or associations; and to do any other acts or things designed to
protect, preserve, improve or enhance the value of such shares, bonds, notes,
debentures or other securities or evidences of indebtedness.
(j) To carry on any business whatsoever which this corporation may
deem proper or convenient in connection with any of the foregoing purposes or
otherwise or which may be calculated directly or indirectly to promote the
interests of this corporation or to enhance the value of its property or
business; to conduct its business in this state, or other states, in the
District of Columbia, in the territories and colonies of the United States, or
in foreign
-4-
<PAGE>
countries, and to hold, purchase, mortgage and convey real and personal
property, either in or out of the State of California, and to exercise all the
powers conferred by the Laws of California upon corporations formed under the
laws pursuant to and under which this corporation is formed as such laws are now
in effect or may at any time hereafter be amended.
(k) To carry out all or any part of the foregoing objects and purposes
as principal, agent, contractor or otherwise, either alone or in conjunction
with any person, firm, association or other corporation, and in any part of the
world and in carrying on its business and for the purpose of attaining or
furthering any of its objects or purposes, to make and perform such contracts of
any kind and description, to do such acts and things, and to exercise any and
all such powers, as a natural person could lawfully make, perform, do or
exercise, provided that the same be not inconsistent with the laws of the State
of California.
(l) To do each and every thing necessary, suitable or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the objects herein enumerated, or which shall at any time appear proper and
conducive for the protection or benefit of this corporation.
The foregoing statement of purposes shall be construed as a statement
of both purposes and powers and the purposes and the powers stated in each
clause shall in no way be limited or restricted by reference to or inference
from the terms or provisions of any other clause.
-5-
<PAGE>
THREE: The County in the State of California where the principal
office for the transaction of the business of this corporation is to be located
is Santa Clara County.
FOUR: This corporation is authorized to issue only one class of shares
of stock, the total number of such shares is seven thousand five hundred
(7,500), each of such shares of stock is to have a par value of Ten Dollars
($10.00), and the aggregate par value of all shares having a par value is
Seventy-Five Thousand Dollars ($75,000.00).
FIVE: (a) The number of the directors of this corporation shall be
five (5).
(b) The names and addresses of the persons who are appointed to act
as the first directors of this corporation are:
NAME ADDRESS:
---- --------
HALSEY C. BURKE, 2250 So. 10th Street, San Jose, Calif.
NORMAN R. BURKE, 2250 So. 10th Street, San Jose, Calif.
D. W. KUTNEWSKY, 2250 So. 10th Street, San Jose, Calif.
JOHN N. BYRNE, 2250 So. 10th Street, San Jose, Calif.
CHARLES R. LEONE, 2250 So. 10th Street, San Jose, Calif.
IN WITNESS WHEREOF, for the purpose of forming this corporation under
the laws of the State of California, we, the undersigned, constituting
the incorporators of this corporation, including the persons named
hereinabove as the first directors of this corporation, have executed
these Articles of Incorporation on SEP. 10 1971.
/s/ Halsey C. Burke /s/ Norman R. Burke
- ---------------------------- ------------------------------
Halsey C. Burke Norman R. Burke
/s/ D.W. Kutnewsky /s/ John N. Byrne
- ---------------------------- ------------------------------
D.W. Kutnewsky John N. Byrne
/s/ Charles R. Leone
--------------------------
Charles R. Leone
-6-
<PAGE>
STATE OF CALIFORNIA )
) ss:
COUNTY OF SANTA CLARA )
On SEP. 10 1971, before me the undersigned, a Notary Public in and for
said County and State, residing therein, duly commissioned and sworn,
personally appeared HALSEY C. BURKE, NORMAN R. BURKE, D.W. KUTNEWSKY, JOHN N.
BYRNE and CHARLES R. LEONE, known to me to be the persons whose names are
subscribed to the foregoing ARTICLES OF INCORPORATION, and acknowledged to me
that they executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal on the day and year first above written.
/s/ Stephen H. Pray
--------------------------------------
STEPHEN H.PRAY
(SEAL) Notary Public in and for said County
and State
-7-
<PAGE>
Exhibit 3.4
BYLAWS FOR THE REGULATION
OF
BURKE FLOORING PRODUCTS, INC.,
A CALIFORNIA CORPORATION
ARTICLE I
PRINCIPAL EXECUTIVE OFFICE
--------------------------
The principal executive office of the corporation shall be 2250 South
Tenth Street, San Jose, California 95112.
ARTICLE II
MEETING OF SHAREHOLDERS
-----------------------
Section 2.01 ANNUAL MEETINGS. The annual meeting of shareholders shall
be held on the 15th day of June in each year (or, should such day fall upon a
legal holiday, then on the first day thereafter which is not a legal holiday)
at 10:00 o'clock A.M., or at such other time and on such other date as the
board of directors shall determine. At each annual meeting, directors shall
be elected and any other proper business may be transacted.
Section 2.02 SPECIAL MEETINGS. Special meetings of shareholders may be
called by the board of directors, the chairman of the board (if there be such
an officer), the president, or the holders of shares entitled to cast not
less than ten percent (10%) of the votes at such meeting. Each special
meeting shall be held at such date and time as is requested by the person or
persons calling the meeting within the limits fixed by law.
Section 2.03 PLACE OF MEETINGS. Each annual or special meeting of
shareholders shall be held at such location as may be determined by the board
of directors, or if no such determination is made, at such place as may be
determined by the chief executive officer, or by any other officer authorized
by the board of directors or the chief
<PAGE>
executive officer to make such determination. If no location is so
determined, any annual or special meeting shall be held at the principal
executive office of the corporation.
Section 2.04 NOTICE OF MEETINGS. Notice of each annual or special
meeting of shareholders shall contain such information, and shall be given to
such persons at such time, and in such manner, as the board of directors
shall determine, or if no such determination is made, as the chief executive
officer, or any other officer so authorized by the board of directors or the
chief executive officer, shall determine, subject to the requirements of
applicable law.
Section 2.05 CONDUCT OF MEETINGS. Subject to the requirements of
applicable law, all annual and special meetings of shareholders shall be
conducted in accordance with such rules and procedures as the board of
directors may determine and, as to matters not governed by such rules and
procedures, as the chairman of such meeting shall determine. The chairman of
any annual or special meeting of shareholders shall be designated by the
board of directors and, in the absence of any such designation, shall be the
chief executive officer of the corporation.
Section 2.06 INFORMAL ACTION BY SHAREHOLDERS. An action required or
permitted to be taken at a meeting of Shareholders may be taken without a
meeting if a consent, in writing, setting forth such action, is signed by all
the Shareholders entitled to vote on the subject matter thereof and any other
Shareholders entitled to notice of a meeting of Shareholders (but not to vote
thereat) have waived in writing any rights which they may have to dissent
from such action, and such consents and waivers are filed with the minutes of
proceedings of the Shareholders. Such consents and waivers may be signed by
different Shareholders on separate counterparts.
2
<PAGE>
ARTICLE III
DIRECTORS
---------
Section 3.01 NUMBER. The number of directors of the corporation shall
be one (1) until changed in accordance with applicable law.
Section 3.02 MEETINGS OF THE BOARD. Each regular and special meeting
of the board shall be held at a location determined as follows: The board of
directors may designate any place, within or without the State of California,
for the holding of any meeting. If no such designation is made, (i) any
meeting called by a majority of the directors shall be held at such location,
within the county of the corporation's principal executive office, as the
directors calling the meeting shall designate; and (ii) any other meeting
shall be held at such location, within the county of the corporation's
principal executive office, as the chief executive officer may designate, or
in the absence of such designation, at the corporation's principal executive
office. Subject to the requirements of applicable law, all regular and
special meetings of the board of directors shall be conducted in accordance
with such rules and procedures as the board of directors may approve and, as
to matters not governed by such rules and procedures, as the chairman of such
meeting shall determine. The chairman of any regular or special meeting
shall be designated by the directors and, in the absence of any such
designation, shall be the chief executive officer of the corporation.
Members of the board of directors (or any committee appointed by the
board) may participate in a meeting by means of conference telephone or
similar communications equipment whereby all persons participating in the
meeting can hear each other, and participation in such meeting in such manner
shall constitute presence in person at such meeting.
3
<PAGE>
Section 3.03 INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by all of
the Directors and such written consents may be signed by different Directors
on separate counterparts.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS,
OFFICERS, AND OTHER CORPORATE AGENTS
------------------------------------
Section 4.01 INDEMNIFICATION. This corporation shall indemnify and
hold harmless any person who is or was a director or officer of this
corporation, or is or was serving at the request of the Board of Directors of
this Corporation as a director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other
enterprise (an "Agent"), from and against any expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any "proceeding" (as defined in Section 317(a)) to the fullest extent
permitted by applicable law. The corporation shall advance to its agents
expenses incurred in defending any proceeding prior to the final disposition
thereof to the fullest extent and in the manner permitted by applicable law.
Section 4.02 RIGHT TO INDEMNIFICATION. This section shall create a
right of indemnification for each person referred to in Section 4.01, whether
or not the proceeding to which the indemnification relates arose in whole or
in part prior to adoption of such section and in the event of death such
right shall extend to such person's legal representatives. The right of
indemnification hereby given shall not be exclusive of any other rights such
person may have whether by law or under any agreement, insurance policy, vote
of directors or shareholders, or otherwise.
4
<PAGE>
Section 4.03 INSURANCE. The corporation shall have power to purchase
and maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such whether or not the corporation
would have the power to indemnify the agent against such liability.
ARTICLE V
OFFICERS
--------
Section 5.01 OFFICERS. The corporation shall have a president, a chief
financial officer, a secretary, and such other officers, including a chairman
of the board, as may be designated by the board. Unless the board of
directors shall otherwise determine, the president shall be the chief
executive officer of the corporation. Officers shall have such powers and
duties as may be specified by, or in accordance with, resolutions of the
board of directors. In the absence of any contrary determination by the
board of directors, the chief executive officer shall, subject to the power
and authority of the board of directors, have general supervision, direction,
and control of the officers, employees, business, and affairs of the
corporation.
Section 5.02 LIMITED AUTHORITY OF OFFICERS. No officer of the
corporation shall have any power or authority outside the normal day-to-day
business of the corporation to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable in connection with
any transaction unless so authorized by the board of directors.
5
<PAGE>
ARTICLE VI
WAIVER OF ANNUAL REPORTS
------------------------
So long as the corporation has less than 100 holders of record of its
shares (determined as provided in Section 605 of the California General
Corporation Law), no annual report to shareholders shall be required, and the
requirement to the contrary of Section 1501 of the California General
Corporation Law is hereby expressly waived.
ARTICLE VII
AMENDMENTS
----------
New bylaws may be adopted or these bylaws may be amended or repealed by
the shareholders or by the directors.
6
<PAGE>
ARTICLES OF INCORPORATION
OF
BURKE RUBBER COMPANY, INC.
KNOW ALL MEN BY THESE PRESENTS:
THAT WE, the undersigned, have this day voluntarily associated
ourselves together for the purpose of forming a corporation under the laws
of the State of California.
AND WE HEREBY CERTIFY:
ONE: That the name of this Corporation is:
BURKE RUBBER COMPANY, INC.
TWO: The purposes for which this corporation is formed are:
(a) The specific business in which the corporation intends
primarily to engage is that of the manufacture and sale at wholesale and retail
of rubber and plastic products of all kinds.
(b) To own, operate, maintain, manage, equip, improve, repair,
alter, and otherwise deal with, use and enjoy, to invent, design, develop,
assemble, build, construct, fabricate, manufacture, buy, import, lease as lessee
and otherwise acquire, to mortgage, deed in trust, pledge and otherwise
encumber, and to sell, export, lease as lessor and otherwise dispose of goods,
wares, merchandise and personal property of every sort, nature and description;
to purchase, acquire, own, hold, lease, either as lessor or lessee,
<PAGE>
sell, exchange, subdivide, mortgage, deed in trust, plant, improve, cultivate,
develop, construct, maintain, equip, operate and generally deal in any and all
lands, improved and unimproved, dwelling houses, apartment houses, hotels,
boarding houses, business blocks, office buildings, garages, stations,
warehouses, manufacturing works and plants and other buildings of any kind or
description, real, personal and mixed, wheresoever situated, including water and
water rights.
(c) To acquire, by purchase or otherwise the goodwill,
business, property rights, franchises and assets of every kind, with or
without undertaking either wholly or in part the liabilities of any person,
firm, association or corporation, and to acquire any business as a going
concern or otherwise (1) by purchase of the assets thereof wholly or in part,
(2) by acquisition of the shares or any part thereof, or (3) in any other
manner, and to pay for the same in cash or in the shares or bonds or other
evidences of indebtedness of this corporation, or otherwise to hold,
maintain, and operate, or in any manner dispose of, the whole or any part of
the goodwill, business, rights and property so acquired, and to conduct in
any lawful manner the whole or any part of any business so acquired, and to
exercise all the powers necessary or convenient in and about the management
of such business.
(d) To buy, contract for, lease, and in any and all other
ways acquire, take, hold and own, and to sell, mortgage, pledge, deed in
trust, lease and otherwise dispose of patents, licenses and processes or
rights thereunder, and franchise rights, governmental,
-2-
<PAGE>
state, territorial, county and municipal grants and concessions of every
character of which this corporation may deem advantageous in the prosecution of
its business, or in the maintenance, operation, development or extension of its
properties.
(e) To enter into, make, perform and carry out contracts of every kind
for any lawful purpose without limit to amount, with any person, firm,
association or corporation, municipality, county, parish, state, territory,
government or other municipal or governmental subdivision.
(f) From time to time to apply for, acquire by assignment, purchase,
transfer or otherwise, exercise, carry out and enjoy any benefit, rights,
privilege, prerogative or power conferred by, acquired under or granted by any
statute, ordinance, order, license, power, authority, franchise, commission,
right or privilege which any government or authority or governmental agency or
corporation or other public body may be empowered to enact, make or grant; to
pay for, aid in, and contribute toward carrying the same into effect and to
appropriate any of this corporation's shares, and/or assets to defray the costs,
charges and expenses thereof.
(g) To borrow money, to issue bonds, notes, debentures or other
obligations of this corporation from time to time for any of the objects or
purposes of this corporation, and to secure the same by mortgage, pledge, deed
of trust or otherwise, or to issue the same unsecured.
(h) To lend money; to purchase, acquire, own, hold,
-3-
<PAGE>
guarantee, sell, assign, transfer, mortgage, pledge or otherwise dispose of and
deal in shares, bonds, notes, debentures, or other securities or evidences of
indebtedness of any other person, corporation or association, whether domestic
or foreign, and whether now or hereafter organized or existing; and while the
holder thereof to exercise all the rights, powers and privileges of ownership
including the right to vote thereon, to the same extent as a natural person
might or could do.
(i) To promote or to aid in any manner, financially or otherwise, any
person, corporation, or association of which any shares, bonds, notes,
debentures or other securities or evidences of indebtedness are held directly or
indirectly by this corporation; and for this purpose to guarantee the contracts,
dividends, shares, bonds, debentures, notes and other obligations of such
persons, corporations or associations; and to do any other acts or things
designed to protect, preserve, improve or enhance the value of such shares,
bonds, notes, debentures or other securities or evidences of indebtedness.
(j) To carry on any business whatsoever which this corporation may
deem proper or convenient in connection with any of the foregoing purposes or
otherwise or which may be calculated directly or indirectly to promote the
interests of this corporation or to enhance the value of its property or
business; to conduct its business in this state, or other states, in the
District of Columbia, in the territories and colonies of the United States,
or in foreign countries, and to hold, purchase, mortgage and convey real and
-4-
<PAGE>
personal property, either in or out of the State of California, and to exercise
all the powers conferred by the Laws of California upon corporations formed
under the laws pursuant to and under which this corporation is formed as such
laws are now in effect or may at any time hereafter be amended.
(k) To carry out all or any part of the foregoing objects and purposes
as principal, agent, contractor or otherwise, either alone or in conjunction
with any person, firm, association or other corporation, and in any part of the
world and in carrying on its business and for the purpose of attaining or
furthering any of its objects or purposes, to make and perform such contracts of
any kind and description, to do such acts and things, and to exercise any and
all such powers, as a natural person could lawfully make, perform, do or
exercise, provided that the same be not inconsistent with the laws of the State
of California.
(l) To do each and every thing necessary, suitable or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the objects herein enumerated, or which shall at any time appear proper and
conducive for the protection or benefit of this corporation.
The foregoing statement of purposes shall he construed as a statement
of both purposes and powers and the purposes and the powers stated in each
clause shall in no way be limited or restricted by reference to or inference
from the terms or provisions of any other clause.
-5-
<PAGE>
THREE: The County in the State of California where the principal
office for the transaction of the business of this corporation is to be
located is Santa Clara County.
FOUR: This corporation is authorized to issue only one class of
shares of stock, the total number of such shares is seven thousand five
hundred (7,500), each of such shares of stock is to have a par value of Ten
Dollars ($10.00), and the aggregate par value of all shares having a par
value is Seventy-Five Thousand Dollars ($75,000.00).
FIVE: (a) The number of the directors of this corporation shall be
four (4).
(b) The names and addresses of the persons who are appointed
to act as the first directors of this corporation are:
NAME ADDRESS
------ ---------
HALSEY C. BURKE, 2250 So. 10th Street, San Jose, Calif.
NORMAN R. BURKE, 2250 So. 10th Street, San Jose, Calif.
D.W. KUTNEWSKY, 2250 So. 10th Street, San Jose, Calif.
VIRGIL C. PRICE, 2250 So. 10th Street, San Jose, Calif.
IN WITNESS WHEREOF, for the purpose of forming this corporation under
the laws of the State of California, we, the undersigned, constituting the
incorporators of this corporation, including the persons named hereinabove as
the first directors of this corporation, have executed these Articles of
incorporation on SEP. 10, 1971.
/s/ Halsey C. Burke /s/ Norman R. Burke
----------------------------- -------------------------
Halsey C. Burke Norman R. Burke
/s/ D.W. Kutnewsky /s/ Virgil C. Price
----------------------------- -------------------------
D.W. Kutnewsky Virgil C. Price
-6-
<PAGE>
STATE OF CALIFORNIA )
) ss:
COUNTY OF SANTA CLARA )
On SEP. 10, 1971, before me the undersigned, a Notary Public in
and for said County and State, residing therein, duly commissioned and sworn,
personally appeared HALSEY C. BURKE, NORMAN R. BURKE, D.W. KUTNEWSKY and
VIRGIL C. PRICE, known to me to he the persons whose names are subscribed to
the foregoing ARTICLES OF INCORPORATION, and acknowledged to me that they
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal on the day and year first above written.
/s/ Stephen H. Pray
------------------------------------
STEPHEN H. PRAY
Notary Public in and for said County
And State
[SEAL]
-7-
<PAGE>
Exhibit 3.6
BYLAWS FOR THE REGULATION
OF
BURKE RUBBER COMPANY, INC.,
A CALIFORNIA CORPORATION
ARTICLE I
PRINCIPAL EXECUTIVE OFFICE
--------------------------
The principal executive office of the corporation shall be 2250 South
Tenth Street, San Jose, California 95112.
ARTICLE II
MEETING OF SHAREHOLDERS
-----------------------
Section 2.01 ANNUAL MEETINGS. The annual meeting of shareholders shall
be held on the 15th day of June in each year (or, should such day fall upon a
legal holiday, then on the first day thereafter which is not a legal holiday)
at 10:00 o'clock A.M., or at such other time and on such other date as the
board of directors shall determine. At each annual meeting, directors shall
be elected and any other proper business may be transacted.
Section 2.02 SPECIAL MEETINGS. Special meetings of shareholders may be
called by the board of directors, the chairman of the board (if there be such
an officer), the president, or the holders of shares entitled to cast not
less than ten percent (10%) of the votes at such meeting. Each special
meeting shall be held at such date and time as is requested by the person or
persons calling the meeting within the limits fixed by law.
Section 2.03 PLACE OF MEETINGS. Each annual or special meeting of
shareholders shall be held at such location as may be determined by the board
of directors, or if no such determination is made, at such place as may be
determined by the chief executive officer, or by any other officer authorized
by the board of directors or the chief
<PAGE>
executive officer to make such determination. If no location is so
determined, any annual or special meeting shall be held at the principal
executive office of the corporation.
Section 2.04 NOTICE OF MEETINGS. Notice of each annual or special
meeting of shareholders shall contain such information, and shall be given to
such persons at such time, and in such manner, as the board of directors
shall determine, or if no such determination is made, as the chief executive
officer, or any other officer so authorized by the board of directors or the
chief executive officer, shall determine, subject to the requirements of
applicable law.
Section 2.05 CONDUCT OF MEETINGS. Subject to the requirements of
applicable law, all annual and special meetings of shareholders shall be
conducted in accordance with such rules and procedures as the board of
directors may determine and, as to matters not governed by such rules and
procedures, as the chairman of such meeting shall determine. The chairman of
any annual or special meeting of shareholders shall be designated by the
board of directors and, in the absence of any such designation, shall be the
chief executive officer of the corporation.
Section 2.06 INFORMAL ACTION BY SHAREHOLDERS. An action required or
permitted to be taken at a meeting of Shareholders may be taken without a
meeting if a consent, in writing, setting forth such action, is signed by all
the Shareholders entitled to vote on the subject matter thereof and any other
Shareholders entitled to notice of a meeting of Shareholders (but not to vote
thereat) have waived in writing any rights which they may have to dissent
from such action, and such consents and waivers are filed with the minutes of
proceedings of the Shareholders. Such consents and waivers may be signed by
different Shareholders on separate counterparts.
2
<PAGE>
ARTICLE III
DIRECTORS
---------
Section 3.01 NUMBER. The number of directors of the corporation shall
be one (1) until changed in accordance with applicable law.
Section 3.02 MEETINGS OF THE BOARD. Each regular and special meeting
of the board shall be held at a location determined as follows: The board of
directors may designate any place, within or without the State of California,
for the holding of any meeting. If no such designation is made, (i) any
meeting called by a majority of the directors shall be held at such location,
within the county of the corporation's principal executive office, as the
directors calling the meeting shall designate; and (ii) any other meeting
shall be held at such location, within the county of the corporation's
principal executive office, as the chief executive officer may designate, or
in the absence of such designation, at the corporation's principal executive
office. Subject to the requirements of applicable law, all regular and
special meetings of the board of directors shall be conducted in accordance
with such rules and procedures as the board of directors may approve and, as
to matters not governed by such rules and procedures, as the chairman of such
meeting shall determine. The chairman of any regular or special meeting
shall be designated by the directors and, in the absence of any such
designation, shall be the chief executive officer of the corporation.
Members of the board of directors (or any committee appointed by the
board) may participate in a meeting by means of conference telephone or
similar communications equipment whereby all persons participating in the
meeting can hear each other, and participation in such meeting in such manner
shall constitute presence in person at such meeting.
3
<PAGE>
Any action required or permitted to be taken at any meeting of the Board
of Directors may be taken without a meeting, if a consent in writing to such
action is signed by all of the Directors and such written consents may be
signed by different Directors on separate counterparts.
Section 3.03 INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by all of
the Directors and such written consents may be signed by different Directors
on separate counterparts.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS,
OFFICERS, AND OTHER CORPORATE AGENTS
------------------------------------
Section 4.01 INDEMNIFICATION. This corporation shall indemnify and
hold harmless any person who is or was a director or officer of this
corporation, or is or was serving at the request of the Board of Directors of
this Corporation as a director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other
enterprise (an "Agent"), from and against any expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any "proceeding" (as defined in Section 317(a)) to the fullest extent
permitted by applicable law. The corporation shall advance to its agents
expenses incurred in defending any proceeding prior to the final disposition
thereof to the fullest extent and in the manner permitted by applicable law.
Section 4.02 RIGHT TO INDEMNIFICATION. This section shall create a
right of indemnification for each person referred to in Section 4.01, whether
or not the proceeding
4
<PAGE>
to which the indemnification relates arose in whole or in part prior to
adoption of such section and in the event of death such right shall extend to
such person's legal representatives. The right of indemnification hereby
given shall not be exclusive of any other rights such person may have whether
by law or under any agreement, insurance policy, vote of directors or
shareholders, or otherwise.
Section 4.03 INSURANCE. The corporation shall have power to purchase
and maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such whether or not the corporation
would have the power to indemnify the agent against such liability.
ARTICLE V
OFFICERS
--------
Section 5.01 OFFICERS. The corporation shall have a president, a chief
financial officer, a secretary, and such other officers, including a chairman
of the board, as may be designated by the board. Unless the board of
directors shall otherwise determine, the president shall be the chief
executive officer of the corporation. Officers shall have such powers and
duties as may be specified by, or in accordance with, resolutions of the
board of directors. In the absence of any contrary determination by the
board of directors, the chief executive officer shall, subject to the power
and authority of the board of directors, have general supervision, direction,
and control of the officers, employees, business, and affairs of the
corporation.
Section 5.02 LIMITED AUTHORITY OF OFFICERS. No officer of the
corporation shall have any power or authority outside the normal day-to-day
business of the
5
<PAGE>
corporation to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable in connection with any transaction
unless so authorized by the board of directors.
ARTICLE VI
WAIVER OF ANNUAL REPORTS
------------------------
So long as the corporation has less than 100 holders of record of its
shares (determined as provided in Section 605 of the California General
Corporation Law), no annual report to shareholders shall be required, and the
requirement to the contrary of Section 1501 of the California General
Corporation Law is hereby expressly waived.
ARTICLE VII
AMENDMENTS
----------
New bylaws may be adopted or these bylaws may be amended or repealed by
the shareholders or by the directors.
6
<PAGE>
EXHIBIT 3.7
ARTICLES OF INCORPORATION
OF
BURKE TIRE MATERIALS, INC.
KNOW ALL MEN BY THESE PRESENTS:
THAT WE, the undersigned, have this day voluntarily associated
ourselves together for the purpose of forming a corporation under the laws of
the State of California.
AND WE HEREBY CERTIFY:
ONE: That the name of this Corporation is:
BURKE TIRE MATERIALS, INC.
TWO: The purposes for which this corporation is formed are:
(a) The specific business in which the corporation intends
primarily to engage is that of the compounding, manufacture and sale at
wholesale and retail of materials intended for use in the manufacture of
tires to be used on vehicles of every nature.
(b) To own, operate, maintain, manage, equip, improve, repair,
alter, and otherwise deal with, use and enjoy, to invent, design, develop,
assemble, build, construct, fabricate, manufacture, buy, import, lease as
lessee and otherwise acquire, to mortgage, deed in trust, pledge and
otherwise encumber, and to sell, export, lease as lessor and otherwise
dispose of goods, wares, merchandise and personal property of every sort,
nature and description; to
<PAGE>
purchase, acquire, own, hold, lease, either as lessor or lessee, sell, exchange,
subdivide, mortgage, deed in trust, plant, improve, cultivate, develop,
construct, maintain, equip, operate and generally deal in any and all lands,
improved and unimproved, dwelling houses, apartment houses, hotels, boarding
houses, business blocks, office buildings, garages, stations, warehouses,
manufacturing works and plants and other buildings of any kind or description,
real, personal and mixed, wheresoever situated, including water and water
rights.
(c) To acquire, by purchase or otherwise the goodwill, business,
property rights, franchises and assets of every kind, with or without
undertaking either wholly or in part the liabilities of any person, firm,
association or corporation, and to acquire any business as a going concern or
otherwise (1) by purchase of the assets thereof wholly or in part, (2) by
acquisition of the shares or any part thereof, or (3) in any other manner,
and to pay for the same in cash or in the shares or bonds or other evidences
of indebtedness of this corporation, or otherwise to hold, maintain, and
operate, or in any manner dispose of, the whole or any part of the goodwill,
business, rights and property so acquired, and to conduct in any lawful
manner the whole or any part of any business so acquired, and to exercise all
the powers necessary or convenient in and about the management of such
business.
(d) To buy, contract for, lease, and in any and all other ways
acquire, take, hold and own, and to sell, mortgage, pledge, deed in trust,
lease and otherwise dispose of patents, licenses and pro-
-2-
<PAGE>
cesses or rights thereunder, and franchise rights, governmental, state,
territorial, county and municipal grants and concessions of every character
of which this corporation may deem advantageous in the prosecution of its
business, or in the maintenance, operation, development or extension of its
properties.
(e) To enter into, make, perform and carry out contracts of every
kind for any lawful purpose without limit to amount, with any person, firm,
association or corporation, municipality, county, parish, state, territory,
government or other municipal or governmental subdivision.
(f) From time to time to apply for, acquire by assignment,
purchase, transfer or otherwise, exercise, carry out and enjoy any benefit,
right, privilege, prerogative or power conferred by, acquired under or
granted by any statute, ordinance, order, license, power, authority,
franchise, commission, right or privilege which any government or authority
or governmental agency or corporation or other public body may be empowered
to enact, make or grant; to pay for, aid in, and contribute toward carrying
the same into effect and to appropriate any of this corporation's shares,
and/or assets to defray the costs, charges and expenses thereof.
(g) To borrow money; to issue bonds, notes, debentures or other
obligations of this corporation from time to time for any of the objects or
purposes of this corporation, and to secure the same by mortgage, pledge,
deed of trust or otherwise, or to issue the same unsecured.
-3-
<PAGE>
(h) To lend money; to purchase, acquire, own, hold, guarantee,
sell, assign, transfer, mortgage, pledge or otherwise dispose of and deal in
shares, bonds, notes, debentures, or other securities or evidences of
indebtedness of any other person, corporation or association, whether
domestic or foreign, and whether now or hereafter organized or existing; and
while the holder thereof to exercise all the rights, powers and privileges of
ownership including the right to vote thereon, to the same extent as a
natural person might or could do.
(i) To promote or to aid in any manner, financially or otherwise,
any person, corporation or association of which any shares, bonds, notes,
debentures or other securities or evidences of indebtedness are held directly
or indirectly by this corporation; and for this purpose to guarantee the
contracts, dividends, shares, bonds, debentures, notes and other obligations
of such persons, corporations or associations; and to do any other acts or
things designed to protect, preserve, improve or enhance the value of such
shares, bonds, notes, debentures or other securities or evidences of
indebtedness.
(j) To carry on any business whatsoever which this corporation may
deem proper or convenient in connection with any of the foregoing purposes or
otherwise or which may be calculated directly or indirectly to promote the
interests of this corporation or to enhance the value of its property or
business; to conduct its business in this state, or other states, in the
District of Columbia, in the territories and colonies of the United States,
or in foreign
-4-
<PAGE>
countries, and to hold, purchase, mortgage and convey real and personal
property, either in or out of the State of California, and to exercise all
the powers conferred by the Laws of California upon corporations formed under
the laws pursuant to and under which this corporation is formed as such laws
are now in effect or may at any time hereafter be amended.
(k) To carry out all or any part of the foregoing objects and
purposes as principal, agent, contractor or otherwise, either alone or in
conjunction with any person, firm, association or other corporation, and in
any part of the world and in carrying on its business and for the purpose of
attaining or furthering any of its objects or purposes, to make and perform
such contracts of any kind and description, to do such acts and things, and
to exercise any and all such powers, as a natural person could lawfully make,
perform, do or exercise, provided that the same be not inconsistent with the
laws of the State of California.
(l) To do each and every thing necessary, suitable or proper for
the accomplishment of any of the purposes or the attainment of any one or
more of the objects herein enumerated, or which shall at any time appear
proper and conducive for the protection or benefit of this corporation.
The foregoing statement of purposes shall be construed as a
statement of both purposes and powers and the purposes and the powers stated
in each clause shall in no way be limited or restricted by reference to or
inference from the terms or provisions of any other clause.
-5-
<PAGE>
THREE: The County in the State of California where the principal
office for the transaction of the business of this corporation is to be
located is Santa Clara County.
FOUR: This corporation is authorized to issue only one class of
shares of stock, the total number of such shares is seven thousand five
hundred (7,500), each of such shares of stock is to have a par value of Ten
Dollars ($10.00), and the aggregate par value of all shares having a par
value is Seventy-Five Thousand Dollars ($75,000.00).
FIVE: (a) The number of the directors of this corporation shall be
four (4).
(b) The names and addresses of the persons who are appointed
to act as the first directors of this corporation are:
NAME ADDRESS
---- -------
HALSEY C. BURKE, 2250 So. 10th St., San Jose, California
NORMAN R. BURKE, 2250 So. 10th St., San Jose, California
D. W. KUTNEWSKY, 2250 So. 10th St., San Jose, California
VIRGIL C. PRICE, 2250 So. 10th St., San Jose, California
IN WITNESS WHEREOF, for the purpose of forming this corporation
under the laws of the State of California, we, the undersigned, constituting
the incorporators of this corporation, including the persons named
hereinabove as the first directors of this corporation, have executed these
Articles of Incorporation on SEP. 10 1971.
/s/ Halsey C. Burke /s/ Norman R. Burke
- ----------------------------------- -----------------------------------
Halsey C. Burke Norman R. Burke
/s/ D.W. Kutnewsky /s/ Virgil C. Price
- ----------------------------------- -----------------------------------
D.W. Kutnewsky Virgil C. Price
-6-
<PAGE>
STATE OF CALIFORNIA )
) ss:
COUNTY OF SANTA CLARA )
On SEP. 10 1971, before me the undersigned, a Notary Public in and for
said County and State, residing therein, duly commissioned and sworn,
personally appeared HALSEY C. BURKE, NORMAN R. BURKE, D.W. KUTNEWSKY and
VIRGIL C. PRICE, known to me to be the persons whose names are subscribed to
the foregoing ARTICLES OF INCORPORATION, and acknowledged to me that they
executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal on the day and year first above written.
/s/ Stephen H. Pray
------------------------------------
STEPHEN H. PRAY
Notary Public in and for said County
And State
[SEAL]
-7-
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
HALSEY C. BURKE NORMAN R. BURKE and D. W. KUTNEWSKY certify that:
1. They constitute a majority of the directors of BURKE TIRE
MATERIALS, INC., a California corporation.
2. They hereby adopt the following amendment of the articles of
incorporation of the corporation:
Article One is amended to read as follows:
"ONE. That the name of this Corporation is:
BURKE CUSTOM PROCESSING, INC."
3. No shares have been issued.
/s/ Halsey C. Burke
------------------------------------
Halsey C. Burke, Director
/s/ Norman R. Burke
------------------------------------
Norman R. Burke, Director
/s/ D. W. Kutnewsky
------------------------------------
D. W. Kutnewsky, Director
The undersigned declare under penalty of perjury that the matters
set forth in the foregoing certificate are true of their own knowledge.
Executed at San Jose, California, on December 10, 1979.
/s/ Halsey C. Burke
------------------------------------
Halsey. C. Burke
/s/ Norman R. Burke
------------------------------------
Norman R. Burke
/s/ D. W. Kutnewsky
------------------------------------
D. W. Kutnewsky
<PAGE>
Exhibit 3.8
BYLAWS FOR THE REGULATION
OF
BURKE CUSTOM PROCESSING, INC.,
A CALIFORNIA CORPORATION
ARTICLE I
PRINCIPAL EXECUTIVE OFFICE
--------------------------
The principal executive office of the corporation shall be 2250 South
Tenth Street, San Jose, California 95112.
ARTICLE II
MEETING OF SHAREHOLDERS
-----------------------
Section 2.01 ANNUAL MEETINGS. The annual meeting of shareholders shall
be held on the 15th day of June in each year (or, should such day fall upon a
legal holiday, then on the first day thereafter which is not a legal holiday)
at 10:00 o'clock A.M., or at such other time and on such other date as the
board of directors shall determine. At each annual meeting, directors shall
be elected and any other proper business may be transacted.
Section 2.02 SPECIAL MEETINGS. Special meetings of shareholders may be
called by the board of directors, the chairman of the board (if there be such
an officer), the president, or the holders of shares entitled to cast not
less than ten percent (10%) of the votes at such meeting. Each special
meeting shall be held at such date and time as is requested by the person or
persons calling the meeting within the limits fixed by law.
Section 2.03 PLACE OF MEETINGS. Each annual or special meeting of
shareholders shall be held at such location as may be determined by the board
of directors, or if no such determination is made, at such place as may be
determined by the chief executive officer, or by any other officer authorized
by the board of directors or the chief
<PAGE>
executive officer to make such determination. If no location is so
determined, any annual or special meeting shall be held at the principal
executive office of the corporation.
Section 2.04 NOTICE OF MEETINGS. Notice of each annual or special
meeting of shareholders shall contain such information, and shall be given to
such persons at such time, and in such manner, as the board of directors
shall determine, or if no such determination is made, as the chief executive
officer, or any other officer so authorized by the board of directors or the
chief executive officer, shall determine, subject to the requirements of
applicable law.
Section 2.05 CONDUCT OF MEETINGS. Subject to the requirements of
applicable law, all annual and special meetings of shareholders shall be
conducted in accordance with such rules and procedures as the board of
directors may determine and, as to matters not governed by such rules and
procedures, as the chairman of such meeting shall determine. The chairman of
any annual or special meeting of shareholders shall be designated by the
board of directors and, in the absence of any such designation, shall be the
chief executive officer of the corporation.
Section 2.06 INFORMAL ACTION BY SHAREHOLDERS. An action required or
permitted to be taken at a meeting of Shareholders may be taken without a
meeting if a consent, in writing, setting forth such action, is signed by all
the Shareholders entitled to vote on the subject matter thereof and any other
Shareholders entitled to notice of a meeting of Shareholders (but not to vote
thereat) have waived in writing any rights which they may have to dissent
from such action, and such consents and waivers are filed with the minutes of
proceedings of the Shareholders. Such consents and waivers may be signed by
different Shareholders on separate counterparts.
2
<PAGE>
ARTICLE III
DIRECTORS
---------
Section 3.01 NUMBER. The number of directors of the corporation shall be
one (1) until changed in accordance with applicable law.
Section 3.02 MEETINGS OF THE BOARD. Each regular and special meeting
of the board shall be held at a location determined as follows: The board of
directors may designate any place, within or without the State of California,
for the holding of any meeting. If no such designation is made, (i) any
meeting called by a majority of the directors shall be held at such location,
within the county of the corporation's principal executive office, as the
directors calling the meeting shall designate; and (ii) any other meeting
shall be held at such location, within the county of the corporation's
principal executive office, as the chief executive officer may designate, or
in the absence of such designation, at the corporation's principal executive
office. Subject to the requirements of applicable law, all regular and
special meetings of the board of directors shall be conducted in accordance
with such rules and procedures as the board of directors may approve and, as
to matters not governed by such rules and procedures, as the chairman of such
meeting shall determine. The chairman of any regular or special meeting
shall be designated by the directors and, in the absence of any such
designation, shall be the chief executive officer of the corporation.
Members of the board of directors (or any committee appointed by the
board) may participate in a meeting by means of conference telephone or
similar communications equipment whereby all persons participating in the
meeting can hear each other, and participation in such meeting in such manner
shall constitute presence in person at such meeting.
3
<PAGE>
Any action required or permitted to be taken at any meeting of the Board
of Directors may be taken without a meeting, if a consent in writing to such
action is signed by all of the Directors and such written consents may be
signed by different Directors on separate counterparts.
Section 3.03 INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by all of
the Directors and such written consents may be signed by different Directors
on separate counterparts.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS,
OFFICERS, AND OTHER CORPORATE AGENTS
------------------------------------
Section 4.01 INDEMNIFICATION. This corporation shall indemnify and
hold harmless any person who is or was a director or officer of this
corporation, or is or was serving at the request of the Board of Directors of
this Corporation as a director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other
enterprise (an "Agent"), from and against any expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any "proceeding" (as defined in Section 317(a)) to the fullest extent
permitted by applicable law. The corporation shall advance to its agents
expenses incurred in defending any proceeding prior to the final disposition
thereof to the fullest extent and in the manner permitted by applicable law.
Section 4.02 RIGHT TO INDEMNIFICATION. This section shall create a
right of indemnification for each person referred to in Section 4.01, whether
or not the proceeding
4
<PAGE>
to which the indemnification relates arose in whole or in part prior to
adoption of such section and in the event of death such right shall extend to
such person's legal representatives. The right of indemnification hereby
given shall not be exclusive of any other rights such person may have whether
by law or under any agreement, insurance policy, vote of directors or
shareholders, or otherwise.
Section 4.03 INSURANCE. The corporation shall have power to purchase
and maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such whether or not the corporation
would have the power to indemnify the agent against such liability.
ARTICLE V
OFFICERS
--------
Section 5.01 OFFICERS. The corporation shall have a president, a chief
financial officer, a secretary, and such other officers, including a chairman
of the board, as may be designated by the board. Unless the board of
directors shall otherwise determine, the president shall be the chief
executive officer of the corporation. Officers shall have such powers and
duties as may be specified by, or in accordance with, resolutions of the
board of directors. In the absence of any contrary determination by the
board of directors, the chief executive officer shall, subject to the power
and authority of the board of directors, have general supervision, direction,
and control of the officers, employees, business, and affairs of the
corporation.
Section 5.02 LIMITED AUTHORITY OF OFFICERS. No officer of the
corporation shall have any power or authority outside the normal day-to-day
business of the
5
<PAGE>
corporation to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable in connection with any transaction
unless so authorized by the board of directors.
ARTICLE VI
WAIVER OF ANNUAL REPORTS
------------------------
So long as the corporation has less than 100 holders of record of its
shares (determined as provided in Section 605 of the California General
Corporation Law), no annual report to shareholders shall be required, and the
requirement to the contrary of Section 1501 of the California General
Corporation Law is hereby expressly waived.
ARTICLE VII
AMENDMENTS
----------
New bylaws may be adopted or these bylaws may be amended or repealed by
the shareholders or by the directors.
6
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of Burke Custom
Processing, Inc., a California corporation; and
2. That the foregoing bylaws, comprising six (6) pages, constitute the
bylaws of said corporation as duly adopted by action of the board of
directors of the corporation duly taken as of August __, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of said corporation as of this __ day of August, 1997.
/s/ Reed C. Wolthausen
- -------------------------------
Reed C. Wolthausen, Secretary
Seal
7
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
____________________________________________________________________________
BURKE INDUSTRIES, INC.,
Issuer,
THE SUBSIDIARY GUARANTORS NAMED HEREIN
Subsidiary Guarantors
and
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
____________________
INDENTURE
Dated as of August 20, 1997
_____________________
$110,000,000
10% Senior Notes Due 2007
____________________________________________________________________________
<PAGE>
D-2
BURKE INDUSTRIES, INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF AUGUST 20, 1997
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
Section 310(a)(1) ................................. 607
(a)(2) ................................. 607
(b) ................................. 608
Section 312(c) ................................. 701
Section 314(a) ................................. 703
(a)(4) ................................. 1008(a)
(c)(1) ................................. 103
(c)(2) ................................. 103
(e) ................................. 103
Section 315(b) ................................. 601
Section 316(a)(last
sentence) ................................. 101 ("Outstanding")
(a)(1)(A) ................................. 502, 512
(a)(1)(B) ................................. 513
(b) ................................. 508
(c) ................................. 105(d)
Section 317(a)(1) ................................. 503
(a)(2) ................................. 504
(b) ................................. 1003
Section 318(a) ................................. 111
<PAGE>
TABLE OF CONTENTS
PAGE
PARTIES .............................................................. 1
RECITALS OF THE COMPANY ............................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions ....................................... 2
Acquired Indebtedness ........................................... 2
Act ............................................................. 2
Additional Notes ................................................ 2
Affiliate ....................................................... 2
Applicable Premium .............................................. 3
Asset Sale ...................................................... 3
Attributable Debt ............................................... 3
Average Life .................................................... 3
Bank Credit Agreement ........................................... 4
Banks ........................................................... 4
Board of Directors .............................................. 4
Board Resolution ................................................ 4
Borrowing Base .................................................. 4
Business Day .................................................... 4
Capital Stock ................................................... 4
Capitalized Lease Obligation .................................... 5
Change of Control ............................................... 5
Closing Date .................................................... 6
Commission ...................................................... 6
Common Stock .................................................... 6
Company ......................................................... 6
Company Request or Company Order ................................ 6
Consolidated Adjusted Net Income ................................ 6
Consolidated EBITDA ............................................. 7
Consolidated Net Worth .......................................... 7
Corporate Trust Office .......................................... 7
____________________
Note: This table of contents shall not, for any purpose, be deemed
to be a part of the Indenture.
<PAGE>
ii
PAGE
corporation ..................................................... 8
Default ......................................................... 8
Defaulted Interest .............................................. 8
Depositary ...................................................... 8
Disinterested Director .......................................... 8
Disqualified Stock .............................................. 8
Event of Default ................................................ 8
Exchange Act .................................................... 8
Exchange Offer .................................................. 8
Exchange Offer Registration Statement ........................... 9
Exchange Notes .................................................. 9
Federal Bankruptcy Code ......................................... 9
Fixed Charge Coverage Ratio ..................................... 9
Fixed Charges ................................................... 9
Generally Accepted Accounting Principles or GAAP ................ 9
Hedging Obligations ............................................. 9
Holder .......................................................... 9
Indebtedness .................................................... 9
Indenture ....................................................... 10
Indenture Obligations ........................................... 10
Initial Notes ................................................... 10
Interest Payment Date ........................................... 10
Investment ...................................................... 10
Lien ............................................................ 11
Maturity ........................................................ 11
Moody's ......................................................... 11
Net Cash Proceeds ............................................... 11
Non-U.S. Person ................................................. 12
Non-U.S. Restricted Subsidiary .................................. 12
Note Guarantee .................................................. 12
Notes ........................................................... 12
Offering ........................................................ 12
Officers' Certificate ........................................... 12
Opinion of Counsel .............................................. 12
Outstanding ..................................................... 12
Paying Agent .................................................... 13
Permitted Business .............................................. 13
Permitted Investments ........................................... 13
Person .......................................................... 14
Predecessor Note ................................................ 14
<PAGE>
iii
PAGE
Preferred Stock ................................................. 15
Principals ...................................................... 15
Purchase Date ................................................... 15
Public Equity Offering .......................................... 15
Qualified Equity Interest ....................................... 15
QIB ............................................................. 15
Qualified Stock ................................................. 15
Redemption Date ................................................. 15
Redemption Price ................................................ 15
Register and Note Registrar ..................................... 15
Registrar ....................................................... 16
Registration Rights Agreement ................................... 16
Registration Statement .......................................... 16
Regular Record Date ............................................. 16
Regulation S .................................................... 16
Related Party ................................................... 16
Restricted Subsidiary ........................................... 16
Rule 144A ....................................................... 16
Sale and Leaseback Transaction .................................. 16
Securities Act .................................................. 16
Series A Preferred Stock ........................................ 16
Shelf Registration Statement .................................... 16
Significant Subsidiary .......................................... 17
S&P ............................................................. 17
Special Record Date ............................................. 17
Stated Maturity ................................................. 17
Subordinated Indebtedness ....................................... 17
Subsidiary ...................................................... 17
Subsidiary Guarantor ............................................ 17
Treasury Rate ................................................... 17
Trust Indenture Act or TIA ...................................... 18
Unrestricted Subsidiary ......................................... 18
Trustee ......................................................... 18
U.S. Restricted Subsidiary ...................................... 18
Voting Stock .................................................... 18
Wholly Owned Restricted Subsidiary .............................. 18
SECTION 102. Incorporation by Reference of Trust Indenture Act .. 18
SECTION 103. Compliance Certificates and Opinions ............... 19
SECTION 104. Form of Documents Delivered to Trustee ............. 20
SECTION 105. Acts of Holders .................................... 20
<PAGE>
iv
PAGE
SECTION 106. Notices, Etc., to Trustee, Company and Subsidiary
Guarantors .................................... 22
SECTION 107. Notice to Holders; Waiver .......................... 22
SECTION 108. Effect of Headings and Table of Contents ........... 23
SECTION 109. Successors and Assigns ............................. 23
SECTION 110. Separability Clause ................................ 23
SECTION 111. Benefits of Indenture .............................. 23
SECTION 112. Governing Law ...................................... 23
SECTION 113. Legal Holidays ..................................... 24
SECTION 114. No Recourse Against Others ......................... 24
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally .................................... 24
SECTION 202. Restrictive Legends ................................ 25
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms .................................... 27
SECTION 302. Denominations ...................................... 28
SECTION 303. Execution, Authentication, Delivery and Dating ..... 28
SECTION 304. Temporary Notes .................................... 29
SECTION 305. Registration, Registration of Transfer and
Exchange .......................................... 30
SECTION 306. Book-Entry Provisions for Global Note .............. 31
SECTION 307. Special Transfer Provisions ........................ 32
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes ........ 34
SECTION 309. Payment of Interest; Interest Rights Preserved ..... 35
SECTION 310. Persons Deemed Owners .............................. 37
SECTION 311. Cancellation ....................................... 37
SECTION 312. Issuance of Additional Notes ....................... 37
SECTION 313. Computation of Interest ............................ 37
<PAGE>
v
PAGE
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture ............ 38
SECTION 402. Application of Trust Money ......................... 39
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default ................................... 39
SECTION 502. Acceleration of Maturity; Rescission and Annulment .. 41
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee ........................................ 42
SECTION 504. Trustee May File Proofs of Claim .................... 43
SECTION 505. Trustee May Enforce Claims Without Possession of
Notes ............................................. 44
SECTION 506. Application of Money Collected ...................... 44
SECTION 507. Limitation on Suits ................................. 44
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest .............................. 45
SECTION 509. Restoration of Rights and Remedies .................. 45
SECTION 510. Rights and Remedies Cumulative ...................... 45
SECTION 511. Delay or Omission Not Waiver ........................ 45
SECTION 512. Control by Holders .................................. 46
SECTION 513. Waiver of Past Defaults ............................. 46
SECTION 514. Waiver of Stay or Extension Laws .................... 46
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults .................................. 47
SECTION 602. Certain Rights of Trustee ........................... 47
SECTION 603. Trustee Not Responsible for Recitals or Issuance
of Notes .......................................... 48
SECTION 604. May Hold Notes ...................................... 49
SECTION 605. Money Held in Trust ................................. 49
SECTION 606. Compensation and Reimbursement ...................... 49
SECTION 607. Corporate Trustee Required; Eligibility ............. 50
SECTION 608. Resignation and Removal; Appointment of Successor ... 50
<PAGE>
vi
PAGE
SECTION 609. Acceptance of Appointment by Successor .............. 52
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business .......................................... 52
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE, COMPANY
AND SUBSIDIARY GUARANTORS
SECTION 701. Disclosure of Names and Addresses of Holders ........ 53
SECTION 702. Reports by Trustee .................................. 53
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms ............................................. 53
SECTION 802. Successor Substituted ............................... 55
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND NOTE GUARANTEES
SECTION 901. Without Consent of Holders .......................... 55
SECTION 902. With Consent of Holders ............................. 56
SECTION 903. Execution of Supplemental Indentures ................ 57
SECTION 904. Effect of Supplemental Indentures ................... 58
SECTION 905. Conformity with Trust Indenture Act ................. 58
SECTION 906. Reference in Notes to Supplemental Indentures ....... 58
SECTION 907. Notice of Supplemental Indentures ................... 58
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and
Interest ......................................... 59
SECTION 1002. Maintenance of Office or Agency .................... 59
SECTION 1003. Money for Note Payments to Be Held in Trust ........ 59
SECTION 1004. Corporate Existence ................................ 61
<PAGE>
vii
PAGE
SECTION 1005. Payment of Taxes and Other Claims .................. 61
SECTION 1006. Maintenance of Properties .......................... 61
SECTION 1007. Insurance .......................................... 62
SECTION 1008. Statement by Officers As to Default ................ 62
SECTION 1009. [INTENTIONALLY OMITTED] ............................ 62
SECTION 1010. Limitation on Indebtedness of Issuance of
Disqualified Stock ............................... 62
SECTION 1011. Limitation on Restricted Payments .................. 65
SECTION 1012. Limitation on Issuances and Sales of Preferred
Stock of Restricted Subsidiaries ................. 70
SECTION 1013. Limitation on Transactions with Affiliates ......... 70
SECTION 1014. Limitation on Liens ................................ 71
SECTION 1015. Purchase of Notes upon a Change of Control ......... 73
SECTION 1016. Limitation on Certain Asset Sales .................. 75
SECTION 1017. Unrestricted Subsidiaries .......................... 78
SECTION 1018. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries ... 79
SECTION 1019. Waiver of Certain Covenants ........................ 80
SECTION 1020. Payment for Consent ................................ 80
SECTION 1021. Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries .......................... 80
SECTION 1022. Line of Business ................................... 81
SECTION 1023. Reports ............................................ 81
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption ................................. 82
SECTION 1102. Applicability of Article ............................ 82
SECTION 1103. Election to Redeem; Notice to Trustee ............... 82
SECTION 1104. Selection by Trustee of Notes to Be Redeemed ........ 83
SECTION 1105. Notice of Redemption ................................ 83
SECTION 1106. Deposit of Redemption Price ......................... 84
SECTION 1107. Notes Payable on Redemption Date .................... 84
SECTION 1108. Notes Redeemed in Part .............................. 85
<PAGE>
viii
PAGE
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Defeasance or
Covenant Defeasance ............................... 85
SECTION 1202. Defeasance and Discharge ............................ 85
SECTION 1203. Covenant Defeasance ................................. 86
SECTION 1204. Conditions to Defeasance or Covenant Defeasance ..... 86
SECTION 1205. Deposited Money and U.S. Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions .. 87
SECTION 1206. Reinstatement ....................................... 88
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. Note Guarantees ..................................... 88
SECTION 1302. Execution and Delivery of Note Guarantee ............ 90
SECTION 1303. Severability ........................................ 90
SECTION 1304. Seniority of Guarantees ............................. 90
SECTION 1305. Limitation of Subsidiary Guarantor's Liability ...... 91
SECTION 1306. Contribution ........................................ 91
SECTION 1307. Release of a Subsidiary Guarantor ................... 92
SECTION 1308. Subsidiary Guarantors May Consolidate, Etc.
on Certain Terms .................................. 92
SECTION 1309. Benefits Acknowledged ............................... 93
SECTION 1310. Issuance of Guarantees by Certain New Restricted
Subsidiaries ...................................... 93
Exhibit A - Form of Note...............................................A-1
Exhibit B - Form of Note Guarantee Exhibit
Exhibit C - Form of Letter to Be Delivered By Institutional Accredited
Investors
<PAGE>
INDENTURE, dated as of August 20, 1997 among Burke Industries, Inc.,
a corporation duly organized and existing under the laws of the State of
California (herein called the "Company"), the Subsidiary Guarantors (as
hereinafter defined) and United States Trust Company of New York, a New York
banking corporation (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issue of 10%
Senior Notes Due 2007 (herein called the "Initial Notes"), and 10% Series B
Senior Notes Due 2007 (the "Exchange Notes" and, together with the Initial
Notes, the "Notes") of substantially the tenor and amount hereinafter set
forth, and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture.
Each of the Subsidiary Guarantors has duly authorized its guarantee
of the Notes, and to provide therefor each of them has duly authorized the
execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
The Company has also duly authorized the creation of up to
$75,000,000 aggregate principal amount of additional Notes to be issued from
time to time having identical terms and conditions to the Notes offered
hereby.
All things necessary have been done to make the Notes, when executed
by the Company and authenticated and delivered hereunder and duly issued by
the Company, the valid obligations of the Company and to make this Indenture
a valid agreement of the Company and the Subsidiary Guarantors, each in
accordance with their respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Two, Eight, Ten and
Twelve are defined in that Article.
"Acquired Indebtedness" means Indebtedness of a person (a) existing
at the time such person is merged with or into the Company or becomes a
Subsidiary or (b) assumed in connection with the acquisition of assets from
such person.
"Act", when used with respect to any Holder, has the meaning
specified in Section 105.
"Additional Notes" has the meaning set forth in Section 312.
"Affiliate" means, with respect to any specified person, any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person or (b) any other person
that owns, directly or indirectly, 10% or more of such specified person's
Capital Stock or any executive officer or director of any
<PAGE>
3
such specified person or other person or, with respect to any natural person,
any person having a relationship with such person by blood, marriage or
adoption not more remote than first cousin. For the purposes of this
definition, "control", when used with respect to any specified person, means
the power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Applicable Premium" will be defined, with respect to a Note, as the
greater of (i) 5% of the then outstanding principal amount of such Note and
(ii) the excess of (A) the present value of the remaining required interest
and principal payments due on such Note (exclusive of accrued and unpaid
interest), computed using a discount rate equal to the Treasury Rate plus 100
basis points, over (B) the then outstanding principal amount of such Note.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction or similar arrangement)
(collectively, a "transfer") by the Company or any Restricted Subsidiary
other than in the ordinary course of business, whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for aggregate net proceeds in excess
of $1.0 million. For the purposes of this definition, the term "Asset Sale"
does not include (i) any transfer of properties or assets that is governed by
Article Eight, (ii) any transfer of properties or assets between or among the
Company and its Restricted Subsidiaries pursuant to transactions that do not
violate any other provision of the Indenture, (iii) any transfer of
properties or assets representing obsolete or permanently retired equipment
and facilities, (iv) a Restricted Payment or Permitted Investment that is
permitted by Section 1011 (including, without limitation, any formation of or
contribution of assets to a joint venture), (v) leases or subleases, in the
ordinary course of business, to third parties of real property owned in fee
or leased by the Company or its Subsidiaries, (vi) the sale of Permitted
Investments referred to in clause (a) of the definition thereof or (vii) any
exchange of like kind property pursuant to Section 1031 of the Internal
Revenue of 1986, as amended.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the
rate of interest implicit in such transaction, determined in accordance with
GAAP) of the obligation of the lessee for net rental payments during the
remainder of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended).
"Average Life" means, as of the date of determination with respect
to any Indebtedness or Disqualified Stock, the quotient obtained by dividing
(a) the sum of the
<PAGE>
4
products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal or liquidation value
payment of such Indebtedness or Disqualified Stock, respectively, multiplied
by (ii) the amount of each such principal or liquidation value payment by (b)
the sum of all such principal or liquidation value payments.
"Bank Credit Agreement" means the loan and security agreement to be
entered into among the Company, the Banks and NationsBank, N.A., as agent, on
or prior to August 20, 1997 as such agreement may be amended, restated,
supplemented, refinanced, replaced or otherwise modified from time to time
(including any such refinancing or replacement agent by a different
institution).
"Banks" means the banks and other financial institutions that from
time to time are lenders under the Bank Credit Agreement.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or a Subsidiary Guarantor,
if the context so requires, to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Borrowing Base" means, as of any date, an amount equal to the sum
of (a) 85% of the face amount of all accounts receivable owned by the Company
and its Restricted Subsidiaries as of such date that are not more than 90
days past due, and (b) 60% of the book value of all inventory owned by the
Company and its Subsidiaries as of such date, all calculated on a
consolidated basis and in accordance with GAAP. To the extent that
information is not available as to the amount of accounts receivable or
inventory as of a specific date, the Company may utilize the most recent
available information provided to the Banks under the Bank Credit Agreement
for purpose of calculating the Borrowing Base.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New
York are authorized or obligated by law or executive order to close.
"Capital Stock" of any person means any and all shares, interests,
partnership interests, participations, rights in or other equivalents
(however designated) of such person's equity interest (however designated),
whether now outstanding or issued after the Closing Date.
<PAGE>
5
"Capitalized Lease Obligation" means, with respect to any person, an
obligation incurred or assumed under or in connection with any capital lease
of real or personal property that, in accordance with GAAP, has been recorded
as a capitalized lease.
"Change of Control" means the occurrence of any of the following
events:
(a) the consummation of any transaction (including, without
limitation, any merger or consolidation) (i) prior to a Public Equity
Offering by the Company, the result of which is that the Principals and their
Related Parties become the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall
be deemed to have "beneficial ownership" of all securities that such person
has the right to acquire, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition) of less than
50% of the Voting Stock of the Company (measured by voting power rather than
the number of shares) or (ii) after a Public Equity Offering of the Company,
any "person" (as such term is used in Section 13(d)(3) of the Exchange Act),
other than the Principals and their Related Parties, becomes the beneficial
owner (as defined above), directly or indirectly, of 35% or more of the
Voting Stock of the Company and such person is or becomes, directly or
indirectly, the beneficial owner of a greater percentage of the voting power
of the Voting Stock of the Company, calculated on a fully diluted basis, than
the percentage beneficially owned by the Principals and their Related Parties;
(b) the Company, either individually or in conjunction with one or
more Subsidiaries, sells, assigns, conveys, transfers, leases or otherwise
disposes of, or the Subsidiaries sell, assign, convey, transfer, lease or
otherwise dispose of, all or substantially all of the properties of the
Company and the Subsidiaries, taken as a whole (either in one transaction or
a series of related transactions), including Capital Stock of the
Subsidiaries, to any person (other than the Company or a Restricted
Subsidiary);
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved
by a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than in a transaction that complies with
the Article Eight.
<PAGE>
6
"Closing Date" means the date on which the Notes are originally
issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Notes Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all
shares, interests, participations and other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of this Indenture, and includes, without
limitation, all series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman, its President, any
Vice President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Adjusted Net Income" means, for any period, the net
income (or net loss) of the Company and its Restricted Subsidiaries for such
period as determined on a consolidated basis in accordance with GAAP,
adjusted to the extent included in calculating such net income or loss by
excluding (a) any net after-tax extraordinary or non-recurring gains or
losses (less all fees and expenses relating thereto), (b) any net after-tax
gains or losses (less all fees and expenses relating thereto) attributable to
Asset Sales, (c) the portion of net income (or loss) of any person (other
than the Company or a Restricted Subsidiary), including Unrestricted
Subsidiaries, in which the Company or any Restricted Subsidiary has an
ownership interest, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any Restricted Subsidiary in
cash during such period, (d) solely for purposes of Section 1011, the net
income (or loss) of any person combined with the Company or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period prior
to the date of combination, and (e) the net income (but not the net loss) of
any Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary is at the
date of determination restricted, directly or indirectly, except to the
extent that such net income is actually paid to the Company or a Restricted
Subsidiary thereof by loans, advances, intercompany transfers, principal
repayments or otherwise; PROVIDED that, if any Restricted Subsidiary is not a
Wholly Owned Restricted Subsidiary, Consolidated Adjusted Net Income will be
reduced (to the
<PAGE>
7
extent not otherwise reduced in accordance with GAAP) by an amount equal to
(A) the amount of the Consolidated Adjusted Net Income otherwise attributable
to such Restricted Subsidiary multiplied by (B) the quotient of (1) the
number of shares of outstanding common stock of such Restricted Subsidiary
not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries divided by (2) the total number of shares of
outstanding common stock of such Restricted Subsidiary on the last day of
such period.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, Consolidated Adjusted Net Income for such period, plus (or, in
the case of clause (d) below, plus or minus) the following items to the
extent included in computing Consolidated Adjusted Net Income for such period
(a) Fixed Charges for such period, plus (b) the provision for federal,
state, local and foreign taxes based on income or profits of the Company and
its Restricted Subsidiaries for such period, plus (c) the aggregate
depreciation and amortization expense of the Company and its Restricted
Subsidiaries for such period, plus (d) any other non-cash charges for such
period, and minus non-cash credits for such period, other than non-cash
charges or credits resulting from changes in prepaid assets or accrued
liabilities in the ordinary course of business; provided that fixed charges,
income tax expense, depreciation and amortization expense and non-cash
charges and credits of a Restricted Subsidiary will be included in
Consolidated EBITDA only to the extent (and in the same proportion) that the
net income of such Subsidiary was included in calculating Consolidated
Adjusted Net Income for such period.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity of the Company and its Restricted Subsidiaries as set
forth on the most recently available quarterly or annual consolidated balance
sheet of the Company and its Restricted Subsidiaries, less any amounts
attributable to Disqualified Stock or any equity security convertible into or
exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of the Capital Stock
of the Company or any of its Restricted Subsidiaries and less to the extent
included in calculating such stockholders' equity of the Company and its
Restricted Subsidiaries, the stockholders' equity attributable to
Unrestricted Subsidiaries, each item to be determined in conformity with GAAP
(excluding the effects of foreign currency adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
52).
"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this
Indenture is located at 114 West 47th St., New York, N.Y. 10036-1532,
Attention: Corporate Trust, except that with respect to presentation of
Notes for payment or for registration of transfer or exchange, such term
shall mean the office or agency of the Trustee at which, at any particular
time, its corporate trust and agency business shall be conducted.
<PAGE>
8
"corporation" includes corporations, associations, companies and
business trusts.
"Default" means any event that is, or after notice or passage of
time or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required
to deliver a resolution of the Board of Directors, to make a finding or
otherwise take action under the Indenture, a member of the Board of Directors
who does not derive any material direct or indirect financial benefit from
such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (i) is or upon the
happening of an event or passage of time would be, required to be redeemed
prior to the final Stated Maturity of the Notes, (ii) is redeemable at the
option of the holder thereof, at any time prior to such final Stated Maturity
or (iii) at the option of the holder thereof is convertible into or
exchangeable for debt securities at any time prior to such final Stated
Maturity; provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions therein giving holders thereof the
right to cause the issuer thereof to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior
to the Stated Maturity of the Notes will not constitute Disqualified Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable to the holders of such Capital Stock than the
provisions contained in Sections 1015 and 1016 and such Capital Stock
specifically provides that the issuer will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such
Notes as are required to be repurchased pursuant to Sections 1015 and 1016.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Exchange Offer" means the exchange offer that may be effected
pursuant to the Registration Rights Agreement.
<PAGE>
9
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that such Exchange Notes shall not
contain terms with respect to the interest rate step-up provision and
transfer restrictions) that are issued and exchanged for the Initial Notes
pursuant to the Registration Right Agreement and this Indenture.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of
the United States Code, as amended from time to time.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA for such period to Fixed Charges for such period.
"Fixed Charges" means, for any period, without duplication, the sum
of (a) the amount that, in conformity with GAAP, would be set forth opposite
the caption "interest expense" (or any like caption) on a consolidated
statement of operations of the Company and its Restricted Subsidiaries for
such period, including, without limitation, (i) amortization of debt
discount, (ii) the net cost of interest rate contracts (including
amortization of discounts), (iii) the interest portion of any deferred
payment obligation, (iv) amortization of debt issuance costs and (v) the
interest component of Capitalized Lease Obligations, plus (b) cash dividends
paid on Preferred Stock and Disqualified Stock by the Company and any
Restricted Subsidiary (to any person other than the Company and its
Restricted Subsidiaries), computed on a tax effected basis, plus (c) all
interest on any Indebtedness of any person guaranteed by the Company or any
of its Restricted Subsidiaries or secured by a lien on the assets of the
Company or any of its Restricted Subsidiaries; PROVIDED, HOWEVER, that Fixed
Charges will not include any gain or loss from extinguishment of debt,
including the write-off of debt issuance costs.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as in effect on the date
of the Indenture.
"Hedging Obligations" means the obligations of any person under (i)
interest rate swap agreements, interest rate cap agreements and interest rate
collar agreements and (ii) other agreements or arrangements designed to
protect such person against fluctuations in interest rates or the value of
foreign currencies.
"Holder" means a Person in whose name a Note is registered in the
Register.
"Indebtedness" means (without duplication), with respect to any
person, whether recourse is to all or a portion of the assets of such person
and whether or not
<PAGE>
10
contingent, (a) every obligation of such person for money borrowed, (b) every
obligation of such person evidenced by bonds, debentures, notes or other
similar instruments, (c) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such person, (d) every obligation of such person
issued or assumed as the deferred purchase price of property or services, (e)
the Attributable Debt in respect of every Capitalized Lease Obligation of
such person, (f) all Disqualified Stock of such person valued at its maximum
fixed repurchase price, plus accrued and unpaid dividends, (g) all
obligations of such person under or in respect of Hedging Obligations and (h)
every obligation of the type referred to in clauses (a) through (g) of
another person and all dividends of another person the payment of which, in
either case, such person has guaranteed. For purposes of this definition,
the "maximum fixed repurchase price" of any Disqualified Stock that does not
have a fixed repurchase price will be calculated in accordance with the terms
of such Disqualified Stock as if such Disqualified Stock were purchased on
any date on which Indebtedness is required to be determined pursuant to the
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Stock, such fair market value will be determined
in good faith by the board of directors of the issuer of such Disqualified
Stock. Notwithstanding the foregoing, (i) trade accounts payable and accrued
liabilities arising in the ordinary course of business, (ii) any liability
for federal, state or local taxes or other taxes owed by such person and
(iii) obligations with respect to performance and surety bonds and completion
guarantees in the ordinary course of business will not be considered
Indebtedness for purposes of this definition.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor hereunder or under the Notes, including the Subsidiary
Guarantors to pay principal of (and premium, if any) and interest on the
Notes when due and payable at Maturity, and all other amounts due or to
become due under or in connection with this Indenture, the Notes and the
performance of all other obligations to the Trustee (including all amounts
due to the Trustee under Section 606 hereof) and the Holders under this
Indenture and the Notes, according to the terms hereof and thereof.
"Initial Notes" has the meaning stated in the first recital of this
Indenture.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"Investment" in any person means, (i) directly or indirectly, any
advance, loan or other extension of credit (including, without limitation, by
way of guarantee or similar
<PAGE>
11
arrangement) or capital contribution to such person, the purchase or other
acquisition of any stock, bonds, notes, debentures or other securities issued
by such person, the acquisition (by purchase or otherwise) of all or
substantially all of the business or assets of such person, or the making of
any investment in such person, (ii) the designation of any Restricted
Subsidiary as an Unrestricted Subsidiary and (iii) the fair market value of
the Capital Stock (or any other Investment), held by the Company or any of
its Restricted Subsidiaries, of (or in) any person that has ceased to be a
Restricted Subsidiary. Investments exclude extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation, assignment for
security, claim, or preference or priority or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired. A person will be deemed to own subject to a
Lien any property that such person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement, PROVIDED that an operating lease
shall not constitute a Lien.
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5(b) of the Registration Rights Agreement.
"Maturity", when used with respect to any Note, means the date on
which the principal of such Note or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or
by declaration of acceleration, notice of redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or cash equivalents (except to
the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of (a) brokerage commissions and
other fees and expenses (including fees and expenses of legal counsel and
investment banks) related to such Asset Sale, (b) provisions for all taxes
payable as a result of such Asset Sale, (c) payments made to retire or
otherwise prepay Indebtedness where such Indebtedness is secured by the
assets that are the subject of such Asset Sale or otherwise required to be
prepaid in connection therewith, (d) amounts required to be paid to any
person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest (by way of Capital Stock of the Person owning such assets
or otherwise) in the assets that are subject to the Asset Sale and (e)
appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by the
seller
<PAGE>
12
after such Asset Sale, including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale.
"Non-U.S. Person" means a Person that is not a "U.S. Person" as
defined in Regulation S.
"Non-U.S. Restricted Subsidiary" means a Restricted Subsidiary that
is not a U.S. Restricted Subsidiary.
"Note Guarantee" means with respect to each Subsidiary Guarantor,
the unconditional guarantee by such Subsidiary Guarantor, pursuant to Article
Thirteen.
"Notes" has the meaning stated in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture. For all purposes of this Indenture, the term "Notes"
shall include any Exchange Notes to be issued and exchanged for any Notes
pursuant to the Registration Rights Agreement and this Indenture. From and
after the issuance of any Additional Notes pursuant to Section 312 (but, not
for purposes of determining whether such issuance is permitted hereunder),
"Notes" shall include such Additional Notes for purposes of this Indenture
and all Initial Notes, Exchange Notes and any such Additional Note, shall
vote together as one series of Notes under this Indenture.
"Offering" means the offering of the 10% Senior Notes due 2007 by
the Company.
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall
be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the
date of determination, all Notes theretofore authenticated and delivered
under this Indenture, except:
(a) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee
or any Paying
<PAGE>
13
Agent (other than the Company) in trust or set aside and segregated in trust
by the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes; PROVIDED that, if such Notes are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made; and
(c) Notes, except to the extent provided in Sections 1202 and 1203,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Twelve; and
(d) Notes which have been paid pursuant to Section 308 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, other than any such Notes in respect of
which there shall have been presented to the Trustee proof satisfactory to it
that such Notes are held by a bona fide purchaser in whose hands the Notes
are valid obligations of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned
by the Company or any other obligor upon the Notes or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in making such calculation or in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
the Trustee knows to be so owned shall be so disregarded. Notes so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so
to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or such
other obligor.
"Paying Agent" means United States Trust Company of New York and any
successor (including the Company acting as Paying Agent) authorized by the
Company to pay the principal of (and premium, if any) or interest on any
Notes on behalf of the Company.
"Permitted Business" means any business in which the Company or a
Restricted Subsidiary is permitted to engage under Section 1022.
"Permitted Investments" means any of the following:
(a)Investments in (i) securities with a maturity at the time of
acquisition of one year or less issued or directly and fully guaranteed or
insured by the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof); (ii) certificates of deposit,
<PAGE>
14
Eurodollar deposits or bankers' acceptances with a maturity at the time of
acquisition of one year or less of any financial institution that is a member
of the Federal Reserve System having combined capital and surplus of not less
than $500,000,000; (iii) any shares of money market mutual or similar funds
having assets in excess of $500,000,000; and (iv) commercial paper with a
maturity at the time of acquisition of one year or less issued by a
corporation that is not an Affiliate of the Company and is organized under
the laws of any state of the United States or the District of Columbia and
having a rating (A) from Moody's Investors Service, Inc. of at least P-1 or
(B) from Standard & Poor's Ratings Services of at least A-1;
(b) Investments by the Company or any Restricted Subsidiary in
another person, if as a result of such Investment (i) such other person
becomes a Wholly Owned Restricted Subsidiary that is a Subsidiary Guarantor
or (ii) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company
or a Restricted Subsidiary;
(c) Investments by the Company or a Restricted Subsidiary in the
Company or a Restricted Subsidiary that is a Subsidiary Guarantor;
(d) Investments in existence on the Closing Date;
(e) promissory notes received as a result of Asset Sales permitted
under Section 1016;
(f) any acquisition of assets solely in exchange for the issuance of
Qualified Equity Interests of the Company;
(g) stock, obligations or securities received in satisfaction of
judgments, in bankruptcy proceedings or in settlement of debts;
(h) Hedging Obligations otherwise permitted under the Indenture;
(i) loans or advances to officers or employees of the Company or any
of its Restricted Subsidiaries in the ordinary course of business not to
exceed $250,000 in the aggregate at any one time outstanding; and
(j) other Investments that do not exceed $4 million in the aggregate
at any time outstanding.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
<PAGE>
15
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 308 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any person, any and all
shares, interests, partnership interests, participations, rights in or other
equivalents (however designated) of such person's preferred or preference
stock, whether now outstanding or issued after the Closing Date, and
including, without limitation, all classes and series of preferred or
preference stock of such person.
"Principals" means (i) Lehman, (ii) each Affiliate of Lehman as of
the Closing Date, (iii) JFLEI, and (iv) each officer or employee (including
their respective immediate family members) of Lehman as of the Closing Date.
"Purchase Date" means any Change of Control Payment Date or Excess
Proceeds Payment Date.
"Public Equity Offering" means an offer and sale of common stock
(which is Qualified Stock) of the Company pursuant to a registration
statement that has been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company).
"Qualified Equity Interest" means any Qualified Stock and all
warrants, options or other rights to acquire Qualified Stock (but excluding
any debt security that is convertible into or exchangeable for Capital Stock).
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"Qualified Stock" of any person means any and all Capital Stock of
such person, other than Disqualified Stock.
"Redemption Date", when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Register" and "Note Registrar" have the respective meanings
specified in Section 305.
<PAGE>
16
"Registrar" means The United States Trust Company of New York and
any successor authorized by the Company to act as Registrar.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company, the Subsidiary Guarantors and the Initial
Purchasers named therein, dated as of August 20, 1997 relating to the Notes.
"Registration Statement" means the Registration Statement as defined
in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the February 1 or August 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or 80% (or more) owned Subsidiary of such Principal
or (B) trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (A).
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which a person sells or transfers any
property or asset in connection with the leasing, or the resale against
installment payments, of such property or asset to the seller or transferor.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder.
"Series A Preferred Stock" means the Series A Cumulative Redeemable
Preferred Stock of the Company, par value $0.01 per share.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
<PAGE>
17
"Significant Subsidiary" means any Restricted Subsidiary of the
Company that together with its subsidiaries, (a) for the most recent fiscal
year of the Company, accounted for more than 10% of the consolidated net
sales of the Company and its Subsidiaries or (b) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company and its Restricted Subsidiaries, in the case of either (a) or (b), as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year or (c) was organized or acquired after the
beginning of such fiscal year and would have been a Significant Subsidiary if
it had been owned during such entire fiscal year.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable and, when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness or any installment of
interest thereon is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor that is subordinated in right of payment to the Notes or
the Note Guarantee issued by such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company and/or one or more other Subsidiaries of the Company.
"Subsidiary Guarantor" means any Restricted Subsidiary that is a
party to a Note Guarantee pursuant to the terms of this Indenture.
"Treasury Rate" will be defined as the yield to maturity at the time
of computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15 (519) which has become publicly available at least two Business
Days prior to the date fixed for prepayment (or, if such Statistical Release
is no longer published, any publicly available source of similar market
data)) most nearly equal to the then remaining Average Life to Stated
Maturity of the Notes; PROVIDED, HOWEVER, that if the Average Life to Stated
Maturity of the Notes is not equal to the constant maturity of a United
States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated
<PAGE>
18
to the nearest one-twelfth of a year) from the weekly average yields of
United States Treasury securities for which such yields are given, except
that if the Average Life to Stated Maturity of the Notes is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary in accordance with Section 1017 and (b) any Subsidiary of an
Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations of,
obligations fully guaranteed by, or participations in pools consisting of or
obligations guaranteed by, the United States of America for the payment of
which guarantee or obligations the full faith and credit of the United States
of America is pledged and which are not callable or redeemable at the option
of the issuer thereof.
"U.S. Restricted Subsidiary" means a Restricted Subsidiary organized
under the laws of the United States of America or any State thereof or the
District of Columbia.
"Voting Stock" means any class or classes of Capital Stock pursuant
to which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors,
managers or trustees of any person (irrespective of whether or not, at the
time, stock of any other class or classes has, or might have, voting power by
reason of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted
Subsidiary, all of the outstanding voting securities (other than directors'
qualifying shares or shares of foreign Restricted Subsidiaries required to be
owned by foreign nationals pursuant to applicable law) of which are owned,
directly or indirectly, by the Company.
SECTION 102. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following Trust Indenture Act terms used in this Indenture
have the following meanings:
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19
"indenture securities" means the Notes;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other Trust Indenture Act terms used in this Indenture that are
defined by the Trust Indenture Act, defined by reference in the Trust
Indenture Act to another statute or defined by a rule of the Commission and
not otherwise defined herein shall have the meanings assigned to them therein.
SECTION 103. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company and the Subsidiary
Guarantors to the Trustee to take any action under any provision of this
Indenture, the Company and the Subsidiary Guarantors shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that in the case of any such application or request as to which the
furnishing of such documents is specifically required by any provision of
this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an
<PAGE>
20
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
The Company shall furnish to the Trustee from time to time an
Officers' Certificate listing all Significant Subsidiaries of the Company.
The Trustee may conclusively rely upon such Officers' Certificate until
another is provided.
SECTION 104. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company and/or the
Subsidiary Guarantors may be based, insofar as it relates to legal matters,
upon a certificate or opinion of, or representations by, counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the matters upon
which his certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect
to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 105. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in Person or by agents
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company.
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21
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or
of a writing appointing any such agent shall be sufficient for any purpose of
this Indenture and conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner that the Trustee deems
sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Register.
(d) If the Company or any Subsidiary Guarantor shall solicit from
the Holders of Notes any request, demand, authorization, direction, notice,
consent, waiver or other Act, the Company or any such Subsidiary Guarantor
(as the case may be) may, at its option, by or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company or any such Subsidiary
Guarantor (as the case may be) shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such
solicitation is completed. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and
for that purpose the Outstanding Notes shall be computed as of such record
date; PROVIDED that no such authorization, agreement or consent by the
Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder
of the same Note and
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22
the Holder of every Note issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof in respect of anything done, omitted
or suffered to be done by the Trustee or the Company and/or the Subsidiary
Guarantors in reliance thereon, whether or not notation of such action is
made upon such Note.
SECTION 106. NOTICES, ETC., TO TRUSTEE, COMPANY AND SUBSIDIARY
GUARANTORS.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder, the Company or any Subsidiary
Guarantor shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
Office, Attention: Corporate Trust, or
(b) the Company by the Trustee, any Holder or any Subsidiary
Guarantor shall be sufficient for every purpose hereunder (unless otherwise
herein expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at 2250 South Tenth Street, San Jose,
California 95112, or at any other address previously furnished in writing to
the Trustee or such Subsidiary Guarantor (as the case may be) by the Company.
SECTION 107. NOTICE TO HOLDERS; WAIVER.
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders.
Any notice mailed to a Holder in the manner herein prescribed shall be
conclusively deemed to have been received by such Holder, whether or not such
Holder actually receives such notice. Where this Indenture provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
<PAGE>
23
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to
mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company and
the Subsidiary Guarantors shall bind their respective successors and assigns,
whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any Note
Registrar and their successors hereunder and the Holders any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
This Indenture and the Notes shall be governed by, and construed in
accordance with, the law of the State of New York. Upon the issuance of the
Exchange Notes, if any, or the effectiveness of the Shelf Registration
Statement, this Indenture shall be subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
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24
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date,
Purchase Date, date established for payment of Defaulted Interest pursuant to
Section 309, Stated Maturity or Maturity with respect to any Note shall not
be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Notes) payment of principal (or premium, if any) or
interest need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date, Redemption Date, Purchase Date, date established for
payment of Defaulted Interest pursuant to Section 309, Stated Maturity or
Maturity; PROVIDED that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date, Purchase Date, date
established for payment of Defaulted Interest pursuant to Section 309, Stated
Maturity or Maturity, as the case may be, to the next succeeding Business Day.
SECTION 114. NO RECOURSE AGAINST OTHERS.
A director, officer, employee, incorporator or stockholder of the
Company, as such, shall not have any liability for any obligations of the
Company under the Notes, the Indenture or the Note Guarantees or for any
claim based on, in respect of, or by reason of, such obligations of their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
ARTICLE TWO
NOTE FORMS
SECTION 201. FORMS GENERALLY.
The Initial Notes shall be known as the "10% Senior Notes due 2007"
and the Exchange Notes shall be known as the "10% Series B Senior Notes due
2007", in each case, of the Company. The Notes and the Trustee's certificate
of authentication shall be in substantially the form annexed hereto as
Exhibit A. The Notes may have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by the
Indenture and may have letters, notations or other marks of identification
and such notations, legends or endorsements required by law, stock exchange
agreements to which the Company is subject or usage. Any portion of the text
of any Note may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Note. The Company shall approve the
form of the Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.
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25
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as
determined by the officers of the Company executing such Notes, as evidenced
by their execution of such Notes.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part
of this Indenture. To the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Initial Notes offered and sold in reliance on Rule 144A shall be
issued initially in the form of a permanent global Note substantially in the
form set forth in Exhibit A (the "Global Note") deposited with, or on behalf
of, the Depositary or with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Note may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Notes offered and sold to "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) and (7) under the Securities Act) who are not
qualified Institutional Buyers shall initially be issued in the form of
permanent certificated Notes ("Certificated Notes") in registered form in
substantially the form of Exhibit A hereto.
SECTION 202. RESTRICTIVE LEGENDS.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, each certificate representing
a Note shall contain a legend substantially to the following effect (the
"Private Placement Legend") on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES
TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH
IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH
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26
BURKE INDUSTRIES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) (THE "RESALE
RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE NOTE
FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (G)
PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (E),
(F) OR (G) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF
THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRANSFER AGENT, THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
Each Global Note, whether or not an Initial Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE
<PAGE>
27
NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
ARTICLE THREE
THE NOTES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Notes which may be authenticated
and delivered under this Indenture is limited to $110,000,000, except for
Notes authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Notes pursuant to Section 304, 305, 306,
307, 308, 906, 1015, 1016 or 1108, pursuant to an Exchange Offer or pursuant
to Section 312.
The Initial Notes shall be known and designated as the "10% Senior
Notes Due 2007" and the Exchange Notes shall be known and designated as the
"10% Series B Senior Notes Due 2007" of the Company. The Stated Maturity of
the Notes shall be August 15, 2007, and the Notes shall bear interest at the
rate of 10% per annum from August 20, 1997, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, payable
semiannually on February 15 and August 15 in each year, commencing February
15, 1998, until the principal thereof is paid or duly provided for, to the
Person in whose name the Note (or any predecessor Note) is registered at the
close of business on the February 1 or August 1 next preceding such Interest
Payment Date.
The principal of (and premium, if any) and interest on the Notes
shall be payable, and the Notes shall be exchangeable and transferable, at
the office or agency of the
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28
Company in The City of New York maintained for such purposes (which initially
shall be the office of the Trustee located at 114 West 47th St., New York,
N.Y. 10036-1532, Attention: Corporate Trust) or, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as such address shall appear on the Register; PROVIDED that
all payments with respect to the Global Note and the Certificated Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof.
Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under this Indenture.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. DENOMINATIONS.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Notes shall be executed on behalf of the Company by its
Chairman, its President, a Vice President or an Assistant Vice President,
under its corporate seal reproduced thereon and attested by its Secretary or
an Assistant Secretary. The signature of any of these officers on the Notes
may be manual or facsimile signatures of the present or any future such
authorized officer and may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Initial Notes executed by the
Company to the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Initial Notes directing the Trustee
to authenticate the Notes and certifying that all conditions precedent to the
issuance of Notes contained herein have been fully complied with, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Initial Notes. On Company Order, the Trustee shall authenticate for
original issue Exchange Notes in an aggregate principal amount not to exceed
the sum of $110,000,000 plus the aggregate
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29
principal amount of any Additional Notes issued; PROVIDED that such Exchange
Notes shall be issuable only upon the valid surrender for cancellation of
Initial Notes of a like aggregate principal amount in accordance with an
Exchange Offer pursuant to the Registration Rights Agreement. In each case,
the Trustee shall be entitled to receive an Officers' Certificate and an
Opinion of Counsel of the Company that it may reasonably request in
connection with such authentication of Notes. Such order shall specify the
amount of Notes to be authenticated and the date on which the original issue
of Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in
Exhibit A duly executed by the Trustee by manual signature of an authorized
officer, and such certificate upon any Note shall be conclusive evidence, and
the only evidence, that such Note has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey,
transfer, lease or otherwise dispose of its properties and assets
substantially as an entirety to any Person, and the successor Person
resulting from such consolidation, or surviving such merger, or into which
the Company shall have been merged, or the Person which shall have received a
conveyance, transfer, lease or other disposition as aforesaid, shall have
executed an indenture supplemental hereto with the Trustee pursuant to
Article Eight, any of the Notes authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Notes executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of
like tenor as the Notes surrendered for such exchange and of like principal
amount; and the Trustee, upon Company Request of the successor Person, shall
authenticate and deliver Notes as specified in such request for the purpose
of such exchange. If Notes shall at any time be authenticated and delivered
in any new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Notes, such
successor Person, at the option of the Holders but without expense to them,
shall provide for the exchange of all Notes at the time Outstanding for Notes
authenticated and delivered in such new name.
SECTION 304. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized
<PAGE>
30
denomination, substantially of the tenor of the definitive Notes in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Notes may
determine, as conclusively evidenced by their execution of such Notes.
If temporary Notes are issued, the Company will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive
Notes upon surrender of the temporary Notes at the office or agency of the
Company designated for such purpose pursuant to Section 1002, without charge
to the Holder. Upon surrender for cancellation of any one or more temporary
Notes, the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall in
all respects be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any
other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Register shall be
open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Note Registrar") for the purpose of registering
Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes of
any authorized denomination or denominations of a like aggregate principal
amount.
At the option of the Holder, Notes may be exchanged for other Notes
of any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever
any Notes are so surrendered for exchange (including an exchange of Initial
Notes for Exchange Notes), the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive; PROVIDED that no exchange of Initial Notes for Exchange
Notes shall occur until an Exchange Offer Registration Statement shall have
been declared effective by the Commission and that the Initial Notes to be
exchanged for the Exchange Notes shall be cancelled by the Trustee.
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All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment in
certain circumstances of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration
of transfer or exchange of Notes, other than exchanges pursuant to Section
304, 906, 1015, 1016 or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the selection of Notes to be redeemed under Sections
1104, 1015 and 1016 and ending at the close of business on the day of such
mailing of the relevant notice of redemption, or (ii) to register the
transfer of or exchange any Note so selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
SECTION 306. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTE.
(a) The Global Note initially shall (i) be registered in the name
of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder"), (ii) be deposited with, or on behalf of,
the Depositary or with the Trustee, as custodian for such Depositary, and
(iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note
held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Note, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Note for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or shall impair, as
between the Depositary and its Agent Members, the operation of customary
practices governing the exercise of the rights of a holder of any Note.
<PAGE>
32
(b) Transfers of the Global Note shall be limited to transfers of
such Global Note in whole, but not in part, to the Depositary, its successors
or their respective nominees. Interests of beneficial owners in the Global
Note may be transferred in accordance with the rules and procedures of the
Depositary and the provisions of Section 307. Beneficial owners may obtain
Certificated Notes in exchange for their beneficial interests in the Global
Note upon request in accordance with the Depositary's and the Registrar's
procedures. In addition, if (i) the Company notifies the Trustee in writing
that the Depositary is no longer willing or able to act as a depositary and
the Company is unable to locate a qualified successor within 90 days or (ii)
the Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Notes in the form of Certificated Securities under the
Indenture then, upon surrender by the Global Note Holder of its Global Note,
Certificated Notes will be issued to each person that the Global Note Holder
and the Depositary identify as being the beneficial owner of the related
Notes.
(c) In connection with any transfer of a portion of the
beneficial interest in the Global Note to beneficial owners pursuant to
subsection (b) of this Section, the Note Registrar shall reflect on its books
and records the date and a decrease in the principal amount of the Global
Note in an amount equal to the principal amount of the beneficial interest in
the Global Note to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Certificated Notes of
like tenor and amount.
(d) Any Certificated Note delivered in exchange for an interest
in the Global Note pursuant to subsection (c) or subsection (d) of this
Section shall, except as otherwise provided by paragraph (a)(i)(x) of Section
307, bear the applicable legend regarding transfer restrictions applicable to
the Certificated Note set forth in Section 202.
(e) The Holder of the Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 307. SPECIAL TRANSFER PROVISIONS.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, the following provisions shall
apply:
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Note to any institutional "accredited
investor" (as defined in Rule 501(a)(1),
<PAGE>
33
(2), (3) or (7) of Regulation D under the Securities Act) which is not a
QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Initial
Note, whether or not such Initial Note bears the Private Placement
Legend, if (x) the requested transfer is at least two years after the
original issue date of the Initial Notes or (y) the proposed transferee
has delivered to the Registrar a certificate substantially in the form
of Exhibit C hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of the
Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Certificated Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Note to a
QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of Certificated Notes,
the Registrar shall register the transfer if such transfer is being made
by a proposed transferor who has checked the box provided for on the
form of Initial Note, stating, or has otherwise advised the Company and
the Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Initial Note, stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Initial Note for its own account or an account with
respect to which it exercises sole investment discretion and that it, or
the Person on whose behalf it is acting with respect to any such
account, is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and the
Initial Note to be transferred consists of Certificated Notes, upon
receipt by the
<PAGE>
34
Registrar of instructions given in accordance with the Depositary's
and the Registrar's procedures therefor, the Registrar shall reflect
on its books and records the date and an increase in the principal
amount of the Global Note in an amount equal to the principal amount
of the Certificated Notes, as the case may be, to be transferred, and
the Trustee shall cancel the Certificated Note so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the
Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Registrar shall deliver only Notes that
bear the Private Placement Legend unless either (i) the circumstances
contemplated by paragraph (a)(i)(x) of this Section 307 exist or (ii)
there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither
such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the
restrictions on transfer of such Note set forth in this Indenture and in
the Private Placement Legend and agrees that it will transfer such Note
only as provided in this Indenture.
The Registrar shall retain until such time as no Notes remain
Outstanding copies of all letters, notices and other written communications
received pursuant to Section 306 or this Section 307. The Company shall have
the right to inspect and make copies of all such letters, notices or other
written communications at any reasonable time upon the giving of reasonable
written notice to the Registrar.
SECTION 308. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If (i) any mutilated Note is surrendered to the Trustee or the
Registrar, or (ii) the Company and the Trustee receive evidence to their
satisfaction of the destruction, loss or theft of any Note, and there is
delivered to the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of
notice to the Company or the Trustee that such Note has been acquired by a
bona fide purchaser, the Company shall execute, and upon Company Order the
Trustee shall authenticate and deliver, in exchange for any such mutilated
Note or in lieu of any such destroyed, lost or stolen Note, a new Note of
like tenor and principal amount, bearing a number not contemporaneously
outstanding.
<PAGE>
35
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 309. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Note (or one or more Predecessor Notes) is registered at
the close of business on the Regular Record Date for such interest at the
office or agency of the Company in The City of New York maintained for such
purposes (which initially shall be the office of the Trustee located at 114
West 47th St., New York, N.Y. 10036-1532, Attention: Corporate Trust)
pursuant to Section 1002 or, at the option of the Company, interest may be
paid by check mailed to the address of the Person entitled thereto pursuant
to Section 310 as such address appears in the Register; PROVIDED that all
payments with respect to the Global Note and Certificated Notes the holders
of which have given wire transfer instructions to the Trustee (or other
Paying Agent) by the Regular Record Date shall be required to be made by wire
transfer of immediately available funds to the accounts specified by the
holders thereof.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease
to be payable to the Holder on the Regular Record Date by virtue of having
been such Holder, and such defaulted interest and (to the extent lawful)
interest on such defaulted interest at the rate borne by the Notes (such
defaulted interest and interest thereon herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as
provided in clause (a) or (b) below:
<PAGE>
36
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such
Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special
Record Date, and, in the name and at the expense of the Company, shall
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be given in the manner provided for in
Section 107, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to the
following clause (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
If the Company shall be required to pay any additional interest
pursuant to the terms of the Registration Rights Agreement, it shall deliver
an Officer's Certificate to the Trustee setting forth the new interest rate
and the period for which such rate is applicable.
<PAGE>
37
SECTION 310. PERSONS DEEMED OWNERS.
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name such Note is registered as the owner of such
Note for the purpose of receiving payment of principal of (and premium, if
any) and (subject to Sections 305 and 309) interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and none of
the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. CANCELLATION.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Notes
previously authenticated hereunder which the Company has not issued and sold,
and all Notes so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Notes, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are surrendered to the
Trustee for cancellation. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company
unless by Company Order the Company shall direct that cancelled Notes be
returned to it.
SECTION 312. ISSUANCE OF ADDITIONAL NOTES.
The Company may, subject to Article Ten of this Indenture, issue up
to $75,000,000 aggregate principal amount of additional Notes having
identical terms and conditions to the Notes offered hereby (the "Additional
Notes"). Any Additional Notes will be part of the same issue as the Notes
offered hereby and will vote on all matters with the Notes offered hereby.
SECTION 313. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
Upon the request of the Company, the Indenture will cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of the Notes, as expressly provided for herein or pursuant hereto),
the Company and the Subsidiary Guarantors will be discharged from their
obligations under the Notes and the Note Guarantees, and the Trustee, at the
expense of the Company, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture when:
(a) either (i) all the Notes theretofore authenticated and
delivered (other than mutilated, destroyed, lost or stolen Notes that
have been replaced or paid and Notes that have been subject to
defeasance under Article Twelve) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee
for cancellation (A) have become due and payable, (B) will become due
and payable at maturity within one year or (C) are to be called for
redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company, and the Company, in the case
of (A), (B) or (C) above, has irrevocably deposited or caused to be
deposited with the Trustee funds in trust for the purpose in an amount
sufficient to pay and discharge, without the need to reinvest any
proceeds thereof, the entire Indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any, on) and interest on the Notes to the date of such deposit (in
the case of Notes that have become due and payable) or to the Stated
Maturity or redemption date, as the case may be;
(b) the Company has paid or caused to be paid all sums payable
under the Indenture by the Company; and
(c) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided in the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 606 and, if
money shall have been deposited with the Trustee pursuant to subclause
(ii) of clause (a) of this Section, the obligations of the Trustee under
Section 402 and the last paragraph of Section 1003 shall survive.
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39
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in
trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law. All money deposited pursuant to Section 401
remaining after all payments to be made pursuant to this Article Four have
been made shall be returned to the Company or its designee.
ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(1) default in the payment of any interest or Liquidated Damages,
if any, on any Note when it becomes due and payable, and continuance of
such default for a period of 30 days;
(2) default in the payment of the principal of (or premium, if
any, on) any Note when due;
(3) failure to perform or comply with Article Eight and Sections
1010 and 1011 or failure to make a Change of Control Offer or an Excess
Proceeds Offer, in each case, within the time periods specified in the
Indenture;
(4) default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Guarantor contained in the
Indenture or any Note Guarantee (other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with elsewhere herein), and continuance of such default or breach
for a period of 60 days after written notice has been given to the
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Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the Notes then
outstanding;
(5) (i) an event of default has occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing an issue of
Indebtedness of the Company or any Restricted Subsidiary, which issue
has an aggregate outstanding principal amount of not less than
$5,000,000
<PAGE>
41
("Specified Indebtedness"), and such default has resulted in such
Indebtedness becoming, whether by declaration or otherwise, due and
payable prior to the date on which it would otherwise become due and
payable or (ii) a default in any payment when due at final maturity of
any such Specified Indebtedness;
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42
(6) failure by the Company or any of its Restricted Subsidiaries
to pay one or more final judgments the uninsured portion of which
exceeds in the aggregate $5,000,000, which judgment or judgments are not
paid, discharged or stayed for a period of 60 days;
(7) any Note Guarantee ceases to be in full force and effect or
is declared null and void or any such Subsidiary Guarantor denies that
it has any further liability under any Note Guarantee, or gives notice
to such effect (other than by reason of the termination of the Indenture
or the release of any such Note Guarantee in accordance with the
Indenture);
(8) the entry of a decree or order by a court having jurisdiction
in the premises adjudging the Company or any Significant Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustments or composition of or in respect
of the Company or any Significant Subsidiary under the Federal
Bankruptcy Code or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or any Significant Subsidiary or
of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days; or
(9) the institution by the Company or any Significant Subsidiary
of proceedings to be adjudicated a bankrupt or insolvent, or the consent
by it to the institution of bankruptcy or insolvency proceedings against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Code or any other
applicable federal or state law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator,
<PAGE>
43
assignee, trustee, sequestrator (or other similar official) of the
Company or any Significant Subsidiary or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due.
If an Event of Default has occurred and is continuing, the Trustee
shall exercise such rights and powers vested in it under the Indenture and
use the same degree of care and skill in its exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default (other than as specified in clauses (8) and
(9) above) occurs and is continuing, the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding may, and
the Trustee at the request of such holders will, declare the principal of and
accrued interest and Liquidated Damages, if any, on all of the outstanding
Notes immediately due and payable and, upon any such declaration, such
principal and such interest will become due and payable immediately.
If an Event of Default specified in clauses (8) and (9) above occurs
and is continuing, then the principal of and accrued interest and Liquidated
Damages, if any, on all of the outstanding Notes will IPSO FACTO become and
be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of Notes.
At any time after a declaration of acceleration under the Indenture,
but before a judgment or decree for payment of the money due has been
obtained by the Trustee, the holders of a majority in aggregate principal
amount of the outstanding Notes, by written notice to the Company and the
Trustee, may rescind such declaration and its consequences if (i) the Company
has paid or deposited with the Trustee a sum sufficient to pay (A) all
overdue interest on all Notes, (B) all unpaid principal of (and premium, if
any, on) any outstanding Notes that has become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Notes, (C) to the extent that payment of such interest is lawful, interest
upon overdue interest and overdue principal at the rate borne by the Notes
and (D) all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and (ii) all Events of Default, other than the
non-payment of amounts of principal of (or premium, if any, on) or interest
on the Notes that have become due solely by such declaration of acceleration,
have been cured or waived. No such rescission will affect any subsequent
default or impair any right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Notes because of an Event of
Default specified in
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44
Section 501(5) shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or the holders thereof
have rescinded their declaration of acceleration in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, shall have been given to the Trustee by the Company and countersigned
by the holders of such Indebtedness or a trustee, fiduciary or agent for such
holders, within 30 days after such declaration of acceleration in respect of
the Notes, and no other Event of Default has occurred during such 30-day
period which has not been cured or waived during such period.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.
The Company and each of the Subsidiary Guarantors covenant that if
(a) default is made in the payment of any installment of interest
on any Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or
premium, if any, on) any Note at the Maturity thereof,
the Company and each Subsidiary Guarantor will, upon demand of the Trustee,
pay to the Trustee for the benefit of the Holders of such Notes, the whole
amount then due and payable on such Notes for principal (and premium, if any)
and interest, and interest on any overdue principal (and premium, if any)
and, to the extent that payment of such interest shall be legally
enforceable, upon any overdue installment of interest, at the rate borne by
the Notes, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company or any Subsidiary Guarantor, as the case may be,
fails to pay such amounts forthwith upon such demand, the Trustee, in its own
name as trustee of an express trust, may institute a judicial proceeding for
the collection of the sums so due and unpaid, may prosecute such proceeding
to judgment or final decree and may enforce the same against the Company,
such Subsidiary Guarantor or any other obligor upon the Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company, such Subsidiary Guarantor or any other obligor
upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of
the Holders by such
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appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to the Company or any other obligor
upon the Notes (including the Subsidiary Guarantors) or the property of the
Company or of such other obligor or their creditors, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the
payment of overdue principal, premium, if any, or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal
(and premium, if any) and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders
allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders,
to pay the Trustee any amount due it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
and any other amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
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SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or the Notes
may be prosecuted and enforced by the Trustee without the possession of any
of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name and as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal (or
premium, if any) or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal (and premium, if
any) and interest, respectively; and
THIRD: The balance, if any, to the Company, its successors and
assigns or the Person or Persons legally entitled thereto.
SECTION 507. LIMITATION ON SUITS.
No holder of any of the Notes has any right to institute any
proceeding with respect to the Indenture or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount of the outstanding
Notes have made written request, and offered reasonable indemnity, to the
Trustee to institute such proceeding within 60 days after receipt of such
notice and the Trustee, within such 60-day period, has not received
directions inconsistent with such written request by holders of a majority in
aggregate principal amount of the outstanding Notes. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the
enforcement of the payment of the principal of, premium, if any, or interest
on such Note on or after the respective due dates expressed in such Note.
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SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article
Twelve) and in such Note of the principal of (and premium, if any) and
(subject to Section 309) interest on such Note on the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Subsidiary Guarantors, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 308, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default
or an acquiescence therein. Every right and remedy given by this Article or
by law to the Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders, as
the case may be.
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SECTION 512. CONTROL BY HOLDERS.
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, PROVIDED that
(a) such direction shall not be in conflict with any rule of law
or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. WAIVER OF PAST DEFAULTS.
The holders of not less than a majority in aggregate principal
amount of the outstanding Notes may, on behalf of the holders of all of the
Notes, waive any past defaults under the Indenture, except a default in the
payment of the principal of (and premium, if any) or interest on any Note, or
in respect of a covenant or provision that under the Indenture cannot be
modified or amended without the consent of the holder of each Note
outstanding.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right
consequent thereon.
SECTION 514. WAIVER OF STAY OR EXTENSION LAWS.
The Company and each Subsidiary Guarantor covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture;
and the Company and each Subsidiary Guarantor (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
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49
ARTICLE SIX
THE TRUSTEE
SECTION 601. NOTICE OF DEFAULTS.
If a Default or an Event of Default occurs and is continuing and is
known to the Trustee, the Trustee shall mail to each holder of the Notes
notice of the Default or Event of Default within 90 days after the occurrence
thereof. However, except in the case of a Default or an Event of Default in
payment of principal of (and premium, if any, on) or interest on any Notes,
the Trustee may withhold the notice to the holders of the Notes if a
committee of its trust officers in good faith determines that withholding
such notice is in the interests of the holders of the Notes.
SECTION 602. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting, pursuant to the terms of this
Indenture or otherwise, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
with sufficient detail as may be requested by the Trustee and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers Certificate and/or an
Opinion of Counsel;
(d) the Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
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(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities (including fees
and expenses of its agents and counsel) which might be incurred by it in
compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into, and may conclusively rely upon, the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company, personally or by
agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due
care by it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and
(i) except during the continuance of an Event of Default, the
Trustee need perform only those duties as are specifically set forth in
this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or powers if
it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
SECTION 603. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
NOTES.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company and the Subsidiary Guarantors, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations
as to the validity or sufficiency of this Indenture, the Notes or any Note
Guarantee, except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Notes and perform its
obligations hereunder and,
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upon the effectiveness of the Registration Statement, that the statements
made by it in a Statement of Eligibility on Form T-1 supplied to the Company
are true and accurate, subject to the qualifications set forth therein. The
Trustee shall not be accountable for the use or application by the Company of
the Notes or the proceeds thereof.
SECTION 604. MAY HOLD NOTES.
The Trustee, any Paying Agent, any Note Registrar or any other agent
of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Notes and, subject to TIA Sections 310(b)
and 311, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Paying Agent, Note Registrar or such other agent.
SECTION 605. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except
as otherwise agreed with the Company or any Subsidiary Guarantor, as the case
may be.
SECTION 606. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(a) to pay to the Trustee (in its capacity as Trustee, Paying
Agent and Registrar) from time to time such reasonable compensation for
all services rendered by it hereunder as may be separately agreed in
writing (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
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52
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency
or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a
combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of Federal, State, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section,
the combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 608. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 609 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the Holders
of not less than a majority in principal amount of the Outstanding Notes,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six
months, except when the Trustee's duty to resign is stayed in accordance
with the provisions of TIA Section 310(b), or
(2) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove
the Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a
bona fide Holder of a Note for at least six months may, on behalf of himself
and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee for any
cause, the Company, by a Board Resolution, shall promptly appoint a successor
Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders and accepted appointment in the
manner hereinafter provided subject to TIA Section 315(e), any Holder who has
been a bona fide Holder of a Note for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
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54
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 107. Each notice
shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 609. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested
with all the rights, powers, trusts and duties of the retiring Trustee; but,
on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder subject to the retiring Trustee's rights as provided under the last
sentence of Section 606. Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers
and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
SECTION 610. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any further act
on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Notes so authenticated
with the same effect as if such successor Trustee had itself authenticated
such Notes. In case at that time any of the Notes shall not have been
authenticated, any successor Trustee may authenticate such Notes either in
the name of any predecessor hereunder or in the name of the successor
Trustee. In all such cases such certificates shall have the full force and
effect which this Indenture provides that the certificate of authentication
of the Trustee shall have for the certificate of authentication of the
Trustee shall have; PROVIDED, HOWEVER, that the
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right to adopt the certificate of authentication of any predecessor Trustee
or to authenticate Notes in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE, COMPANY
AND SUBSIDIARY GUARANTORS
SECTION 701. DISCLOSURE OF NAMES AND ADDRESSES OF HOLDERS.
Every Holder of Notes, by receiving and holding the same, agrees
with the Company, the Subsidiary Guarantors and the Trustee that none of the
Company, the Subsidiary Guarantors or the Trustee or any agent of either of
them shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under TIA Section 312(b).
SECTION 702. REPORTS BY TRUSTEE.
Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Notes, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company may not, in a single transaction or series of related
transactions, consolidate or merge with or into (other than the consolidation
or merger of a Restricted Subsidiary with another Restricted Subsidiary or
into the Company) (whether or not the Company or such Restricted Subsidiary
is the surviving corporation), or directly and/or indirectly through its
Restricted Subsidiaries, sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets (determined
on a consolidated basis for the Company and its Restricted Subsidiaries taken
as a whole) in one
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56
or more related transactions to, another corporation, person or entity or
permit any of its Restricted Subsidiaries to enter into any such transaction
or series of transactions if such transaction or series of transactions, in
the aggregate, would result in the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the properties
or assets of the Company and its Restricted Subsidiaries (determined on a
consolidated basis for the Company and its Restricted Subsidiaries taken as a
whole) unless:
(a) either (i) the Company, in the case of a transaction involving
the Company, or such Restricted Subsidiary, in the case of a transaction
involving a Restricted Subsidiary, is the surviving corporation or (ii)
in the case of a transaction involving the Company, the entity or the
person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (the "Surviving
Entity") is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia and assumes
all the obligations of the Company under the Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee;
(b) immediately after giving effect to such transaction and treating
any obligation of the Company or a Restricted Subsidiary in connection
with or as a result of such transaction as having been incurred as of
the time of such transaction, no Default or Event of Default has
occurred and is continuing;
(c) the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of Section 1010;
(d) if the Company is not the continuing obligor under the
Indenture, each Subsidiary Guarantor, unless it is the other party to
the transaction described above, has by supplemental indenture confirmed
that its Note Guarantee applies to the Surviving Entity's obligations
under the Indenture and the Notes;
(e) if any of the property or assets of the Company or any of its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of Section 1014 are complied with;
(f) immediately after giving effect to such transaction on a pro
forma basis, the Consolidated Net Worth of the Company (or of the
Surviving Entity if the Company is not the continuing obligor under the
Indenture) is equal to or greater than
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the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(g) the Company delivers, or causes to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an
officers' certificate and an opinion of counsel, each stating that such
transaction complies with the requirements of this Indenture.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all
or substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all
of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 802. SUCCESSOR SUBSTITUTED.
In the event of any transaction described in and complying with the
conditions listed in Section 801 in which the Company is not the continuing
obligor under the Indenture, the Surviving Entity will succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture, and thereafter the Company will, except in the case of a
lease, be discharged from all its obligations and covenants under the
Indenture and Notes.
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE AND NOTE GUARANTEES
SECTION 901. WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and any affected
Subsidiary Guarantor, each when authorized by a Board Resolution, and the
Trustee may amend or supplement this Indenture, the Notes or any Note
Guarantee without the consent of any Holder of a Note:
(a) to evidence the succession of another person to the Company or
any Subsidiary Guarantor and the assumption by any such successor of the
covenants of the Company or any Subsidiary Guarantor in the Indenture
and in the Notes; or
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(b) to add to the covenants of the Company or any Subsidiary
Guarantor for the benefit of the Holders or to surrender any right or
power herein conferred upon the Company; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Notes in addition to or in place
of the certificated Notes; or
(e) to evidence and provide for the acceptance of appointment under
the Indenture by a successor Trustee; or
(f) to secure the Notes or any Note Guarantee; or
(g) to cure any ambiguity, to correct or supplement any provision
in the Indenture that may be defective or inconsistent with any other
provision in the Indenture, or to make any other provisions with respect
to matters or questions arising under the Indenture, PROVIDED that such
actions pursuant to this clause do not adversely affect the interests of
the holders in any material respect; or
(h) to comply with any requirements of the Commission in order to
effect and maintain the qualification of the Indenture under the Trust
Indenture Act; or
(i) to release any Subsidiary Guarantor from its Note Guarantee in
accordance with the provisions of the Indenture (including in connection
with a sale of all of the Capital Stock of such Subsidiary Guarantor).
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, Note
or Note Guarantee, and upon receipt by the Trustee of the documents described
in Section 602(b) hereof, the Trustee shall join with the Company or the
affected Subsidiary Guarantor in the execution of any amended or supplemental
Indenture or Note Guarantee authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations
that may be therein contained, but the Trustee shall not be obligated to
enter into such amended or supplemental Indenture or Note Guarantee that
adversely affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 902. WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
aggregate Outstanding principal amount of the Notes, by Act of said Holders
delivered to the Company, any affected Subsidiary Guarantor and the Trustee,
the Company and the
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59
Subsidiary Guarantor, each when authorized by a Board Resolution, and the
Trustee may amend or supplement in any manner this Indenture or any Note
Guarantee or modify in any manner the rights of the Holders under this
Indenture or any Note Guarantee; PROVIDED, HOWEVER, that no such supplement,
amendment or modification may, without the consent of the Holder of each
Outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Note or
any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the
redemption date);
(b) reduce the percentage in principal amount of outstanding Notes,
the consent of whose holders is required for any waiver of compliance
with certain provisions of, or certain defaults and their consequences
provided for under, the Indenture;
(c) waive a default in the payment of principal of, or premium, if
any, or interest on the Notes; or
(d) release any Subsidiary Guarantor that is a Significant
Subsidiary from any of its obligations under its Note Guarantee or the
Indenture other than in accordance with the terms of the Indenture.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
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60
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Notes theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
SECTION 905. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Notes so modified as to conform, in the opinion of the Trustee
and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 907. NOTICE OF SUPPLEMENTAL INDENTURES.
Promptly after the execution by the Company, any affected Subsidiary
Guarantor and the Trustee of any supplemental indenture or Note Guarantee
pursuant to the provisions of Section 902, the Company shall give notice
thereof to the Holders of each Outstanding Note affected, in the manner
provided for in Section 107, setting forth in general terms the substance of
such supplemental indenture or Note Guarantee. Any failed attempt to effect
such notice, or any defect therein shall not, however, in any way impair or
affect the validity of any such amended or supplemental indenture or Note
Guarantee; PROVIDED that the Company has acted reasonably and in good faith.
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61
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST.
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in The City of New York, an office or
agency where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Corporate Trust Office located at 114 West 47th St., New
York, NY 10036-1532 of the Trustee shall be such office or agency of the
Company, unless the Company shall designate and maintain some other office or
agency for one or more of such purposes. The Company will give prompt
written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes
may be presented or surrendered for any or all such purposes and may from
time to time rescind any such designation; PROVIDED, HOWEVER, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such
other office or agency.
SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall
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62
be paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of (or premium,
if any) or interest on any Notes, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal (and
premium, if any) or interest; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay,
or by Company Order direct any Paying Agent to pay, to the Trustee all sums
held in trust by the Company or such Paying Agent, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by
the Company or such Paying Agent; and, upon such payment by any Paying Agent
to the Trustee, such Paying Agent shall be released from all further
liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Note and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due
and payable shall be paid to the Company on Company Request, or (if then held
by the Company) shall be discharged from such trust; and the Holder of such
Note shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such
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trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
shall not be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole and that the loss thereof is not disadvantageous in
any material respect to the Holders.
SECTION 1005. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (b) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a lien upon the property of
the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
shall not be required to pay or discharge or cause to be paid or discharged
any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings.
SECTION 1006. MAINTENANCE OF PROPERTIES.
The Company will cause all properties owned by the Company or any
Restricted Subsidiary or used or held for use in the conduct of its business
or the business of any Restricted Subsidiary to be maintained and kept in
good condition, repair and working order (ordinary wear and tear excepted)
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all to the extent in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company
from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable
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in the conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. INSURANCE.
The Company will at all times keep all of its and its Restricted
Subsidiaries' material properties which are of an insurable nature insured
with insurers, believed by the Company to be responsible, against loss or
damage to the extent that property of similar character is usually so insured
by corporations similarly situated and owning like properties.
SECTION 1008. STATEMENT BY OFFICERS AS TO DEFAULT.
(a) The Company and each Subsidiary Guarantor will deliver to the
Trustee, within 120 days after the end of each fiscal year, a brief
certificate from the principal executive officer, principal financial officer
or principal accounting officer as to his or her knowledge of compliance by
the Company and such Subsidiary Guarantor with all conditions and covenants
under this Indenture. For purposes of this Section 1008(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $2,000,000), the Company
shall deliver to the Trustee by registered or certified mail or by telegram,
telex or facsimile transmission an officers certificate specifying such
event, notice or other action within five Business Days of its occurrence.
SECTION 1009. [INTENTIONALLY OMITTED]
SECTION 1010. LIMITATION ON INDEBTEDNESS OF ISSUANCE OF DISQUALIFIED
STOCK
The Company shall not, and shall not permit any Restricted
Subsidiary to, create, issue, assume, guarantee or in any manner become
directly or indirectly liable for the payment of, or otherwise incur
(collectively, "incur"), any Indebtedness (including Acquired Indebtedness
and the issuance of Disqualified Stock), except that the Company or any
Subsidiary Guarantor may incur Indebtedness if, at the time of such event,
the Fixed Charge Coverage Ratio for the immediately preceding four full
fiscal quarters for which internal financial statements are available, taken
as one accounting period, would have been equal to at least 2.00 to 1.0.
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65
In making the foregoing calculation for any four-quarter period that
includes the Closing Date, pro forma effect shall be given to the Offering
and the Recapitalization, as if such transactions had occurred at the
beginning of such four-quarter period. In addition (but without
duplication), in making the foregoing calculation, pro forma effect shall be
given to: (i) the incurrence of such Indebtedness and (if applicable) the
application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred and the application of
such proceeds occurred at the beginning of such four-quarter period, (ii) the
incurrence, repayment or retirement of any other Indebtedness by the Company
or its Restricted Subsidiaries since the first day of such four-quarter
period as if such Indebtedness was incurred, repaid or retired at the
beginning of such four-quarter period and (iii) the acquisition (whether by
purchase, merger or otherwise) or disposition (whether by sale, merger or
otherwise) of any company, entity or business acquired or disposed of by the
Company or its Restricted Subsidiaries, as the case may be, since the first
day of such four-quarter period, in each case as if such acquisition or
disposition (and the reduction or increase of any associated Fixed Charge
obligations and the change in Consolidated EBITDA resulting therefrom) had
occurred at the beginning of such four-quarter period. If since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any
acquisition (whether by purchase, merger or otherwise) or disposition that
would have required adjustment pursuant to this definition, then the Fixed
Charge Coverage Ratio shall be calculated giving PRO FORMA effect thereto as
if such acquisition or disposition had occurred at the beginning of the
applicable four-quarter period. In making a computation under the foregoing
clause (i) or (ii), (A) the amount of Indebtedness under a revolving credit
facility shall be computed based on the average daily balance of such
Indebtedness during such four-quarter period, (B) if such Indebtedness bears,
at the option of the Company, a fixed or floating rate of interest, interest
thereon shall be computed by applying, at the option of the Company, either
the fixed or floating rate and (C) the amount of any Indebtedness that bears
interest at a floating rate will be calculated as if the rate in effect on
the date of determination had been the applicable rate for the entire period
(taking into account any Hedging Obligations applicable to such Indebtedness
if such Hedging Obligations have a remaining term at the date of
determination in excess of 12 months). For purposes of this definition,
whenever PRO FORMA effect is to be given to a transaction, the PRO FORMA
calculations shall be made in good faith by the chief financial officer of
the Company.
Notwithstanding the foregoing, the Company may, and may permit its
Restricted Subsidiaries to, incur the following Indebtedness ("Permitted
Indebtedness"):
(i) Indebtedness of the Company or any Restricted Subsidiary under
the Bank Credit Agreement or one or more other credit facilities (and
the incurrence by any Restricted Subsidiary of guarantees thereof) in an
aggregate principal amount at any one time outstanding not to exceed the
greater of (x) $15 million or (y) the
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amount of the Borrowing Base, less any amounts applied to the permanent
reduction of such credit facilities pursuant to Section 1016;
(ii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Closing Date and listed on a schedule to the
Indenture (other than Indebtedness described under clause (i) above);
(iii) Indebtedness owed by the Company to any Wholly Owned
Restricted Subsidiary or owed by any Restricted Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary (provided that such
Indebtedness is held by the Company or such Restricted Subsidiary);
PROVIDED, HOWEVER, that any Indebtedness of the Company owing to any
such Restricted Subsidiary is unsecured and subordinated in right of
payment from and after such time as the Notes shall become due and
payable (whether at Stated Maturity, acceleration, or otherwise) to the
payment and performance of the Company's obligations under the Notes;
(iv) Indebtedness represented by the Notes (other than the
Additional Notes) and the Note Guarantees (including any Note Guarantees
issued pursuant to Section 1021);
(v) Indebtedness of the Company or any Restricted Subsidiary under
Hedging Obligations incurred in the ordinary course of business;
(vi) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of
purchase price adjustments in connection with the acquisition or
disposition of assets, including, without limitation, shares of Capital
Stock;
(vii) either (A) Capitalized Lease Obligations of the Company or any
Restricted Subsidiary or (B) Indebtedness under purchase money mortgages
or secured by purchase money security interests, in each case incurred
for the purpose of financing or refinancing all or any part of the
purchase price or cost of construction or improvement of any property
(real or personal) or other assets that are used or useful in the
business of the Company or such Restricted Subsidiary (whether through
the direct purchase of assets or the Capital Stock of any Person owning
such assets and whether such Indebtedness is owed to the seller or
Person carrying out such construction or improvement or to any third
party), so long as (x) such Indebtedness is not secured by any property
or assets of the Company or any Restricted Subsidiary other than the
property and assets so acquired, constructed or improved and (y) such
Indebtedness is created within 90 days of the acquisition or completion
of construction or improvement of the related property; provided that
the aggregate amount of
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Indebtedness under clauses (A) and (B) does not exceed $7,500,000
million at any one time outstanding;
(viii) Indebtedness of the Company or any Restricted Subsidiary not
permitted by any other clause of this definition, in an aggregate
principal amount not to exceed $10 million at any one time outstanding;
(ix) Indebtedness under (or constituting reimbursement obligations
with respect) to letters of credit issued in the ordinary course of
business, including without limitation letters of credit in respect of
workers' compensation claims or self-insurance, or other Indebtedness
with respect to reimbursement type obligations regarding workers'
compensation claims; PROVIDED, HOWEVER, that upon the drawing of such
letters of credit or other obligations, such obligations are reimbursed
within five days following such drawing; and
(x) any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Indebtedness, other than Indebtedness incurred pursuant to
clause (i), (iii), (v), (vi), (vii), (viii) or (ix) of this definition,
including any successive refinancings thereof, so long as (A) any such
new Indebtedness is in a principal amount that does not exceed the
principal amount so refinanced, plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms of
the Indebtedness refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing,
plus the amount of the expenses of the Company incurred in connection
with such refinancing, (B) in the case of any refinancing of
Subordinated Indebtedness, such new Indebtedness is made subordinate to
the Notes at least to the same extent as the Indebtedness being
refinanced and (C) such refinancing Indebtedness does not have an
Average Life less than the Average Life of the Indebtedness being
refinanced and does not have a final scheduled maturity earlier than the
final scheduled maturity, or permit redemption at the option of the
holder earlier than the earliest date of redemption at the option of the
holder, of the Indebtedness being refinanced.
SECTION 1011. LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, take any of the following actions:
(a) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Capital Stock (including, without limitation any payment
in connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the
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Company's or any of its Restricted Subsidiaries' Capital Stock in their
capacity as such, other than (i) dividends, payments or distributions
payable solely in Qualified Equity Interests, (ii) dividends, payments
or distributions by a Restricted Subsidiary payments payable to the
Company or another Restricted Subsidiary or (iii) pro rata dividends,
payments or distributions on common stock of Restricted Subsidiaries
held by minority stockholders, provided that such dividends, payments or
distributions do not in the aggregate exceed the minority stockholders'
pro rata share of such Restricted Subsidiaries' net income from the
first day of the Company's fiscal quarter during which the Closing Date
occurs;
(b) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of Capital Stock, or any options,
warrants or other rights to acquire such shares of Capital Stock of (i)
the Company or (ii) any Restricted Subsidiary held by any Affiliate of
the Company (other than, in either case, any such Capital Stock owned by
the Company or any of its Restricted Subsidiaries);
(c) make any principal payment on, or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated
Indebtedness; and
(d) make any Investment (other than a Permitted Investment) in any
person (such payments or other actions described in (but not excluded from)
clauses (a) through (d) being referred to as "Restricted Payments"), unless
at the time of, and immediately after giving effect to, the proposed
Restricted Payment:
(i) no Default or Event of Default has occurred and is continuing,
(ii) the Company could incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of Section 1010 and
(iii) the aggregate amount of all Restricted Payments made after the
Closing Date does not exceed the sum of:
(A) 50% of the aggregate Consolidated Adjusted Net Income of
the Company during the period (taken as one accounting period) from the
first day of the Company's first fiscal quarter commencing after the
Closing Date to the last day of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such proposed Restricted Payment (or, if such aggregate
cumulative Consolidated Adjusted Net Income is a loss, minus 100% of
such amount), plus
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(B) 100% of the aggregate net cash proceeds received by the
Company after the Closing Date from (x) the issuance or sale (other than
to a Restricted Subsidiary) of either (1) Qualified Equity Interests of
the Company or (2) Indebtedness (other than the Series A Preferred
Stock and any refinancings thereof) or Disqualified Stock that has been
converted into or exchanged for Qualified Equity Interests of the
Company, together with the aggregate net cash proceeds received by the
Company at the time of such conversion or exchange or (y) cash capital
contributions received by the Company after the Closing Date with
respect to Qualified Equity Interests, plus
(C) $3 million.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may take the following actions, so long as (other than with
respect to the action described in clause (a) below) no Default or Event of
Default has occurred and is continuing or would occur:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not
have been prohibited by the foregoing provisions;
(b) the repurchase, redemption or other acquisition or retirement
for value of any shares of Capital Stock of the Company, in exchange
for, or out of the net cash proceeds of a substantially concurrent
issuance and sale (other than to a Subsidiary) of, Qualified Equity
Interests of the Company;
(c) the purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness in exchange for,
or out of the net cash proceeds of a substantially concurrent issuance
and sale (other than to a Subsidiary) of, shares of Qualified Equity
Interests of the Company;
(d) the purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance or
sale (other than to a Restricted Subsidiary) of, Subordinated
Indebtedness, so long as the Company or a Restricted Subsidiary would be
permitted to refinance such original Subordinated Indebtedness with such
new Subordinated Indebtedness pursuant to clause (x) of the definition
of Permitted Indebtedness;
(e) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company, options
or warrants to acquire
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any such shares or related stock appreciation rights held by officers,
directors or employees of the Company or its Subsidiaries or former
officers, directors or employees (or their respective estates or
beneficiaries under their estates) of the Company or its Subsidiaries or
by any plan for their benefit, in each case, upon death, disability,
retirement or termination of employment or pursuant to the terms of any
benefit plan or any other agreement under which such shares of stock or
options, warrants or rights were issued; provided that the aggregate
cash consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock or
options, warrants or rights after the Closing Date does not exceed in
any fiscal year the sum of (i) $500,000, (ii) the cash proceeds received
by the Company after the Closing Date from the sale of Qualified Equity
Interests to employees, directors or officers of the Company and its
Subsidiaries that occurs in such fiscal year and (iii) amounts referred
to in clauses (i) through (ii) that remain unused from the immediately
preceding fiscal year; and
(f) (i) the payment of any regular quarterly dividends in respect of
the Series A Preferred Stock in the form of additional shares of Series
A Preferred Stock having the terms and conditions set forth in the
Certificate of Determination for the Series A Preferred Stock as in
effect on the Closing Date; and (ii) commencing October 15, 2000, the
payment of regular quarterly cash dividends (in the amount no greater
than that provided for in the Certificate of Determination for the
Series A Preferred Stock as in effect on the Closing Date), out of funds
legally available therefor, on any of the shares of Series A Preferred
Stock issued and outstanding on the Closing Date and on any shares of
Series A Preferred Stock issued in payment of dividends made or
subsequently issued in payment of dividends thereon in respect of such
shares of Series A Preferred Stock outstanding on the Closing Date,
PROVIDED that, at the time of and immediately after giving effect to the
payment of such cash dividend, the Fixed Charge Coverage Ratio, giving
pro forma effect to the payment of such dividend as if it had occurred
at the beginning of the four full fiscal quarters immediately preceding
the date on which the dividend is to be paid, would have been equal to
at least 2.25 to 1.0.
The actions described in clauses (b), (c), (e) and (f)(ii) of this paragraph
shall be Restricted Payments that will be permitted to be taken in accordance
with this paragraph but will be considered Restricted Payments for purposes
of clause (iii) of the first paragraph of this Section 1011 and the actions
described in clauses (a), (d) and (f)(i) of this paragraph shall be
Restricted Payments that shall be permitted to be taken in accordance with
this paragraph but will not be considered Restricted Payments for purposes of
clause (iii) of the first paragraph of this Section 1011.
For the purpose of making any calculations under the Indenture (i)
if a Restricted Subsidiary is designated an Unrestricted Subsidiary, the
Company shall be deemed
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to have made an Investment in an amount equal to the fair market value of the
net assets of such Restricted Subsidiary at the time of such designation as
determined by the Board of Directors of the Company, whose good faith
determination shall be conclusive, (ii) any property transferred to or from
an Unrestricted Subsidiary shall be valued at fair market value at the time
of such transfer, as determined by the Board of Directors of the Company,
whose good faith determination shall be conclusive and (iii) subject to the
foregoing, the amount of any Restricted Payment, if other than cash, shall be
determined by the Board of Directors of the Company, whose good faith
determination shall be conclusive.
If the aggregate amount of all Restricted Payments calculated under
the foregoing provision includes an Investment (other than a Permitted
Investment) in an Unrestricted Subsidiary or other person that thereafter
becomes a Restricted Subsidiary, the aggregate amount of all Restricted
Payments calculated under the foregoing provision shall be reduced by the
lesser of (x) the net asset value of such Subsidiary at the time it becomes a
Restricted Subsidiary and (y) the initial amount of such Restricted Payment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under the foregoing
provision shall be reduced by the amount of any net reduction in such
Investment (resulting from the payment of interest or dividends, loan
repayment, transfer of assets or otherwise), to the extent such net reduction
is not included in the Company's Consolidated Adjusted Net Income; provided
that the total amount by which the aggregate amount of all Restricted
Payments may be reduced may not exceed the lesser of (x) the cash proceeds
received by the Company and its Restricted Subsidiaries in connection with
such net reduction and (y) the initial amount of such Restricted Payment.
In computing the Consolidated Adjusted Net Income of the Company for
purposes of the foregoing clause (iii)(A), (i) the Company may use audited
financial statements for the portions of the relevant period for which
audited financial statements are available on the date of determination and
unaudited financial statements and other current financial data based on the
books and records of the Company for the remaining portion of such period and
(ii) the Company shall be permitted to rely in good faith on the financial
statements and other financial data derived from its books and records that
are available on the date of determination. If the Company makes a
Restricted Payment that, at the time of the making of such Restricted
Payment, would in the good faith determination of the Company be permitted
under the requirements of the Indenture, such Restricted Payment shall be
deemed to have been made in compliance with the Indenture notwithstanding any
subsequent adjustments made in good faith to the Company's financial
statements affecting Consolidated Adjusted Net Income of the Company for any
period.
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SECTION 1012. LIMITATION ON ISSUANCES AND SALES OF PREFERRED STOCK OF
RESTRICTED SUBSIDIARIES.
The Company shall not permit any Restricted Subsidiary to issue any
Preferred Stock.
SECTION 1013. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, enter into or suffer to exist any
transaction with, or for the benefit of, any Affiliate of the Company or any
beneficial owner of 10% or more of any class of the Capital Stock of the
Company at any time outstanding ("Interested Persons"), unless (a) such
transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could have been
obtained in an arm's length transaction with third parties who are not
Interested Persons and (b) the Company delivers to the Trustee (i) with
respect to any transaction or series of related transactions entered into
after the Closing Date involving aggregate payments in excess of $1.0
million, a resolution of the Board of Directors of the Company set forth in
an officers' certificate certifying that such transaction or transactions
complies with clause (a) above and that such transaction or transactions have
been approved by the Board of Directors (including a majority of the
Disinterested Directors) of the Company and (ii) with respect to a
transaction or series of related transactions involving aggregate payments
equal to or greater than $5 million, a written opinion as to the fairness to
the Company or such Restricted Subsidiary of such transaction or series of
transactions from a financial point of view issued by an independent
investment banking, accounting or valuation firm of national standing.
The foregoing covenant shall not restrict
(A) transactions among the Company and/or its Restricted
Subsidiaries;
(B) transactions (including Permitted Investments) permitted by
Section 1011;
(C) employment agreements on customary terms and the payment of
regular and customary compensation to employees, officers or directors
in the ordinary course of business;
(D) the payment to the Principals or their Related Parties and
Affiliates, of annual management and advisory fees and related expenses,
PROVIDED that the amount of any such fees and expenses shall not exceed
$500,000 per fiscal year, PROVIDED FURTHER that any such fees shall only
commence accruing on October 1, 1998 and shall be payable in arrears on
a quarterly basis commencing on January 1, 1999;
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(E) loans or advances to officers or employees of the Company or any
of its Restricted Subsidiaries in the ordinary course of business not to
exceed $250,000 in the aggregate at any one time outstanding;
(F) the payment of all fees and expenses related to the
Recapitalization; and
(G) any agreement to which the Company or any Restricted Subsidiary
is a party as in effect as of the date of the Indenture as set forth in
Schedule A hereto or any amendment thereto (as long as any such
amendment is not disadvantageous to the Holders in any material respect)
or any transaction contemplated thereby.
SECTION 1014. LIMITATION ON LIENS.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind on or with respect to any of its property or
assets, including any shares of stock or debt of any Restricted Subsidiary,
whether owned at the Closing Date or thereafter acquired, or any income,
profits or proceeds therefrom, or assign or otherwise convey any right to
receive income thereon, unless (a) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (b) in the
case of any other Lien, the Notes are equally and ratably secured with the
obligation or liability secured by such Lien.
Notwithstanding the foregoing, the Company may, and may permit any
Subsidiary to, incur the following Liens ("Permitted Liens"):
(i) Liens (other than Liens securing Indebtedness under the Bank
Credit Agreement) existing as of the Closing Date;
(ii) Liens on property or assets of the Company or any Restricted
Subsidiary securing Indebtedness under the Bank Credit Agreement or one
or more other credit facilities in a principal amount not to exceed the
principal amount of the outstanding Indebtedness permitted by clause (i)
of the definition of "Permitted Indebtedness";
(iii) Liens on any property or assets of a Restricted Subsidiary
granted in favor of the Company or any Wholly Owned Restricted
Subsidiary;
(iv) Liens securing the Notes or any Note Guarantee;
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(v) any interest or title of a lessor under any Capitalized Lease
Obligation or Sale and Leaseback Transaction that was not entered into
in violation of Section 1010;
(vi) Liens securing Acquired Indebtedness created prior to (and not
in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary; provided that
such Lien does not extend to any property or assets of the Company or
any Restricted Subsidiary other than the property and assets acquired in
connection with the incurrence of such Acquired Indebtedness;
(vii) Liens securing Hedging Obligations permitted to be incurred
pursuant to clause (v) of the definition of "Permitted Indebtedness";
(viii) Liens securing Indebtedness permitted to be incurred under
paragraph (vii) of the definition of "Permitted Indebtedness" in Section
1010;
(ix) statutory Liens or landlords', carriers', warehouseman's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate
proceedings and, if required by GAAP, a reserve or other appropriate
provision has been made therefor;
(x) Liens for taxes, assessments, government charges or claims that
are not yet delinquent or being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and, if
required by GAAP, a reserve or other appropriate provision has been made
therefor;
(xi) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance bonds and other obligations of a like
nature incurred in the ordinary course of business (other than contracts
for the payment of money);
(xii) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any Restricted Subsidiary incurred in the
ordinary course of business;
(xiii) Liens arising by reason of any judgment, decree or order of
any court, so long as such Lien is adequately bonded and any appropriate
legal proceedings that may have been duly initiated for the review of
such judgment, decree or order have not been finally terminated or the
period within which such proceedings may be initiated has not expired;
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(xiv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof;
(xv) Liens upon specific items of inventory or other goods and
proceeds of the Company or any Restricted Subsidiary securing its
obligations in respect of bankers' acceptances issued or created for the
account of any person to facilitate the purchase, shipment or storage of
such inventory or other goods;
(xvi) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xvii) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $500,000 at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use
thereof in the operation of the businesses of the Company or such
Restricted Subsidiary;
(xviii) leases or subleases to third parties;
(xix) Liens in connection with workers' compensation obligations of
the Company and its Restricted Subsidiaries incurred in the ordinary
course; and
(xx) any extension, renewal or replacement, in whole or in part, of
any Lien described in the foregoing clauses (i) through (xix); provided
that any such extension, renewal or replacement is no more restrictive in
any material respect than the Lien so extended, renewed or replaced and
does not extend to any additional property or assets.
SECTION 1015. PURCHASE OF NOTES UPON A CHANGE OF CONTROL.
(a) If a Change of Control occurs at any time, then, unless
irrevocable notice of redemption for all of the Notes is given within 30 days
after the occurrence of such Change of Control in accordance with the
provisions of Article Eleven, each holder of Notes or Additional Notes shall
have the right to require that the Company purchase such holder's Notes or
Additional Notes, as applicable, in whole or in part in integral multiples of
$1,000, at a purchase price in cash equal to 101% of the principal amount of
such Notes or Additional Notes, plus accrued and unpaid interest, if any, and
Liquidated Damages, if any, to the date of purchase, pursuant to the offer
described below (the "Change of Control Offer").
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(b) Within 30 days following any Change of Control, the Company
shall notify the Trustee thereof and give written notice of such Change of
Control to each holder of Notes or Additional Notes by first-class mail,
postage prepaid, at its address appearing in the security register, stating:
(i) that a Change of Control has occurred, that the Change of
Control Offer is being made pursuant to this Section 1015 and that all
Notes validly tendered will be accepted for payment;
(ii) the purchase price and the purchase date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed or such later date as is necessary to comply
with requirements under the Exchange Act (the "Change of Control Payment
Date");
(iii) that any Note or Additional Note not tendered shall continue
to accrue interest;
(iv) that, unless the Company defaults in the payment of the
purchase price, any Notes or Additional Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(v) certain other procedures that a holder of Notes or Additional
Notes must follow to accept a Change of Control Offer or to withdraw
such acceptance;
(vi) that Holders electing to have any Note purchased pursuant to
the Change of Control Offer will be required to surrender such Note,
together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of such Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the
Business Day immediately preceding the Change of Control Payment Date;
(vii) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the
third Business Day immediately preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting forth
the name of such Holder, the principal amount of Notes delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Notes purchased; and
(viii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes
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surrendered; PROVIDED that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof.
(c) On the Change of Control Payment Date, the Company shall:
(i) accept for payment Notes or portions thereof tendered pursuant
to the Change of Control Offer;
(ii) deposit one day prior to the Change of Control purchase date
with the Paying Agent money sufficient to pay the purchase price of all
Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the
Company.
The Paying Agent shall promptly mail, to the Holders of Notes so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Note or Notes
equal in principal amount to any unpurchased portion of the Notes
surrendered; PROVIDED that each Note purchased and each new Note issued shall
be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control purchase date. For
purposes of this Section 1015, the Trustee shall act as Paying Agent. All
Notes or portions thereof purchased pursuant to this Section 1015 will be
cancelled by the Trustee.
(d) The Company shall comply with the applicable tender offer rules
including Rule-14e under the Exchange Act, and any other applicable
securities laws and regulations in connection with a Change of Control Offer.
To the extent that provisions of any applicable securities laws or
regulations conflict with provisions of this Section 1015, the Company shall
comply with such securities laws and regulations and shall not be deemed to
have breached its obligations under this Section 1015 by virtue thereof.
SECTION 1016. LIMITATION ON CERTAIN ASSET SALES.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the consideration received
by the Company or such Restricted Subsidiary for such Asset Sale is not less
than the fair market value of the assets sold (as determined by the Board of
Directors of the Company, whose good faith determination shall be conclusive)
and (ii) the consideration received by the Company or the relevant Restricted
Subsidiary in respect of such Asset Sale consists of at least 75% cash or
cash equivalents (including, for purposes of this clause (ii), the principal
amount of any
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Indebtedness for money borrowed (as reflected on the Company's consolidated
balance sheet) of the Company or any Restricted Subsidiary that (x) is
assumed by any transferee of any such assets or other property in such Asset
Sale or (y) with respect to the sale or other disposition of all of the
Capital Stock of any Restricted Subsidiary, remains the liability of such
Subsidiary subsequent to such sale or other disposition, but only to the
extent that such assumption, sale or other disposition, as the case may be,
is effected on a basis under which there is no further recourse to the
Company or any of its Restricted Subsidiaries with respect to such
liability).
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may, at its option, within 12 months after such Asset Sale,
(i) apply all or a portion of the Net Cash Proceeds to the reduction of
amounts outstanding under the Bank Credit Agreement or to the permanent
repayment of other senior Indebtedness of the Company or a Restricted
Subsidiary, or (ii) invest (or enter into a legally binding agreement to
invest) all or a portion of such Net Cash Proceeds in the making of capital
expenditures, the acquisition of a controlling interest in a Permitted
Business or acquisition of other long-term assets, in each case, that shall
be used or useful in the Permitted Businesses of the Company or its
Restricted Subsidiaries, as the case may be. Pending the final application
of any such Net Cash Proceeds, the Company may temporarily reduce revolving
credit Indebtedness to the extent not prohibited by the Indenture. If any
such legally binding agreement to invest such Net Cash Proceeds is
terminated, the Company may, within 90 days of such termination or within 12
months of such Asset Sale, whichever is later, invest such Net Cash Proceeds
as provided in clause (i) or (ii) (without regard to the parenthetical
contained in such clause (ii)) above. The amount of such Net Cash Proceeds
not so used as set forth above in this paragraph (b) constitutes "Excess
Proceeds".
(c) When the aggregate amount of Excess Proceeds exceeds $5 million,
the Company shall, within 30 days thereafter, make an offer (an "Excess
Proceeds Offer") to purchase from all holders of Notes and Additional Notes,
on a pro rata basis, the maximum principal amount (expressed as a multiple of
$1,000) of Notes and Additional Notes that may be purchased with the Excess
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued interest, if any, and Liquidated Damages, if any, to
the date such offer to purchase is consummated. To the extent that the
aggregate principal amount of Notes and Additional Notes tendered pursuant to
such offer to purchase is less than the Excess Proceeds, the Company or its
Restricted Subsidiaries may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes and Additional Notes
validly tendered and not withdrawn by holders thereof exceeds the Excess
Proceeds, the Notes and Additional Notes to be purchased shall be selected on
a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset to zero.
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(d) The Company shall commence an Excess Proceeds Offer by mailing a
notice to the Trustee and each Holder as of such record date as the Company
shall establish (and delivering such notice to the Trustee at least five days
prior thereto) stating:
(i) that the Excess Proceeds Offer is being made pursuant to this
Section 1016 and that all Notes validly tendered will be accepted for
payment on a PRO RATA basis;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Excess Proceeds Payment Date");
(iii) that any Note not tendered will continue to accrue interest;
(iv) that, unless the Company defaults in the payment of the Excess
Proceeds Payment, any Note accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest on and after the Excess
Proceeds Payment Date;
(v) that Holders electing to have any Note purchased pursuant to the
Excess Proceeds Offer will be required to surrender such Note, together
with the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business
Day immediately preceding the Excess Proceeds Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of such Holder, the principal amount of Notes delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; PROVIDED that each Note purchased and each new
Note issued shall be in a principal amount of $1,000 or integral
multiples thereof.
At least five days prior to the date notice is mailed to each
Holder, the Company shall furnish the Trustee with an Officers' Certificate
stating the amount of the Excess Proceeds Payment.
(e) On the Excess Proceeds Payment Date, the Company shall:
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(i) accept for payment on a pro rata basis Notes or portions thereof
tendered pursuant to the Excess Proceeds Offer;
(ii) deposit one day prior to the Excess Proceeds Payment Date with
the Paying Agent money sufficient to pay the purchase price of all Notes
or portions thereof so accepted; and
(iii) deliver; or cause to be delivered, to the Trustee, all Notes
or portions thereof so accepted, together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the
Company.
The Paying Agent shall promptly mail to the Holders of Notes so
accepted payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; PROVIDED
that each Note purchased and each new Note issued shall be in a principal
amount of $1,000 or integral multiples thereof.
The Company will publicly announce the results of the Excess
Proceeds Offer as soon as practicable after the Excess Proceeds Payment Date.
For purposes of this Section 1016, the Trustee shall act as the Paying Agent.
All Notes or portions thereof purchased pursuant to this Section 1016
will be cancelled by the Trustee.
(f) The Company shall comply with the applicable tender offer rules
including Rule-14e under the Exchange Act, and any other applicable
securities laws and regulations in connection with an offer made pursuant to
clause (c) above. To the extent that provisions of any applicable securities
laws or regulations conflict with provisions of this Section 1016, the
Company shall comply with such securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 1016 by virtue
thereof.
SECTION 1017. UNRESTRICTED SUBSIDIARIES.
(a) The Board of Directors of the Company may designate any
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary so long as (i) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (ii) no default with respect to any Indebtedness of such
Subsidiary would permit (upon notice, lapse of time or otherwise) any holder
of any other Indebtedness of the Company or any Restricted Subsidiary to
declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity, (iii) any Investment
in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary will not violate the provisions of Section 1011, (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or
oral,
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with such Subsidiary other than those that might be obtained at the time from
persons who are not Affiliates of the Company and (v) neither the Company nor
any Restricted Subsidiary has any obligation to subscribe for additional
shares of Capital Stock or other equity interest in such Subsidiary, or to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results.
(b) The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary; PROVIDED that (i) no
Default or Event of Default has occurred and is continuing following such
designation and (ii) the Company could incur at least $1.00 of additional
Debt (other than Permitted Debt) pursuant to the first paragraph of Section
1010 (treating any Debt of such Unrestricted Subsidiary as the incurrence of
Debt by a Restricted Subsidiary).
SECTION 1018. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock, (b) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (c) make loans or advances to the Company or any other
Restricted Subsidiary or (d) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of:
(i) any agreement in effect on the Closing Date;
(ii) any agreement or other instrument of a person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any person, or the
properties or assets of any person, other than the person, or the
property or assets of the person, so acquired;
(iii) any security or pledge agreements or leases (or similar
agreements) containing customary restrictions on transfers of the assets
encumbered thereby or leased or on the leasehold interest represented
thereby;
(iv) any contracts for the sale of assets, including, without
limitation, any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary, pending the closing of such sale or
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disposition, PROVIDED that any such restriction relates solely to the
assets that are the subject of such agreement;
(v) restrictions on cash or other deposits or net worth imposed by
leases entered into in the ordinary course of business; and
(vi) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments
or obligations referred to in clauses (i) and (ii), PROVIDED that any
encumbrances or restrictions imposed by such amendments, modifications,
restatements, renewals, increases, supplements, refunding, replacements
or refinancings are not materially more restrictive than those contained
in the contract, instrument or obligation prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
SECTION 1019. WAIVER OF CERTAIN COVENANTS.
The Company or any Subsidiary Guarantor may omit in any particular
instance to comply with any term, provision or condition set forth in Article
Eight or Sections 1004 through 1023, inclusive, if before or after the time
for such compliance the Holders of at least a majority in principal amount of
the Outstanding Notes, by Act of such Holders, waive such compliance in such
instance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any
such term, provision or condition shall remain in full force and effect.
SECTION 1020. PAYMENT FOR CONSENT.
Neither the Company nor any of its Restricted Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
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SECTION 1021. LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED
SUBSIDIARIES.
The Company shall not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor, directly or indirectly, to guarantee, assume or in any
other manner become liable for the payment of any Indebtedness of the Company
or any Indebtedness of any other Restricted Subsidiary, unless (a) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture and a Note Guarantee providing for a guarantee of payment of the
Notes by such Restricted Subsidiary and (b) with respect to any guarantee of
Subordinated Indebtedness by a Restricted Subsidiary, any such guarantee is
subordinated to such Restricted Subsidiary's guarantee with respect to the
Notes at least to the same extent as such Subordinated Indebtedness is
subordinated to the Notes.
SECTION 1022. LINE OF BUSINESS.
The Company shall not and shall not cause or permit any of its
Restricted Subsidiaries to engage in any businesses other than the businesses
in which the Company is engaged on the Closing Date and any businesses
reasonably related or complimentary to one or more of its businesses on the
Closing Date (as determined in good faith by the Company's Board of
Directors).
SECTION 1023. REPORTS.
At all times from and after the earlier of (i) the date of the
commencement of an Exchange Offer or the effectiveness of the Shelf
Registration Statement (the "Registration") and (ii) the date 120 days after
the Closing Date, in either case, whether or not the Company is then required
to file reports with the Commission, the Company shall file with the
Commission (to the extent accepted by the Commission) all such annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Sections 13(a) or 15(d) under the
Exchange Act.
The Company shall also (a) supply to the Trustee and each holder of
Notes, or supply to the Trustee for forwarding to each such holder, without
cost to such holder, copies of such reports and other documents within 15
days after the date on which the Company files such reports and documents
with the Commission or the date on which the Company would be required to
file such reports and documents if the Company were so required and (b) if
filing such reports and documents with the Commission is not accepted by the
Commission or is prohibited under the Exchange Act, to supply at the
Company's cost copies of such reports and documents to any prospective holder
of Notes promptly upon written request. In addition, at all times prior to
the earlier of the date of the Registration and the date 120 days after the
Closing Date, the Company will, at its cost, deliver to each holder of the
Notes quarterly and annual reports substantially equivalent to those that
would be
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required by the Exchange Act. Furthermore, at all times prior to the date of
Registration, the Company will supply at the Company's cost copies of such
reports and documents to any prospective holder of Notes promptly upon
written request.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. RIGHT OF REDEMPTION.
(a) The Notes may be redeemed at the option of the Company, as a
whole or from time to time in part, at any time on or after August 15, 2002,
subject to the conditions and at the Redemption Prices specified in the form
of Note, together with accrued interest, if any, to the Redemption Date.
(b) In addition, at any time or from time to time prior to August
15, 2000, the Company may redeem up to 35% of the sum of (i) the initial
aggregate principal amount of the Notes and (ii) the initial aggregate
principal amount of any Additional Notes on one or more occasions with the
net proceeds of one or more Public Equity Offerings at a redemption price
equal to 110% of the principal amount thereof, plus accrued interest, if any,
and Liquidated Damages, if any, to the redemption date (subject to the right
of holders of record on the relevant record date to receive interest due on
an interest payment date); PROVIDED that, immediately after giving effect to
such redemption, at least 65% of the sum of (x) the initial aggregate
principal amount of the Notes and (y) the initial aggregate principal amount
of any Additional Notes remains outstanding; PROVIDED FURTHER that such
redemptions shall occur within 45 days of the date of closing of each Public
Equity Offering.
(c) Upon the occurrence of a Change of Control prior to August
15, 2002, the Notes will be redeemable, in whole or in part, at the option of
the Company, upon not less than 30 nor more than 60 days prior notice to each
holder of Notes to be redeemed, at a redemption price equal to the sum of (i)
the then outstanding principal amount thereof plus (ii) accrued and unpaid
interest thereon, and Liquidated Damages, if any, to the redemption date plus
(iii) the Applicable Premium.
SECTION 1102. APPLICABILITY OF ARTICLE.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
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SECTION 1103. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Company, the Company shall, at least 45 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Notes to be redeemed, and Liquidated Damages, if
any, and shall deliver to the Trustee such documentation and records as shall
enable the Trustee to select the Notes to be redeemed pursuant to Section
1104.
SECTION 1104. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed, the particular Notes
to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Notes not previously
called for redemption, pro rata or by lot or by such other method as the
Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions of the principal of Notes; PROVIDED,
HOWEVER, that no such partial redemption shall reduce the portion of the
principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of
the principal amount of such Note which has been or is to be redeemed.
SECTION 1105. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided for in
Section 107 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
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(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice
which relates to such Note shall state that on and after the Redemption
Date, upon surrender of such Note, the holder will receive, without
charge, a new Note or Notes of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and that interest thereon will cease to accrue
on and after said date,
(6) the place or places where such Notes are to be surrendered
for payment of the Redemption Price and accrued interest, if any, and
(7) the CUSIP number.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. DEPOSIT OF REDEMPTION PRICE.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 1003) an
amount of money sufficient to pay the Redemption Price of, and accrued
interest on, all the Notes which are to be redeemed on that date.
SECTION 1107. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any,
to the Redemption Date), and from and after such date (unless the Company
shall default in the payment of the Redemption Price and accrued interest)
such Notes shall cease to bear interest. Upon surrender of any such Note for
redemption in accordance with said notice, such Note shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to
the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Notes, or one or more
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Predecessor Notes, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
309.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant
to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Note
without service charge, a new Note or Notes, of any authorized denomination
as requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Note so
surrendered.
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. COMPANY OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE.
The Company may, at its option and at any time, with respect to the
Notes, elect to have either Section 1202 or Section 1203 be applied to all
Outstanding Notes upon compliance with the conditions set forth below in this
Article Twelve.
SECTION 1202. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and the Subsidiary Guarantors
shall be deemed to have been discharged from its obligations with respect to
all Outstanding Notes and the Note Guarantees on the date the conditions set
forth in Section 1204 are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company shall be deemed to have paid
and discharged the entire indebtedness represented by the Outstanding Notes
and the Note Guarantees, which shall thereafter be deemed to be "Outstanding"
only for the purposes of Section 1205 and the other Sections of this
Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under such Notes and the Note Guarantees and this
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Indenture insofar as such Notes and Note Guarantees are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of holders of
outstanding Notes to receive payments in respect of the principal of (and
premium, if any, on) and interest and Liquidated Damages, if any, on such
Notes when such payments are due, (B) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes, maintain an office or agency for
payments in respect of the Notes and segregate and hold such payments in
trust, (C) the rights, powers, trusts, duties and immunities of the Trustee
and (D) this Article Twelve. Subject to compliance with this Article Twelve,
the Company may exercise its option under this Section 1202 notwithstanding
the prior exercise of its option under Section 1203 with respect to the Notes.
SECTION 1203. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company and any Subsidiary Guarantor
shall be released from its obligations under any covenant contained in
Section 801 and Section 802 and in Sections 1007 through 1023 with respect to
the Outstanding Notes on and after the date the conditions set forth below
are satisfied (hereinafter, "covenant defeasance"), and the Notes shall
thereafter be deemed not to be "Outstanding" for the purposes of any
direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For
this purpose, such covenant defeasance means that, with respect to the
Outstanding Notes, the Company and any Subsidiary Guarantor may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or
an Event of Default under Sections 501(3) and 501(4), but, except as
specified above, the remainder of this Indenture and such Notes shall be
unaffected thereby.
SECTION 1204. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either
Section 1202 or Section 1203 to the Outstanding Notes:
(1) the Company must irrevocably deposit or cause to be deposited
with the Trustee, as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the holders of the
Notes, money in an amount, or U.S. Government Obligations (as defined in
the Indenture) that through the scheduled payment of principal and
interest and Liquidated Damages, if any, thereon will,
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89
without the need for reinvestment of the proceeds thereof, provide money
in an amount, or a combination thereof, sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay and
discharge the principal of (and premium, if any, on) and interest on the
outstanding Notes at maturity (or upon redemption, if applicable) of
such principal or installment of interest or Liquidated Damages, if any;
(2) no Default or Event of Default has occurred and is continuing
on the date of such deposit or, insofar as an event of bankruptcy under
Sections 501(8) or (9) above is concerned, at any time during the period
ending on the 91st day after the date of such deposit;
(3) such defeasance or covenant defeasance may not result in a
breach or violation of, or constitute a default under, the Indenture
(other than a violation of Section 1010 or 1014 as a result of
incurrence of Indebtedness to finance the deposit referred to in clause
(1) above) or any material agreement or instrument to which the Company
or any Subsidiary Guarantor is a party or by which it is bound;
(4) in the case of defeasance, the Company must deliver to the
Trustee an opinion of counsel stating that the Company has received
from, or there has been published by, the Internal Revenue Service a
ruling, or since the date hereof, there has been a change in applicable
federal income tax law, to the effect, and based thereon such opinion
must confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred; and
(5) the Company must have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with.
SECTION 1205. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1205, the "Trustee") pursuant to Section 1204 in
respect of the Outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture,
to the payment, either directly or through any Paying Agent (including the
Company acting as its own Paying Agent) as the Trustee may determine, to the
Holders of such Notes of all
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sums due and to become due thereon in respect of principal (and premium, if
any) and interest, but such money need not be segregated from other funds
except to the extent required by law.
The Company shall pay and indemnify and hold harmless the Trustee
against any tax, fee or other charge imposed on or assessed against the U.S.
Governmental Obligations deposited pursuant to Section 1204 or the principal
and interest received in respect thereof other than any such tax, fee or
other charge which by law is for the account of the Holders of the
Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would
then be required to be deposited to effect an equivalent Defeasance or
Covenant Defeasance, as applicable, in accordance with this Article.
SECTION 1206. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1205 by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1202 or 1203, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 1205; PROVIDED, HOWEVER, that if the Company makes any payment
of principal of (or premium, if any) or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money
held by the Trustee or Paying Agent.
ARTICLE THIRTEEN
GUARANTEES
SECTION 1301. NOTE GUARANTEES.
Each Subsidiary Guarantor hereby jointly and severally, absolutely,
unconditionally and irrevocably guarantees the Notes and obligations of the
Company hereunder and thereunder, and guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee on behalf of
such Holder, that: (a) the principal
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of (and premium, if any) and interest on the Notes will be paid in full when
due, whether at Stated Maturity, by acceleration, call for redemption or
otherwise (including, without limitation, the amount that would become due
but for the operation of the automatic stay under Section 362(a) of the
Federal Bankruptcy Code to the extent permitted by law), together with
interest on the overdue principal, if any, and interest on any overdue
interest, to the extent lawful, and all other obligations of the Company to
the Holders or the Trustee hereunder or thereunder will be paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in
case of any extension of time of payment or renewal of any Notes or of any
such other obligations, the same will be paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise, subject, however, in the case of
clauses (a) and (b) above, to the limitations set forth in Section 1306
hereof.
Each Subsidiary Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of
a guarantor.
Each Subsidiary Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, filing of claims with a court in the event
of insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company or any other Person, protest, notice and all
demands whatsoever and covenants that the Note Guarantee of such Subsidiary
Guarantor will not be discharged as to any Note except by complete
performance of the obligations contained in such Note and such Note
Guarantee. Each of the Subsidiary Guarantors hereby agrees that, in the
event of a default in payment of principal (or premium, if any) or interest
on such Note, whether at its Stated Maturity, by acceleration, call for
redemption, purchase or otherwise, legal proceedings may be instituted by the
Trustee on behalf of, or by, the Holder of such Note, subject to the terms
and conditions set forth in this Indenture, directly against each of the
Subsidiary Guarantors to enforce such Subsidiary Guarantor's Note Guarantee
without first proceeding against the Company or any other Subsidiary
Guarantor. Each Subsidiary Guarantor agrees that if, after the occurrence
and during the continuance of an Event of Default, the Trustee or any of the
Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Notes, to collect interest on the
Notes, or to enforce or exercise any other right or remedy with respect to
the Notes, such Subsidiary Guarantor will pay to the Trustee for the account
of the Holders, upon demand therefor, the amount that would otherwise have
been due and payable had such rights and remedies been permitted to be
exercised by the Trustee or any of the Holders.
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If any Holder or the Trustee is required by any court or otherwise
to return to the Company or any Subsidiary Guarantor, or any custodian,
trustee, liquidator or other similar official acting in relation to either
the Company or any Subsidiary Guarantor, any amount paid by any of them to
the Trustee or such Holder, the Note Guarantee of each of the Subsidiary
Guarantors, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Subsidiary Guarantor further agrees that, as between
each Subsidiary Guarantor, on the one hand, and the Holders and the Trustee,
on the other hand, (x) the maturity of the obligations guaranteed hereby may
be accelerated as provided in Article Five hereof for the purposes of the
Note Guarantee of such Subsidiary Guarantor, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of
the obligations guaranteed hereby, and (y) in the event of any acceleration
of such obligations as provided in Article Five hereof, such obligations
(whether or not due and payable) shall forthwith become due and payable by
each Subsidiary Guarantor for the purpose of the Note Guarantee of such
Subsidiary Guarantor.
SECTION 1302. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To further evidence the Note Guarantee set forth in Section 1301,
each Subsidiary Guarantor hereby agrees that a notation of such Note
Guarantee, substantially in the form included in Exhibit B of this Indenture,
shall be endorsed on each Note authenticated and delivered by the Trustee.
Such Note Guarantee shall be executed on behalf of each Subsidiary Guarantor
by its Chairman, any Vice Chairman, its President, a Vice President or an
Assistant Vice President and attested by its Secretary or Assistant
Secretary, and shall have been duly authorized by all requisite corporate
action. Such signature may be in facsimile form. The validity and
enforceability of any Note Guarantee shall not be affected by the fact that
it is not affixed to any particular Note.
Each Subsidiary Guarantor hereby agrees that its respective Note
Guarantee set forth in Section 1301 shall remain in full force and effect
notwithstanding any failure to endorse on each note a notation of such Note
Guarantee.
The delivery of any Note by the Note Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Note
Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantors.
SECTION 1303. Severability.
In case any provision of any Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
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SECTION 1304. SENIORITY OF GUARANTEES.
The obligations of each Subsidiary Guarantor to the Holders of Notes
and to the Trustee pursuant to such Subsidiary Guarantor's Note Guarantee and
this Indenture are senior unsecured obligations of such Subsidiary Guarantor
ranking pari passu in right of payment with all existing and future senior
obligations of such Subsidiary Guarantor.
SECTION 1305. LIMITATION OF SUBSIDIARY GUARANTOR'S LIABILITY.
Each Subsidiary Guarantor and by its acceptance hereof each Holder
confirms that it is the intention of all such parties that the guarantee by
each Subsidiary Guarantor pursuant to its Note Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Federal Bankruptcy
Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer
Act or any similar federal or state law or the provisions of its local law
relating to fraudulent transfer or conveyance. To effectuate the foregoing
intention, the Holders and such Subsidiary Guarantor hereby irrevocably agree
that the obligations of such Subsidiary Guarantor under its Note Guarantee
shall be limited to the maximum amount that will not, after giving effect to
all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf
of any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Note Guarantee or pursuant to Section 1305
hereof, result in the obligations of such Subsidiary Guarantor under its Note
Guarantee constituting such fraudulent transfer or conveyance.
SECTION 1306. CONTRIBUTION.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, INTER SE, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Subsidiary Guarantor") under a Guarantee, such Funding Subsidiary
Guarantor shall be entitled to a contribution from all other Subsidiary
Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor (including the Funding Subsidiary Guarantor) for all
payments, damages and expenses incurred by that Funding Subsidiary Guarantor
in discharging the Company's obligations with respect to the Notes or any
other Subsidiary Guarantor's obligations with respect to the Guarantee of
such Subsidiary Guarantor. "Adjusted Net Assets" of such Subsidiary
Guarantor at any date shall mean the lesser of (x) the amount by which the
fair value of the property of such Subsidiary Guarantor exceeds the total
amount of liabilities, including, without limitation, contingent liabilities
(after giving effect to all other fixed and contingent liabilities incurred
or assumed on such date), but excluding liabilities under the Guarantee of
such Subsidiary Guarantor at such date and (y) the amount by which the
present fair salable value of the assets of such Subsidiary Guarantor at such
date exceeds the amount that will be required to pay the probable liability
of such Subsidiary Guarantor on
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its debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), excluding debt in respect of the Guarantee
of such Subsidiary Guarantor, as they become absolute and matured.
SECTION 1307. RELEASE OF A SUBSIDIARY GUARANTOR.
(a) In the event of any sale, exchange or transfer to any person
not an Affiliate of the Company of all of the Company's and the Restricted
Subsidiaries' Capital Stock in, or all or substantially all the assets of,
such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by Section 801), then such Subsidiary Guarantor will be deemed
automatically and unconditionally released and discharged from all of its
obligations under its Note Guarantee without any further action on the part
of the Trustee or any holder of the Notes; PROVIDED that the Net Proceeds of
such sale, transfer or other disposition are applied in accordance with
Section 1016 to the extent required thereby.
(b) Any Subsidiary Guarantor that is designated by the Board of
Directors of the Company as an Unrestricted Subsidiary in accordance with the
terms of this Indenture may, at such time, at the option of the Board of
Directors, be released and relieved of its obligations under its Note
Guarantee. The Trustee shall deliver an appropriate instrument evidencing
such release upon receipt of a Company Request accompanied by an Officers'
Certificate certifying as to the compliance with this Section 1307. Any
Subsidiary Guarantor not so released shall remain liable for the full amount
of principal of and interest on the Notes as provided in its Note Guarantee.
(c) Any Non-U.S. Restricted Subsidiary that is or becomes a
Subsidiary Guarantor shall be released and relieved of its obligations under
its Note Guarantee at the time such Subsidiary no longer guarantees any
Indebtedness (other than the Notes) of the Company or any U.S. Restricted
Subsidiary (other than as a result of payment thereof). The Trustee shall
deliver an appropriate instrument evidencing such release upon receipt of a
Company Request accompanied by an Officers' Certificate certifying as to the
compliance with this Section 1308.
(d) Concurrently with the defeasance of the Notes under Section
1202 hereof, or the covenant defeasance of the Notes under Section 1203
hereof, the Subsidiary Guarantors shall be released from all their
obligations under their Note Guarantees under this Article Thirteen.
SECTION 1308. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC. ON CERTAIN
TERMS.
No Subsidiary Guarantor may consolidate with or merge with or into
any other person or convey, sell, assign, transfer, lease or otherwise
dispose of its properties and assets
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substantially as an entirety to any other person (other than the Company or
another Subsidiary Guarantor) unless: (a) such Subsidiary Guarantor is
released from its Note Guarantee pursuant to Section 1307 or (b)(i), the
person formed by or surviving such consolidation or merger (if other than
such Subsidiary Guarantor) or to which such properties and assets are
transferred assumes all of the obligations of such Subsidiary Guarantor under
the Indenture and its Note Guarantee, pursuant to a supplemental indenture in
form and substance satisfactory to the Trustee and (ii) immediately after
giving effect to such transaction, no Default or Event of Default has
occurred and is continuing.
SECTION 1309. BENEFITS ACKNOWLEDGED.
Each Subsidiary Guarantor acknowledges that it will receive direct
and indirect benefits from the financing arrangements contemplated by this
Indenture and that its guarantee and waivers pursuant to its Guarantee are
knowingly made in contemplation of such benefits.
SECTION 1310. ISSUANCE OF GUARANTEES BY CERTAIN NEW RESTRICTED
SUBSIDIARIES.
The Company shall provide to the Trustee, on the date that any
Person becomes a Restricted Subsidiary, a supplemental indenture to the
Indenture, executed by such new Restricted Subsidiary, providing for a full
and unconditional guarantee on a senior basis by such new Restricted
Subsidiary of the Company's obligations under the Notes and the Indenture to
the same extent as that set forth in the Indenture, PROVIDED that any such
Restricted Subsidiary that is organized outside the United States shall not
be required to provide a Note Guarantee so long as such Restricted Subsidiary
has not guaranteed any other Indebtedness of the Company or any other
Restricted Subsidiary.
* * * *
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals, if any, to be
hereunto affixed and attested, all as of the day and year first above written.
BURKE INDUSTRIES, INC.
By
-------------------------------
Name:
Title:
Attest:
----------------------------
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK
By
-------------------------------
Authorized Signatory
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
Each, a Subsidiary Guarantor
By
-------------------------------
Name:
Title:
Attest:
----------------------------
Title:
<PAGE>
EXHIBIT A
[FACE OF NOTE]
BURKE INDUSTRIES, INC.
10% [Series B]** Senior Note Due 2007
CUSIP _________
No. _______ $ _________________
BURKE INDUSTRIES, INC., a California corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred
to), for value received, promises to pay to ___________, or its registered
assigns, the principal sum of ________________________________ ($___________),
on August 15, 2007.
Interest Rate: 10% per annum.
Interest Payment Dates: February 15 and August 15 of each
year commencing February 15, 1998.
Regular Record Dates: February 1 and August 1 of each
year.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: BURKE INDUSTRIES, INC.
-----------------------
By:
-------------------------------
Title:
Attest:
----------------------
Title:
<PAGE>
(Form of Trustee's Certificate of Authentication)
This is one of the 10% [Series B] Senior Notes due 2007 described in the
within-mentioned Indenture.
UNITED STATES TRUST COMPANY OF
NEW YORK,
as Trustee
By:
---------------------------
Authorized Signatory
<PAGE>
[REVERSE SIDE OF NOTE]
BURKE INDUSTRIES, INC.
10% [Series B] Senior Note due 2007
1. PRINCIPAL AND INTEREST.
The Stated Maturity of the Notes shall be August 15, 2007, and the
Notes shall bear interest at the rate of 10% per annum from August 20, 1997,
or from the most recent Interest Payment Date to which interest has been paid
or duly provided for, payable semiannually on February 15 and August 15 in
each year, commencing February 15, 1998, until the principal thereof is paid
or duly provided for, to the Person in whose name the Note (or any
predecessor Note) is registered at the close of business on the February 1 or
August 1 next preceding such Interest Payment Date.
[If (a) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such Registration Statements is not declared
effective by the Commission on or prior to the date specified in the
Registration Rights Agreement (the "Effectiveness Target Date"), or (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Notes during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
pay liquidated damages ("Liquidated Damages") to each Holder of Notes, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Notes held by such Holder. The amount of the Liquidated Damages will
increase by an additional $0.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.30 per week
per $1,000 principal amount of Notes. Upon the filing of the Exchange Offer
Registration Statement, the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be, Liquidated
Damages will cease to accrue from the date of such filing, consummation or
effectiveness, as the case may be; PROVIDED, HOWEVER, that, if after the date
such Liquidated Damages cease to accrue, a different event specified in clause
(a), (b), (c) or (d) above occurs, Liquidated Damages may again commence
accruing pursuant to the foregoing provisions.]
<PAGE>
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful,
at a rate per annum equal to the rate of interest applicable to the Notes.
2. METHOD OF PAYMENT.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes on each Interest Payment Date to the persons
who are Holders (as reflected in the Register at the close of business on the
Regular Record Date immediately preceding the Interest Payment Date), in each
case, even if the Note is cancelled on registration of transfer or
registration of exchange after such record date; PROVIDED that, with respect
to the payment of principal, the Company will make payment to the Holder that
surrenders this Note to any Paying Agent on or after August 15, 2007.
The principal of (and premium, if any), and interest on the Notes
shall be payable, and the Notes shall be exchangeable and transferable, at
the office or agency of the Company in The City of New York maintained for
such purposes, (which initially shall be the office of the Trustee located at
114 West 47th St., New York, N.Y. 10036-1532, Attention: Corporate Trust) or,
at the option of the Company, interest may be paid by check mailed to the
address of the Person entitled thereto as such address shall appear on the
Register; PROVIDED that all payments with respect to the Global Note and the
Certificated Notes the Holder of which have given wire transfer instructions
to the Company will be required to be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar upon written notice thereto
and without notice to any Holder. The Company, any Subsidiary or any
Affiliate of any of them may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of August
20, 1997 (the "Indenture"), between the Company, the Subsidiary Guarantors
and United States Trust Company of New York (the "Trustee"). Capitalized
terms herein are used as defined in the Indenture unless otherwise indicated.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act. The Notes are
subject to all such terms, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of all such terms. To the extent
permitted by applicable
<PAGE>
law, in the event of any inconsistency between the terms of this Note and the
terms of the Indenture, the terms of the Indenture shall control.
The Notes are general unsecured obligations of the Company.
5. REDEMPTION.
OPTIONAL REDEMPTION. The Notes may be redeemed at the option of
the Company, in whole or in part, at any time and from time to time on or
after August 15, 2002, at the following Redemption Prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any,
to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Redemption Date), if redeemed during the
12-month period beginning August 15 of each of the years set forth below:
Redemption
YEAR
PRICE
2002 . . . . . . . . . . . . . . . . . . . 105.000%
2003 . . . . . . . . . . . . . . . . . . . 103.333%
2004 . . . . . . . . . . . . . . . . . . . 101.667%
and thereafter at 100% of the principal amount, together with accrued
interest, if any, to the redemption date.
In addition, at any time or from time to time prior to August 15,
2000, the Company may redeem up to 35% of the sum of (i) the initial
aggregate principal amount of the Notes and (ii) the initial aggregate
principal amount of any Additional Notes on one or more occasions with the
net proceeds of one or more Public Equity Offerings at a redemption price
equal to 110% of the principal amount thereof, plus accrued interest, if any,
to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on an interest payment date);
PROVIDED that, immediately after giving effect to such redemption, at least
65% of the sum of (x) the initial aggregate principal amount of the Notes and
(y) the initial aggregate principal amount of any Additional Notes remains
outstanding; PROVIDED FURTHER that such redemptions shall occur within 45
days of the date of closing of each Public Equity Offering.
Upon the occurrence of a Change of Control prior to August 15, 2002,
the Notes will be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days' prior notice to each
holder of Notes to be redeemed, at a redemption price equal to the sum of (i)
the then outstanding principal amount thereof plus
<PAGE>
(ii) accrued and unpaid interest thereon, to the redemption date plus (iii)
the Applicable Premium.
Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder to be redeemed at such
Holder's last address as it appears in the Register. Notes in original
denominations larger than $1,000 may be redeemed in part in integral
multiples of $1,000. On and after the Redemption Date, interest ceases to
accrue on Notes or portions of Notes called for redemption, unless the
Company defaults in the payment of the Redemption Price.
6. REPURCHASE UPON A CHANGE IN CONTROL AND ASSET SALES.
(a) If a Change of Control occurs at any time, then, unless
irrevocable notice of redemption for all of the Notes is given within 30 days
after the occurrence of such Change of Control in accordance with the
provisions of Section 1015 of the Indenture, each holder of Notes shall have
the right to require that the Company purchase such holder's Notes or
Additional Notes, as applicable, in whole or in part in integral multiples of
$1,000, at a purchase price in cash equal to 101% of the principal amount of
such Notes or Additional Notes, plus accrued and unpaid interest, if any, to
the date of purchase, pursuant to the offer described below (the "Change of
Control Offer") and (b) upon Asset Sales, the Company may be obligated to
make offers to purchase Notes with a portion of the Net Cash Proceeds of such
Asset Sales at a redemption price of 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons, in denominations
of $1,000 and multiples of $1,000 in excess thereof. A Holder may register
the transfer or exchange of Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the
transfer or exchange of any Notes selected for redemption (except the
unredeemed portion of any Note being redeemed in part). Also, it need not
register the transfer or exchange of any Notes for a period of 15 days before
a selection of Notes to be redeemed is made.
<PAGE>
8. PERSONS DEEMED OWNERS.
A Holder may be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay
the money back to the Company at its request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned
property law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
10. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
If the Company irrevocably deposits, or causes to be deposited, with
the Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest on the Notes
(a) to redemption or maturity, the Company will be discharged from the
Indenture, the Notes and the Note Guarantees, except in certain circumstances
for certain sections thereof, and (b) to the Stated Maturity, the Company
will be discharged from certain covenants set forth in the Indenture.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the Notes then outstanding, and any
existing default or compliance with any provision may be waived with the
consent of the Holders of a majority in aggregate principal amount of the
Notes then outstanding. Without notice to or the consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Notes to, among
other things, cure any ambiguity, defect or inconsistency.
12. RESTRICTIVE COVENANTS.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i)
Indebtedness; (ii) Restricted Payments; (iii) issuances and sales of
preferred stock of Restricted Subsidiaries; (iv) transactions with
Affiliates; (v) Liens; (vi) certain Asset Sales; (vii) dividends and other
payment restrictions affecting Restricted Subsidiaries; (viii) mergers and
certain transfers of assets. Within 120 days after the end of each fiscal
year, the Company must report to the Trustee on compliance with such
limitations.
<PAGE>
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
will be released from those obligations.
14. REMEDIES FOR EVENTS OF DEFAULT.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in principal
amount of the Notes then outstanding may declare all the Notes to be
immediately due and payable. If a bankruptcy or insolvency default with
respect to the Company or any of its Significant Subsidiaries occurs and is
continuing, the Notes automatically become immediately due and payable.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders
of at least a majority in principal amount of the Notes then outstanding may
direct the Trustee in its exercise of any trust or power.
15. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Notes and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the
Company and its Affiliates as if it were not the Trustee.
16. AUTHENTICATION.
This Note shall not be valid until the Trustee signs the certificate
of authentication on the other side of this Note.
17. GOVERNING LAW.
The Notes shall be governed by, and construed in accordance with,
the law of the State of New York.
<PAGE>
18. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
19. NO RECOURSE AGAINST OTHERS.
A director, officer, employee, incorporator or stockholder of the
Company, as such, shall not have any liability for any obligations of the
Company under the Notes, the Indenture or the Note Guarantees or for any
claim based on, in respect of, or by reason of, such obligations of their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Burke
Industries, Inc., 2250 South Tenth Street, San Jose, California 95112,
Attention: Chief Executive Officer.
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
(Please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting
and appointing
attorney to transfer such Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of the date of an effective Registration Statement
or ____________, the undersigned confirms that, without utilizing any general
solicitation or general advertising that:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer
of registration set forth herein and in Section 307 of the Indenture shall
have been satisfied.
<PAGE>
Date: NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, as amended, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon the undersigned's foregoing representations in
order to claim the exemption from registration provided by Rule 144A.
Dated: NOTICE: To be executed by an
executive officer
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1015 or Section 1016 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1015 or Section 1016 of the Indenture, state the amount
(in original principal amount) below:
$____________________.
Date:
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:
Tax ID #: __________________
<PAGE>
EXHIBIT B
FORM OF SUBSIDIARY GUARANTEE
Each Subsidiary Guarantor hereby jointly and severally, absolutely,
unconditionally and irrevocably guarantees the Notes and obligations of the
Company hereunder and thereunder, and guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee on behalf of
such Holder, that: (a) the principal of (and premium, if any) and interest on
the Notes will be paid in full when due, whether at Stated Maturity, by
acceleration, call for redemption or otherwise (including, without
limitation, the amount that would become due but for the operation of the
automatic stay under Section 362(a) of the Federal Bankruptcy Code), together
with interest on the overdue principal, if any, and interest on any overdue
interest, to the extent lawful, and all other obligations of the Company to
the Holders or the Trustee hereunder or thereunder will be paid in full or
performed, all in accordance with the terms hereof and thereof; and (b) in
case of any extension of time of payment or renewal of any Notes or of any
such other obligations, the same will be paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise, subject, however, in the case of
clauses (a) and (b) above, to the limitations set forth in Section 1306 of
the Indenture.
The obligations of the Subsidiary Guarantors to the Holders of the
Notes and to the Trustee pursuant to this Note Guarantee and the Indenture
are expressly set forth in Article 13 of the Indenture, and reference is
hereby made to such Indenture for the precise terms of this Note Guarantee.
The terms of Article 13 of the Indenture are incorporated herein by reference.
This is a continuing Note Guarantee and shall remain in full force
and effect and shall be binding upon each Subsidiary Guarantor and its
respective successors and assigns to the extent set forth in the Indenture
until full and final payment of all of the Company's obligations under the
Notes and the Indenture and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders of Notes and, in the event of any
transfer or assignment of rights by any Holder of Notes or the Trustee, the
rights and privileges herein conferred upon that party shall automatically
extend to and be vested in such transferee or assignee, all subject to the
terms and conditions hereof. This is a Note Guarantee of payment and not a
guarantee of collection.
In certain circumstances more fully described in the Indenture, any
Subsidiary Guarantor may be released from its liability under this Subsidiary
Guarantee, and any such release will be effective whether or not noted herein.
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Senior Subordinated
Note upon which this
<PAGE>
B-2
Subsidiary Guarantee is noted shall have been executed by the Trustee under
the Indenture by the manual signature of one of its authorized officers.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
Each, a Subsidiary Guarantor
By:
-----------------------------
Name:
Title:
Attest:
--------------------------
Title:
<PAGE>
EXHIBIT C
FORM OF LETTER TO BE DELIVERED BY ACCREDITED INVESTORS
, 1997
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 North Tryon Street, NCI-007-01
Charlotte, North Carolina 28255
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Re: Purchase of $110,000,000 principal amount of 10% Senior Notes due
2007 (the "Senior Notes") of Burke Industries, Inc., a Delaware
corporation (the "Company")
Ladies and Gentlemen:
In connection with our purchase of the Senior Notes we confirm that:
1. We understand that the Senior Notes are not being and will not
be registered under the Securities Act of 1933, as amended (the "Securities
Act"), and are being sold to us in a transaction that is exempt from the
registration requirements of the Securities Act.
2. We acknowledge that (a) neither the Company, nor the Initial
Purchaser (as defined in the Offering Memorandum dated _____, 1997 relating
to the Senior Notes (the "Final Memorandum")) nor any persons acting on
behalf of the Company or the Initial Purchaser has made any representation to
us with respect to the Company or the offer or sale of any Senior Notes and
(b) any information we desire concerning the Company and the Senior Notes or
any other matter relevant to our decision to purchase the Senior Notes
(including a copy of the Final Memorandum) is or has been made available to
us.
3. We have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment
in the Senior Notes, and we are (or any account for which we are purchasing
under paragraph 5 below is) an Institutional "accredited investor" (within
the meaning of Rule 501(a)(1), (2), (3), or (7) of
<PAGE>
C-2
Regulation D under the Securities Act) (an "IAI") able to bear the economic
risk of investment in the Senior Notes.
4. We understand that the minimum principal amount of Senior Notes
that may be purchased by an IAI is $250,000.
5. We are acquiring the Senior Notes for our own account (or for
accounts as to which we exercise sole investment discretion and have
authority to make, and do make, the statements contained in this letter) and
not with a view to any distribution of the Senior Notes, subject,
nevertheless, to the understanding that the disposition of our property will
at all times be and remain within our control.
6. We understand that the Senior Notes will be in registered form
only and that any certificates delivered to us in respect of the Senior Notes
will bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH BURKE
INDUSTRIES, INC. (THE "COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE
"RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE COMPANY, (B)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A), TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT
TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE
<PAGE>
C-3
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (F) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (G) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES (E), (F) OR (G) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF
THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRANSFER AGENT, THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
7. We agree that in the event that at some future time we wish to
dispose of any of the Senior Notes, we will not do so unless such disposition
is made in accordance with any applicable securities laws of any state of the
United States and:
(a) the Senior Notes are sold in compliance with Rule 144(k) under
the Securities Act or
(b) the Senior Notes are sold in compliance with Rule 144A under the
Securities Act or
(c) the Senior Notes are sold in compliance with Regulation S under
the Securities Act or
(d) the Senior Notes are sold pursuant to an effective registration
statement under the Securities Act or
(e) the Senior Notes are sold to the Company or an affiliate (as
defined in Rule 501(b) of Regulation D) of the Company or
<PAGE>
C-4
(f) the Senior Notes are disposed of in any other transaction that
does not require registration under the Securities Act, and prior to such
disposition we have furnished to the Company or its designee an opinion of
counsel experienced in securities law matters to such effect or such other
documentation as the Company or its designee may reasonably request.
8. We understand that NationsBanc Capital Markets, Inc., as the
Initial Purchase, the Company and other persons will rely upon the truth and
accuracy of the statements set forth herein, and we agree that if any such
statements are no longer true or accurate we will promptly so notify the
Company and the Initial Purchase in writing.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
---------------------------------
(Name of Purchaser)
By:
---------------------------------
Name:
Title:
Address:
Upon transfer, the Notes should be registered in the name of the new
beneficial owner as follows:
Name:
Address:
Taxpayer ID Number:
<PAGE>
EXHIBIT 4.3
BURKE INDUSTRIES, INC.
2250 South Tenth Street
San Jose, CA 95112
$110,000,000
10% SENIOR NOTES DUE 2007
REGISTRATION RIGHTS AGREEMENT
New York, New York
August 20, 1997
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 North Tryon Street, NC1-007-07-01
Charlotte, North Carolina 28255-0001
Ladies and Gentlemen:
Burke Industries, Inc., as successor-in-interest to JFL Merger Co.
pursuant to an Agreement and Plan of Merger dated August 20, 1997, a
California corporation (the "Company"), proposes to issue and sell (the
"Initial Placement") to the Initial Purchaser, upon the terms set forth in a
purchase agreement of even date herewith (the "Purchase Agreement"), its 10%
Senior Notes due 2007 (the "Notes"). As an inducement to the Initial
Purchaser to enter into the Purchase Agreement and purchase the Notes and in
satisfaction of a condition to your obligations under the Purchase Agreement,
the Company and the Subsidiary Guarantors (as defined below) agree with you
for the benefit of the holders from time to time of the Notes (including the
Initial Purchaser) (each of the foregoing a "Holder" and together the
"Holders"), as follows:
1. DEFINITIONS. Capitalized terms used herein without definition
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have
the following meanings:
"AFFILIATE" of any specified person means any other person that,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such specified person. For purposes of this
definition, control of a person means the power, direct or indirect, to
direct or cause the direction of the management and policies of such
person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"CLOSING DATE" has the meaning set forth in the Purchase Agreement.
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2
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" has the meaning set forth in the preamble hereto.
"EFFECTIVENESS TARGET DATE" has the meaning set forth in Section
5(b) hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"EXCHANGE NOTES" means debt securities issued by the Company and
guaranteed by the Subsidiary Guarantors, identical in all material
respects to the Notes (except that (i) interest thereon shall accrue
from the last date on which interest was paid on the Notes or, if no
such interest has been paid, from August 20, 1997 and (ii) the interest
rate step-up provisions and the transfer restrictions pertaining to the
Notes will be modified or eliminated, as appropriate, in the Exchange
Notes), to be issued under the Indenture.
"EXCHANGE OFFER" means the proposed offer to the Holders to issue
and deliver to such Holders, in exchange for the Notes, a like principal
amount of Exchange Notes.
"EXCHANGE OFFER REGISTRATION PERIOD" means the longer of (A) the
period until the consummation of the Exchange Offer and (B) two years
after effectiveness of the Exchange Offer Registration Statement,
exclusive of any period during which any stop order shall be in effect
suspending the effectiveness of the Exchange Offer Registration
Statement; PROVIDED, HOWEVER, that in the event that all resales of
Exchange Notes (including, subject to the time periods set forth herein,
any resales by Exchanging Dealers) covered by such Exchange Offer
Registration Statement have been made, the Exchange Offer Registration
Statement need not remain continuously effective for the period set
forth in clause (B) above.
"EXCHANGE OFFER REGISTRATION STATEMENT" means a registration
statement of the Company on an appropriate form under the Securities Act
with respect to the Exchange Offer, all amendments and supplements to
such registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"EXCHANGING DEALER" means any Holder (which may include the Initial
Purchaser) that is a broker-dealer, electing to exchange Notes acquired
for its own account as a result of market-making activities or other
trading activities for Exchange Notes.
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3
"FINAL MEMORANDUM" has the meaning set forth in the Purchase
Agreement.
"GUARANTEES" has the meaning set forth in the Purchase Agreement.
"SUBSIDIARY GUARANTORS" has the meaning set forth in the preamble
hereto.
"HOLDER" has the meaning set forth in the preamble hereto.
"INDENTURE" means the indenture relating to the Notes and the
Exchange Notes, to be dated as of the Closing Date, among the Company,
Burke Flooring Products, Inc., Burke Custom Processing, Inc. and Burke
Rubber Company, Inc., as Subsidiary Guarantors, and United States Trust
Company of New York, as trustee, as the same may be amended,
supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"INITIAL PLACEMENT" has the meaning set forth in the preamble hereto.
"INITIAL PURCHASER" has the meaning set forth in the Purchase
Agreement.
"LIQUIDATED DAMAGES" has the meaning set forth in Section 5(b)
hereto.
"LOSSES" has the meaning set forth in Section 6(d) hereto.
"MAJORITY HOLDERS" means the Holders of a majority of the aggregate
principal amount of Notes registered under a Registration Statement.
"MANAGING UNDERWRITERS" means the investment banker or investment
bankers and manager or managers that shall administer an underwritten
offering under a Shelf Registration Statement.
"NOTES" has the meaning set forth in the preamble hereto.
"PROSPECTUS" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the
Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of
the Notes or the Exchange Notes covered by such Registration Statement,
and all amendments and supplements to the Prospectus, including
post-effective amendments.
"PURCHASE AGREEMENT" has the meaning set forth in the preamble
hereto.
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4
"REGISTRATION DEFAULT" has the meaning set forth in Section 5(b)
hereto.
"REGISTRATION STATEMENT" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Notes or
the Exchange Notes (including the Guarantees thereon) pursuant to the
provisions of this Agreement, amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto, and all
material incorporated by reference therein.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"SHELF REGISTRATION" means a registration effected pursuant to
Section 3 hereof.
"SHELF REGISTRATION PERIOD" has the meaning set forth in Section
3(b) hereof.
"SHELF REGISTRATION STATEMENT" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3 hereof,
which covers some or all of the Notes or Exchange Notes, as applicable
(including the Guarantees thereon), on an appropriate form under Rule
415 under the Securities Act, or any similar rule that may be adopted by
the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case including
the Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"SUBSIDIARY GUARANTORS" has the meaning set forth in the Indenture.
"TRUSTEE" means the trustee with respect to the Notes or Exchange
Notes, as applicable, under the Indenture.
"UNDERWRITER" means any underwriter of Notes in connection with an
offering thereof under a Shelf Registration Statement.
2. Exchange Offer; Resales of Exchange Notes by Exchanging Dealers;
Private Exchange.
(a) The Company and the Subsidiary Guarantors shall prepare and, on
or prior to the 60th calendar day following the Closing Date, shall file with
the Commission the Exchange Offer Registration Statement with respect to the
Exchange Offer. The Company and the Subsidiary Guarantors shall use their
best efforts (i) to cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act on or prior to the 120th calendar
day following the Closing Date and remain effective until the closing of the
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5
Exchange Offer and (ii) to consummate the Exchange Offer on or prior to the
150th calendar day following the Closing Date.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company and the Subsidiary Guarantors shall promptly commence
the Exchange Offer, it being the objective of such Exchange Offer to enable
each Holder electing to exchange Notes for Exchange Notes (assuming that such
Holder (x) is not an "affiliate" of the Company within the meaning of the
Securities Act, (y) is not a broker-dealer that acquired the Notes in a
transaction other than as a part of its market-making or other trading
activities and (z) if such Holder is not a broker-dealer, acquires the
Exchange Notes in the ordinary course of such Holder's business, is not
participating in the distribution of the Exchange Notes and has no
arrangements or understandings with any person to participate in the
distribution of the Exchange Notes) to resell such Exchange Notes from and
after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
a substantial proportion of the several states of the United States.
(c) In connection with the Exchange Offer, the Company shall mail to
each Holder a copy of the Prospectus forming part of the Exchange Offer
Registration Statement, together with an appropriate letter of transmittal
and related documents, stating, in addition to such other disclosures as
are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this Agreement
and that all Notes validly tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange;
(iii) that any Note not tendered will remain outstanding and
continue to accrue interest, but will not retain any rights under this
Agreement;
(iv) that Holders electing to have a Note exchanged pursuant to the
Exchange Offer will be required to surrender such Note, together with
the enclosed letters of transmittal, to the institution and at the
address (located in the Borough of Manhattan, The City of New York)
specified in the notice prior to the close of business on the last day
of acceptance for exchange; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last day of acceptance for
exchange, by sending to the institution and at the address (located in
the Borough of Manhattan, The City of New York) specified in the notice
a telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Notes delivered for
exchange and a statement that such Holder is withdrawing his election to
have such Notes exchanged; and shall keep the Exchange Offer open for
acceptance for not less than
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6
30 days and not more than 45 days (or longer if required by applicable
law) after the date notice thereof is mailed to the Holders; utilize the
services of a depositary for the Exchange Offer with an address in the
Borough of Manhattan, The City of New York; and comply in all respects
with all applicable laws relating to the Exchange Offer.
(d) As soon as practicable after the close of the Exchange Offer,
the Company shall:
(i) accept for exchange all Notes duly tendered and not validly
withdrawn pursuant to the Exchange Offer;
(ii) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to
each Holder the Exchange Notes equal in principal amount to the Notes of
such Holder so accepted for exchange.
(e) The Initial Purchaser, the Company and the Subsidiary
Guarantors acknowledge that, pursuant to interpretations by the staff of the
Commission of Section 5 of the Securities Act, and in the absence of an
applicable exemption therefrom, each Exchanging Dealer is required to deliver
a Prospectus in connection with a sale of any Exchange Notes received by such
Exchanging Dealer pursuant to the Exchange Offer in exchange for Notes
acquired for its own account as a result of market-making activities or other
trading activities. Accordingly, the Company and the Subsidiary Guarantors
shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B hereto in
the forepart of the Exchange Offer Registration Statement in a section
setting forth details of the Exchange Offer, in Annex C hereto in the
underwriting or plan of distribution section of the Prospectus forming a
part of the Exchange Offer Registration Statement, and in Annex D hereto
in the letter of transmittal delivered pursuant to the Exchange Offer;
and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Securities Act during the
Exchange Offer Registration Period for delivery of the prospectus
included therein by Exchanging Dealers in connection with sales of
Exchange Notes received pursuant to the Exchange Offer, as contemplated
by Section 4(h) below; PROVIDED, HOWEVER, that the Company shall not be
required to maintain the effectiveness of the Exchange Offer
Registration Statement for more than 60 days following the consummation
of the Exchange Offer unless the
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7
Company has been notified in writing on or prior to the 60th day following
the consummation of the Exchange Offer by one or more Exchanging Dealers
that such Holder has received Exchange Notes as to which it will be
required to deliver a prospectus upon resale.
(f) In the event that the Initial Purchaser determines that it is
not eligible to participate in the Exchange Offer with respect to the
exchange of Notes constituting any portion of an unsold allotment, upon the
effectiveness of the Shelf Registration Statement as contemplated by Section
3 hereof and at the request of the Initial Purchaser, the Company shall issue
and deliver to the Initial Purchaser, or to the party purchasing Exchange
Notes registered under the Shelf Registration Statement from the Initial
Purchaser, in exchange for such Notes, a like principal amount of Exchange
Notes. The Company shall use its best efforts to cause the CUSIP Service
Bureau to issue the same CUSIP number for such Exchange Notes as for Exchange
Notes issued pursuant to the Exchange Offer.
(g) The Company and the Subsidiary Guarantors shall use their
best efforts to complete the Exchange Offer as provided above and shall
comply with the applicable requirements of the Securities Act, the Exchange
Act and other applicable laws and regulations in connection with the Exchange
Offer. The Exchange Offer shall not be subject to any conditions, other than
that the Exchange Offer does not violate applicable law or any applicable
interpretation of the staff of the Commission. The Company shall inform the
Initial Purchaser of the names and addresses of the Holders to whom the
Exchange Offer is made, and the Initial Purchaser shall have the right,
subject to applicable law, to contact such Holders and otherwise facilitate
the tender of Notes in the Exchange Offer.
3. SHELF REGISTRATION. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to
effect the Exchange Offer as contemplated by Section 2 hereof or (ii) for any
reason other than those specified clause (i) above, the Exchange Offer is not
consummated within 150 days of the Closing Date unless the Exchange Offer has
commenced, in which case, the Exchange Offer is not consummated within 30
days after the date on which the Exchange Offer was commenced or (iii) the
Initial Purchaser so requests with respect to Notes held by it following
consummation of the Exchange Offer, or (iv) any Holder (other than the
Initial Purchaser) is not eligible to participate in the Exchange Offer or
has participated in the Exchange Offer and has received Exchange Notes that
are not freely tradeable or (v) in the case where the Initial Purchaser
participates in the Exchange Offer or acquires Exchange Notes pursuant to
Section 2(f) hereof, the Initial Purchaser does not receive freely tradeable
Exchange Notes in exchange for Notes constituting any portion of an unsold
allotment (it being understood that, for purposes of this Section 3, (x) the
requirement that the Initial Purchaser deliver a Prospectus containing the
information required by Items 507 and/or 508 of Regulation S-K under the
Securities Act in connection with sales of Exchange Notes acquired in
exchange for such
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8
Notes shall result in such Exchange Notes being not "freely tradeable" and
(y) the requirement that an Exchanging Dealer deliver a Prospectus in
connection with sales of Exchange Notes acquired in the Exchange Offer in
exchange for Notes acquired as a result of market-making activities or other
trading activities shall not result in such Exchange Notes being not "freely
tradeable"), the following provisions shall apply:
(a) The Company and the Subsidiary Guarantors shall, as promptly
as practicable (but in any event on or prior to 60 days after such
filing obligation arises), file with the Commission a Shelf Registration
Statement relating to the offer and sale of the Notes or the Exchange
Notes, as applicable, by the Holders from time to time in accordance
with the methods of distribution elected by such Holders and set forth
in such Shelf Registration Statement and Rule 415 under the Securities
Act, provided that, with respect to Exchange Notes received by the
Initial Purchaser in exchange for Notes constituting any portion of an
unsold allotment, the Company and the Subsidiary Guarantors may, if
permitted by current interpretations by the Commission's staff, file a
post-effective amendment to the Exchange Offer Registration Statement
containing the information required by Regulation S-K Items 507 and/or
508, as applicable, in satisfaction of its obligations under this
paragraph (a) with respect thereto, and any such Exchange Offer
Registration Statement, as so amended, shall be referred to herein as,
and governed by the provisions herein applicable to, a Shelf
Registration Statement.
(b) The Company and the Subsidiary Guarantors shall use their
best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act as promptly as possible after filing
such Shelf Registration Statement pursuant to this Section 3 and to keep
such Shelf Registration Statement continuously effective in order to
permit the Prospectus contained therein to be usable by Holders for a
period of [two] years from the date the Shelf Registration Statement is
declared effective by the Commission or such shorter period that will
terminate when all the Notes or Exchange Notes, as applicable, covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have
used its best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that
would result in Holders of Notes covered thereby not being able to offer
and sell such Notes during that period, unless (i) such action is
required by applicable law or (ii) such action is taken by the Company
in good faith and for valid business reasons (not including avoidance of
the Company's obligations hereunder), including the acquisition or
divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 4(k) hereof, if applicable.
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9
4. REGISTRATION PROCEDURES. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company and the Subsidiary Guarantors shall, within a
reasonable time prior to the filing of any Registration Statement, any
Prospectus, any amendment to a Registration Statement or amendment or
supplement to a Prospectus or any document which is to be incorporated
by reference into a Registration Statement or a Prospectus after initial
filing of a Registration Statement, provide copies of such document to
the Initial Purchaser and its counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) and make such
representatives of the Company and the Subsidiary Guarantors as shall be
reasonably requested by the Initial Purchaser or its counsel (and, in
the case of a Shelf Registration Statement, the Holders or their
counsel) available for discussion of such document, and shall not at any
time file or make any amendment to the Registration Statement, any
Prospectus or any amendment of or supplement to a Registration Statement
or a Prospectus or any document which is to be incorporated by reference
into a Registration Statement or a Prospectus, of which the Initial
Purchaser and its counsel (and, in the case of a Shelf Registration
Statement, the Holders and their counsel) shall not have previously been
advised and furnished a copy or to which the Initial Purchaser or its
counsel (and, in the case of a Shelf Registration Statement, the Holders
or their counsel) shall object, except for any amendment or supplement
or document (a copy of which has been previously furnished to the
Initial Purchaser and its counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel)) which counsel to
the Company and the Subsidiary Guarantors shall advise the Company and
the Subsidiary Guarantors, in the form of a written legal opinion, is
required in order to comply with applicable law; the Initial Purchaser
agrees that, if it receives timely notice and drafts under this clause
(a), it will not take actions or make objections pursuant to this clause
(a) such that the Company and the Subsidiary Guarantors are unable to
comply with their obligations under Section 2.
(b) The Company and the Subsidiary Guarantors shall ensure that:
(i) any Registration Statement and any amendment thereto
and any Prospectus contained therein and any amendment or supplement
thereto complies in all material respects with the Securities Act
and the rules and regulations thereunder;
(ii) any Registration Statement and any amendment thereto
does not, when it becomes effective, contain an untrue statement of
a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and
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10
(iii) any Prospectus forming part of any Registration
Statement, including any amendment or supplement to such Prospectus,
does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(c) (1) The Company shall advise the Initial Purchaser and, in
the case of a Shelf Registration Statement, the Holders of Notes covered
thereby, and, if requested by the Initial Purchaser or any such Holder,
confirm such advice in writing:
(i) when a Registration Statement and any amendment
thereto has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become
effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) During the Shelf Registration Period or the Exchange Offer
Registration Period, as applicable, the Company shall advise the Initial
Purchaser and, in the case of a Shelf Registration Statement, the
Holders of Notes covered thereby, and, in the case of an Exchange Offer
Registration Statement, any Exchanging Dealer that has provided in
writing to the Company a telephone or facsimile number and address for
notices, and, if requested by the Initial Purchaser or any such Holder
or Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Notes included
therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(iii) of the happening of any event that requires the making
of any changes in the Registration Statement or the Prospectus so
that, as of such date, the Registration Statement or the Prospectus
does not include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein (in
the case of the Prospectus, in light of the circumstances under
which they were made) not misleading (which advice
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11
shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(d) The Company and the Subsidiary Guarantors shall use
their best efforts to obtain the withdrawal of any order suspending the
effectiveness of any Registration Statement at the earliest possible
time.
(e) The Company shall furnish to each Holder of Notes
covered by any Shelf Registration Statement, without charge, at least
one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if
the Holder so requests in writing, all exhibits thereto (including those
incorporated by reference).
(f) The Company shall, during the Shelf Registration
Period, deliver to each Holder of Notes covered by any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request; and the Company consents to the use of
the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Notes in connection with the offering and sale of the
Notes covered by the Prospectus or any amendment or supplement thereto.
(g) The Company shall furnish to each Exchanging Dealer
that so requests, without charge, at least one copy of the Exchange
Offer Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents incorporated
by reference therein and, if the Exchanging Dealer so requests in
writing, all exhibits thereto (including those incorporated by
reference).
(h) The Company shall, during the Exchange Offer
Registration Period, promptly deliver to each Exchanging Dealer, without
charge, as many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably request for delivery by such Exchanging
Dealer in connection with a sale of Exchange Notes received by it
pursuant to the Exchange Offer; and the Company consents to the use of
the Prospectus or any amendment or supplement thereto by any such
Exchanging Dealer, as provided in Section (2)(e) above.
(i) Prior to the Exchange Offer or any other offering of
Notes pursuant to any Registration Statement, the Company and the
Subsidiary Guarantors shall register or qualify or cooperate with the
Holders of Notes included therein and their respective counsel in
connection with the registration or qualification of such Notes for
offer and sale under the securities or blue sky laws of such states as
any such Holders
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12
reasonably request in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such states of
the Notes covered by such Registration Statement; PROVIDED, HOWEVER,
that the Company and the Subsidiary Guarantors will not be required to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not then so qualified, to file any general
consent to service of process or to take any action that would subject
it to general service of process in any such jurisdiction where it is
not then so subject or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
(j) The Company shall cooperate with the Holders to facilitate
the timely preparation and delivery of certificates representing Notes
to be sold pursuant to any Registration Statement free of any
restrictive legends and in denominations of $1,000 or an integral
multiple thereof and registered in such names as Holders may request
prior to sales of Notes pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) of this Section 4, the Company and the Subsidiary Guarantors
shall promptly prepare and file a post-effective amendment to any
Registration Statement or an amendment or supplement to the related
Prospectus or any other required document so that, as thereafter
delivered to purchasers of the Notes included therein, the Prospectus
will not include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and, in the
case of a Shelf Registration Statement, notify the Holders to suspend
use of the Prospectus as promptly as practicable after the occurrence of
such an event.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Notes or Exchange Notes, as the case may be, registered under such
Registration Statement, and provide the Trustee with printed
certificates for such Notes or Exchange Notes, in a form eligible for
deposit with The Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable after
the effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Securities
Act.
(n) The Company shall cause the Indenture to be qualified under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
in a timely manner.
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13
(o) The Company may require each Holder of Notes to be sold
pursuant to any Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of such Notes
as the Company may from time to time reasonably require for inclusion in
such Registration Statement.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters,
if any, and Majority Holders reasonably agree should be included
therein, and shall make all required filings of such Prospectus
supplement or post-effective amendment promptly upon notification of the
matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company
and the Subsidiary Guarantors shall enter into such agreements
(including underwriting agreements) and take all other appropriate
actions in order to expedite or to facilitate the registration or the
disposition of any Notes included therein, and in connection therewith,
if an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those
set forth in Section 6 (or such other provisions and procedures
acceptable to the Majority Holders and the Managing Underwriters, if
any) with respect to all parties to be indemnified pursuant to Section 6.
(r) In the case of any Shelf Registration Statement, the Company
and the Subsidiary Guarantors shall:
(i) make reasonably available for inspection by the
Holders of Notes to be registered thereunder, any underwriter
participating in any disposition pursuant to such Shelf Registration
Statement, and any attorney, accountant or other agent retained by
the Holders or any such underwriter all relevant financial and other
records, pertinent corporate documents and properties of the Company
any and its subsidiaries;
(ii) cause the Company's and the Subsidiary Guarantors'
officers, directors and employees to supply all relevant information
reasonably requested by the Holders or any such underwriter,
attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence
examinations and make such representatives of the Company and the
Subsidiary Guarantors as shall be reasonably requested by the
Initial Purchaser or Managing Underwriters, if any, available for
discussion of any such Registration Statement; PROVIDED, HOWEVER,
that any information that is designated in writing by the Company or
the Subsidiary
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14
Guarantors, in good faith, as confidential at the time of delivery of
such information shall be kept confidential by the Holders or any such
underwriter, attorney, accountant or agent, unless such disclosure is
made in connection with a court proceeding or required by law, or
such information becomes available to the public generally or through
a third party without an accompanying obligation of confidentiality
other than as a result of a disclosure of such information by any
such Holder, underwriter, attorney, accountant or agent;
(iii) make such representations and warranties to the
Holders of Notes registered thereunder and the underwriters, if any,
in form, substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(iv) obtain opinions of counsel to the Company and the
Subsidiary Guarantors and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder and the underwriters, if any, covering such matters
as are customarily covered in opinions requested in similar
underwritten offerings and such other matters as may be reasonably
requested by such Holders and underwriters;
(v) obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company and the
Subsidiary Guarantors (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements
and financial data are, or are required to be, included in the
Registration Statement), addressed to the underwriters, if any, and
use reasonable efforts to have such letter addressed to the selling
Holders of Notes registered thereunder (to the extent consistent
with Statement on Auditing Standards No. 72 of the American
Institute of Certified Public Accountants (AICPA) ("SAS 72")), in
customary form and covering matters of the type customarily covered
in "cold comfort" letters in connection with similar underwritten
offerings, or if the provision of such "cold comfort" letters is not
permitted by SAS No. 72 or if requested by the Initial Purchaser or
its counsel in lieu of a "cold comfort" letter, an agreed-upon
procedures letter under Statement on Auditing Standards No. 35 of
the AICPA, covering matters requested by the Initial Purchaser or
its counsel; and
(vi) deliver such documents and certificates as may be
reasonably requested by the Majority Holders and the Managing
Underwriters, if any, and customarily delivered in similar
offerings, including those to evidence
<PAGE>
15
compliance with Section 4(k) and with any conditions contained in the
underwriting agreement or other agreement entered into by the Company.
The foregoing actions set forth in clauses (iii), (iv), (v) and (vi)
of this Section 4(r) shall be performed at (A) the effectiveness of such
Shelf Registration Statement and each post-effective amendment thereto
and (B) each closing under any underwriting or similar agreement as and
to the extent required thereunder.
(s) The Company and the Subsidiary Guarantors shall, in the case
of a Shelf Registration, use their best efforts to cause all Notes to be
listed on any securities exchange or any automated quotation system on which
similar securities issued by the Company are then listed if requested by the
Majority Holders, to the extent such Notes satisfy applicable listing
requirements.
(t) The Company and the Subsidiary Guarantors shall use their
best efforts to cause the Exchange Notes or Notes, as the case may be, to be
rated by two nationally recognized statistical rating organizations (as such
term is defined in Rule 436(g)(2) under the 1933 Act).
5. Registration Expenses; Remedies. (a) The Company and the
Subsidiary Guarantors shall bear all expenses incurred in connection with the
performance of their obligations under Sections 2, 3 and 4 hereof, including
without limitation: (i) all Commission or National Association of Securities
Dealers, Inc. registration and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of counsel for any underwriters
or Holders in connection with blue sky qualification of any of the Exchange
Notes or Notes), (iii) all expenses of any persons in preparing or assisting
in preparing, word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, if any, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi) the
fees and disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and the Subsidiary Guarantors and,
in the case of a Shelf Registration Statement, the fees and disbursements, of
one counsel for the Holders (which counsel shall be selected by the Majority
Holders and which counsel may also be counsel for the Initial Purchaser) and
in the case of any Exchange Offer Registration Statement, the reasonable fees
and expenses of counsel to the Initial Purchaser acting in connection
therewith and (viii) the fees and disbursements of the independent public
accountants of the Company and the Subsidiary Guarantors, including the
expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, but excluding fees and expenses
of counsel to the underwriters (other than fees and expenses set forth in
clause (ii) above) or the Holders and underwriting
<PAGE>
16
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Notes by a Holder.
(b) The Notes provide that if (i) the Company fails to file any
of the Registration Statements required by this Agreement on or before the
date specified for such filing, (ii) any of such Registration Statements is
not declared effective by the Commission on or prior to the date specified
for such effectiveness (the "Effectiveness Target Date"), (iii) the Company
fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to Exchange Offer Registration
Statement or (iv) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of the Notes during the
periods specified in this Agreement (each such event referred to in clauses
(i) through (iv) above a "Registration Default"), then the Company will pay
liquidated damages ("Liquidated Damages") to each Holder of Notes, with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $0.05 per week per $1,000
principal amount of Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional $0.05 per week per $1,000 principal
amount of Notes with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $0.30 per week per $1,000 principal amount of Notes. Upon the
filing of the required Registration Statement, the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, Liquidated Damages will cease to accrue from the date of such
filing, consummation or effectiveness, as the case may be; PROVIDED, HOWEVER,
that, if after the date such Liquidated Damages cease to accrue, a different
event specified in clause (i), (ii), (iii) or (iv) above occurs, Liquidated
Damages may again commence accruing pursuant to the foregoing provisions.
(c) Without limiting the remedies available to the Initial
Purchaser and the Holders, the Company and the Subsidiary Guarantors
acknowledge that any failure by the Company and the Subsidiary Guarantors to
comply with their respective obligations under Sections 2 and 3 hereof may
result in material irreparable injury to the Initial Purchaser or the Holders
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any
such failure, the Initial Purchaser or any Holder may obtain such relief as
may be required to specifically enforce the Company's and the Subsidiary
Guarantors' obligations under Sections 2 and 3 hereof.
6. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with
any Registration Statement, the Company and each Guarantor jointly and
severally agree to indemnify and hold harmless each Holder of Notes covered
thereby (including the Initial Purchaser and, with respect to any Prospectus
delivery as contemplated by Sections 2(e) and 4(h) hereof, each Exchanging
Dealer) the directors, officers, employees and agents of such
<PAGE>
17
Holder and each person who controls such Holder within the meaning of either
the Securities Act or the Exchange Act, against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement as
originally filed or in any amendment thereof, or in any preliminary
Prospectus or Prospectus, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage or liability (or action in respect
thereof); PROVIDED, HOWEVER, that the Company and each Guarantor will not be
liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance
upon and in conformity with written information furnished to the Company by
or on behalf of any such Holder specifically for inclusion therein; PROVIDED
FURTHER, HOWEVER, that the Company and each Guarantor will not be liable in
any case with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary Prospectus or Prospectus, or in
any amendment thereof or supplement thereto to the extent that any such loss,
claim, damage or liability (or action in respect thereof) resulted from the
fact that any Holder or underwriter, in the case of a Shelf Registration sold
Notes or Exchange Notes to a person to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the Prospectus
as then amended or supplemented in any case where such delivery is required
by the Securities Act, if the Company had previously complied with the
provisions of Section 4(c)(2) and 4(f) or 4(g) hereof and if the untrue
statement contained in or omission from such preliminary Prospectus or
Prospectus was corrected in the Prospectus or then amended or supplemented.
This indemnity agreement will be in addition to any liability that the
Company or any Guarantor may otherwise have.
The Company and each Guarantor also agree jointly and severally to
indemnify or contribute to Losses of, as provided in Section 6(d) hereof, any
underwriters of Notes registered under a Shelf Registration Statement, their
employees, officers, directors and agents and each person who controls such
underwriters on the same basis as that of the indemnification of the Initial
Purchaser and the selling Holders provided in this Section 6(a) and shall, if
requested by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 4(q) hereof.
(b) Each Holder of Notes covered by a Registration Statement
(including the Initial Purchaser and, with respect to any Prospectus delivery
as contemplated by
<PAGE>
18
Sections 2(e) and 4(h) hereof, each Exchanging Dealer) severally agrees to
indemnify and hold harmless (i) the Company and each Guarantor, (ii) each of
the directors of the Company and each Guarantor, (iii) each of the officers
of the Company and the Subsidiary Guarantors who signs such Registration
Statement and (iv) each Person who controls the Company or any Guarantor
within the meaning of either the Securities Act or the Exchange Act to the
same extent as the foregoing indemnity from the Company and each Guarantor to
each such Holder, but only with respect to written information furnished to
the Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. This indemnity agreement
will be in addition to any liability that any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 6, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve the indemnifying party from liability under paragraph (a) or
(b) above unless and to the extent it did not otherwise learn of such action
and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses, and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than
the indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel (including local
counsel) of the indemnifying party's choice at the indemnifying party's
expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
PROVIDED, HOWEVER, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel (and local counsel) if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest, (ii) the actual
or potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the
indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent
to the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which
<PAGE>
19
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out of such
claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending the same) (collectively "Losses")
to which such indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received by such indemnifying
party, on the one hand, and such indemnified party, on the other hand, from
the Initial Placement and the Registration Statement that resulted in such
Losses; PROVIDED, HOWEVER, that in no case shall the Initial Purchaser or any
subsequent Holder of any Note or Exchange Note be responsible, in the
aggregate, for any amount in excess of the purchase discount or commission
applicable to such Note, or in the case of an Exchange Note, applicable to
the Note that was exchangeable into such Exchange Note, as set forth on the
cover page of the Final Memorandum, nor shall any underwriter be responsible
for any amount in excess of the underwriting discount or commission
applicable to the Notes purchased by such underwriter under the Registration
Statement that resulted in such Losses. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the
indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions that resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Company and the
Subsidiary Guarantors shall be deemed to be equal to the sum of (x) the total
net proceeds from the Initial Placement (before deducting expenses) as set
forth on the cover page of the Final Memorandum and (y) the total amount of
additional interest that the Company was not required to pay as a result of
registering the Notes covered by the Registration Statement that resulted in
such Losses. Benefits received by the Initial Purchaser shall be deemed to
be equal to the total purchase discounts and commissions as set forth on the
cover page of the Final Memorandum, and benefits received by any other
Holders shall be deemed to be equal to the value of receiving Notes or
Exchange Notes, as applicable, registered under the Securities Act. Benefits
received by any underwriter shall be deemed to be equal to the total
underwriting discounts and commissions, as set forth on the cover page of the
Prospectus forming a part of the Registration Statement that resulted in such
Losses. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
indemnifying party, on the one hand, or by the indemnified party, on the
other hand. The parties agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation that
<PAGE>
20
did not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person who controls a Holder within the meaning of either the Securities
Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and
each person who controls the Company or any Guarantor within the meaning of
either the Securities Act or the Exchange Act, each officer of the Company or
any Guarantor who shall have signed the Registration Statement and each
director of the Company and each Guarantor shall have the same rights to
contribution as the Company and each Guarantor, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force
and effect, regardless of any investigation made by or on behalf of any
Holder or the Company or any Guarantor or any of the officers, directors or
controlling persons referred to in Section 6 hereof, and will survive the
sale by a Holder of Notes covered by a Registration Statement.
7. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENT. The Company and the Subsidiary
Guarantors have not, as of the date hereof, entered into, nor shall any of
them, on or after the date hereof, enter into, any agreement that conflicts
with the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of the Holders of at least a majority of the then outstanding
aggregate principal amount of Notes (or, after the consummation of any
Exchange Offer in accordance with Section 2 hereof, of Exchange Notes);
PROVIDED that, with respect to any matter that directly or indirectly affects
the rights of the Initial Purchaser hereunder, the Company shall obtain the
written consent of the Initial Purchaser. Notwithstanding the foregoing
(except the foregoing proviso), a waiver or consent to departure from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose Notes are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by the Majority Holders, determined on the basis of
Notes being sold rather than registered under such Registration Statement.
<PAGE>
21
(c) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this Section 7(c),
which address initially is, with respect to each Holder, the address of such
Holder maintained by the Registrar under the Indenture, with a copy in like
manner to NationsBanc Capital Markets, Inc.;
(ii) if to the Initial Purchaser, at NationsBank Corporate Center,
100 North Tryon Street NCl-007-07-01, Charlotte, North Carolina 28255-0001;
and
(iii) if to the Company or any Guarantor, c/o the Company at 2250
South Tenth Street, San Jose, California 95112, Attention: Dave Worthington,
with copies to J.F. Lehman & Company, 450 Park Avenue, Fifth Floor, New York,
NY 10022, Attention: Keith Oster.
All such notices and communications shall be deemed to have been
duly given when received. The Initial Purchaser, on the one hand, or the
Company or any Guarantor, on the other, by notice to the other party or
parties may designate additional or different addresses for subsequent
notices or communications.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent
by the Company or any Guarantor thereto, subsequent Holders of Notes and/or
Exchange Notes. The Company and the Subsidiary Guarantors hereby agree to
extend the benefits of this Agreement to any Holder of Notes and/or Exchange
Notes and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same Agreement.
(f) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
22
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired or affected thereby, it being intended that all of the rights and
privileges of the parties shall be enforceable to the fullest extent
permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Notes or
Exchange Notes is required hereunder, Notes or Exchange Notes, as applicable,
held by the Company or its Affiliates (other than subsequent Holders of Notes
or Exchange Notes if such subsequent Holders are deemed to be Affiliates
solely by reason of their holdings of such Notes or Exchange Notes) shall not
be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Subsidiary Guarantors and you.
Very truly yours,
BURKE INDUSTRIES, INC.,
as successor-in-interest to
JFL Merger Co.
By:
---------------------------------
Name:
Title:
BURKE FLOORING PRODUCTS, INC.
BURKE CUSTOM PROCESSING, INC.
BURKE RUBBER COMPANY, INC.
Each, a Subsidiary Guarantor
By:
---------------------------------
Name:
Title:
The foregoing Agreement is hereby
accepted as of the date first above written.
NATIONSBANC CAPITAL MARKETS, INC.
By:
-------------------------------
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amend or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company
has agreed that, starting on the Expiration Date (as defined herein) and
ending on the close of business one year after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale
of such Exchange Notes. See "Plan of Distribution."
<PAGE>
ANNEX C
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business one
year after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until such date all dealers effecting transactions
in the Exchange Notes may be required to deliver a prospectus.
<PAGE>
ANNEX D
If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes, it represents that the Notes
to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
<PAGE>
[EXECUTION COPY]
- --------------------------------------------------------------------------------
$15,000,000
LOAN AND SECURITY AGREEMENT
Dated as of August 20, 1997
Between
BURKE INDUSTRIES, INC.
(the Borrower)
and
THE FINANCIAL INSTITUTIONS PARTY
HERETO FROM TIME TO TIME
(the Lenders)
and
NATIONSBANK, N.A.
(the Agent)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS(1)
Page
----
ARTICLE 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 GENERAL INTERPRETIVE RULES . . . . . . . . . . . . . . 30
SECTION 1.3 EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . 32
ARTICLE 2 - REVOLVING CREDIT FACILITY . . . . . . . . . . . . . . . . . . 33
SECTION 2.1 REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . . 33
SECTION 2.2 MANNER OF BORROWING REVOLVING CREDIT LOANS . . . . . . 33
SECTION 2.3 REPAYMENT OF REVOLVING CREDIT LOANS. . . . . . . . . . 35
SECTION 2.4 REVOLVING CREDIT NOTE. . . . . . . . . . . . . . . . . 35
SECTION 2.5 EXTENSION OF REVOLVING CREDIT FACILITY . . . . . . . . 36
ARTICLE 2A - LETTER OF CREDIT FACILITY. . . . . . . . . . . . . . . . . . 37
SECTION 2A.1 AGREEMENT TO ISSUE . . . . . . . . . . . . . . . . . . 37
SECTION 2A.2 AMOUNTS. . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2A.3 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2A.4 ISSUANCE OF LETTERS OF CREDIT. . . . . . . . . . . . . 38
SECTION 2A.5 DUTIES OF NATIONSBANK. . . . . . . . . . . . . . . . . 38
SECTION 2A.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS . . . . . . . . . 39
SECTION 2A.7 PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . 39
SECTION 2A.8 INDEMNIFICATION, EXONERATION . . . . . . . . . . . . . 40
SECTION 2A.9 SUPPORTING LETTER OF CREDIT; CASH COLLATERAL ACCOUNT . 42
ARTICLE 3 - GENERAL LOAN PROVISIONS . . . . . . . . . . . . . . . . . . . 43
SECTION 3.1 INTEREST . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 3.2 CERTAIN FEES . . . . . . . . . . . . . . . . . . . . . 44
SECTION 3.3 MANNER OF PAYMENT. . . . . . . . . . . . . . . . . . . 45
SECTION 3.4 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 3.5 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT . . . . . . . . . 46
SECTION 3.6 REDUCTION OF COMMITMENTS; TERMINATION OF AGREEMENT . . 46
SECTION 3.7 MAKING LOANS . . . . . . . . . . . . . . . . . . . . . 47
SECTION 3.8 SETTLEMENT AMONG LENDERS . . . . . . . . . . . . . . . 48
SECTION 3.9 [RESERVED] . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.10 PAYMENTS NOT AT END OF INTEREST PERIOD; FAILURE
TO BORROW. . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.11 ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR
RATE LOANS . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 3.12 CONVERSION OR CONTINUATION . . . . . . . . . . . . . . 51
SECTION 3.13 DURATION OF INTEREST PERIODS; MAXIMUM NUMBER
OF EURODOLLAR RATE LOANS; MINIMUM INCREMENTS . . . . . 52
- ---------------------------
(1) This Table of Contents is included for reference purposese only and does
not constitute part of the Loan and Security Agreement.
i
<PAGE>
SECTION 3.14 CHANGED CIRCUMSTANCES. . . . . . . . . . . . . . . . . 52
SECTION 3.15 INCREASED CAPITAL. . . . . . . . . . . . . . . . . . . 53
SECTION 3.16 CASH COLLATERAL ACCOUNT; INVESTMENT ACCOUNTS . . . . . 54
SECTION 3.17 FUNDS TRANSFER SERVICES. . . . . . . . . . . . . . . . 55
ARTICLE 4 - CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.1 CONDITIONS PRECEDENT TO REVOLVING CREDIT LOANS . . . . 57
SECTION 4.2 ALL LOANS; LETTERS OF CREDIT . . . . . . . . . . . . . 60
SECTION 4.3 CONDITIONS AS COVENANTS. . . . . . . . . . . . . . . . 61
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF BORROWER. . . . . . . . . . 62
SECTION 5.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 62
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. . . . 72
ARTICLE 6 - SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 6.1 SECURITY INTEREST. . . . . . . . . . . . . . . . . . . 73
SECTION 6.2 CONTINUED PRIORITY OF SECURITY INTEREST. . . . . . . . 73
ARTICLE 7 - COLLATERAL COVENANTS. . . . . . . . . . . . . . . . . . . . . 76
SECTION 7.1 COLLECTION OF RECEIVABLES. . . . . . . . . . . . . . . 76
SECTION 7.2 VERIFICATION AND NOTIFICATION. . . . . . . . . . . . . 77
SECTION 7.3 DISPUTES, RETURNS AND ADJUSTMENTS. . . . . . . . . . . 77
SECTION 7.4 INVOICES . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 7.5 DELIVERY OF INSTRUMENTS. . . . . . . . . . . . . . . . 78
SECTION 7.6 SALES OF INVENTORY . . . . . . . . . . . . . . . . . . 78
SECTION 7.7 OWNERSHIP AND DEFENSE OF TITLE . . . . . . . . . . . . 78
SECTION 7.8 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 7.9 LOCATION OF OFFICES AND COLLATERAL . . . . . . . . . . 79
SECTION 7.10 RECORDS RELATING TO COLLATERAL . . . . . . . . . . . . 80
SECTION 7.11 INSPECTION . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 7.12 INFORMATION AND REPORTS. . . . . . . . . . . . . . . . 81
SECTION 7.13 POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 82
SECTION 7.14 ASSIGNMENT OF CLAIMS ACT . . . . . . . . . . . . . . . 82
ARTICLE 8 - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 83
SECTION 8.1 PRESERVATION OF CORPORATE EXISTENCE AND
SIMILAR MATTERS. . . . . . . . . . . . . . . . . . . . 83
SECTION 8.2 COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . 83
SECTION 8.3 MAINTENANCE OF PROPERTY. . . . . . . . . . . . . . . . 83
SECTION 8.4 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . 83
SECTION 8.5 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 8.6 PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . 84
SECTION 8.7 ACCOUNTING METHODS AND FINANCIAL RECORDS . . . . . . . 84
SECTION 8.8 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . 84
SECTION 8.9 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL
REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . 84
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ARTICLE 9 - INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.1 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 86
SECTION 9.2 ACCOUNTANTS' CERTIFICATE . . . . . . . . . . . . . . . 87
SECTION 9.3 OFFICER'S CERTIFICATE. . . . . . . . . . . . . . . . . 87
SECTION 9.4 COPIES OF OTHER REPORTS. . . . . . . . . . . . . . . . 87
SECTION 9.5 NOTICE OF LITIGATION AND OTHER MATTERS . . . . . . . . 88
SECTION 9.6 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 9.7 REVISIONS OR UPDATES TO SCHEDULES. . . . . . . . . . . 89
ARTICLE 10 - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.1 FINANCIAL RATIOS . . . . . . . . . . . . . . . . . . . 90
SECTION 10.2 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 10.3 GUARANTIES . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.4 INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . 91
SECTION 10.5 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . 91
SECTION 10.6 RESTRICTED DISTRIBUTIONS AND PAYMENTS, ETC.. . . . . . 91
SECTION 10.7 MERGER, CONSOLIDATION AND SALE OF ASSETS . . . . . . . 91
SECTION 10.8 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . 92
SECTION 10.9 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.10 [RESERVED] . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.11 BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . 92
SECTION 10.12 AMENDMENTS OF OTHER AGREEMENTS . . . . . . . . . . . . 92
SECTION 10.13 MINIMUM AVAILABILITY . . . . . . . . . . . . . . . . . 92
ARTICLE 11 - DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 11.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . 93
SECTION 11.2 REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 95
SECTION 11.3 APPLICATION OF PROCEEDS. . . . . . . . . . . . . . . . 98
SECTION 11.4 POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 98
SECTION 11.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES . . . . . 99
ARTICLE 12 - ASSIGNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 12.1 SUCCESSORS AND ASSIGNS; PARTICIPATIONS . . . . . . . . 101
SECTION 12.2 REPRESENTATION OF LENDERS. . . . . . . . . . . . . . . 103
ARTICLE 13 - AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 13.1 APPOINTMENT OF AGENT . . . . . . . . . . . . . . . . . 104
SECTION 13.2 DELEGATION OF DUTIES . . . . . . . . . . . . . . . . . 104
SECTION 13.3 EXCULPATORY PROVISIONS . . . . . . . . . . . . . . . . 104
SECTION 13.4 RELIANCE BY AGENT. . . . . . . . . . . . . . . . . . . 105
SECTION 13.5 NOTICE OF DEFAULT. . . . . . . . . . . . . . . . . . . 105
SECTION 13.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. . . . . . . . 105
SECTION 13.7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . 106
SECTION 13.8 AGENT IN ITS INDIVIDUAL CAPACITY . . . . . . . . . . . 106
SECTION 13.9 SUCCESSOR AGENT. . . . . . . . . . . . . . . . . . . . 107
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SECTION 13.10 NOTICES FROM AGENT TO LENDERS. . . . . . . . . . . . . 107
ARTICLE 14 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 14.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 108
SECTION 14.2 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . 109
SECTION 14.3 STAMP AND OTHER TAXES. . . . . . . . . . . . . . . . . 110
SECTION 14.4 SETOFF . . . . . . . . . . . . . . . . . . . . . . . . 110
SECTION 14.5 CONSENT TO ADVERTISING AND PUBLICITY . . . . . . . . . 111
SECTION 14.6 REVERSAL OF PAYMENTS . . . . . . . . . . . . . . . . . 111
SECTION 14.7 ACCOUNTING MATTERS . . . . . . . . . . . . . . . . . . 111
SECTION 14.8 AMENDMENTS.. . . . . . . . . . . . . . . . . . . . . . 111
SECTION 14.9 ASSIGNMENT.. . . . . . . . . . . . . . . . . . . . . . 113
SECTION 14.10 PERFORMANCE OF BORROWER'S DUTIES . . . . . . . . . . . 113
SECTION 14.11 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . 113
SECTION 14.12 ALL POWERS COUPLED WITH INTEREST . . . . . . . . . . . 113
SECTION 14.13 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . 114
SECTION 14.14 TITLES AND CAPTIONS. . . . . . . . . . . . . . . . . . 114
SECTION 14.15 SEVERABILITY OF PROVISIONS . . . . . . . . . . . . . . 114
SECTION 14.16 GOVERNING LAW JURISDICTION; CONSENT TO SERVICE
OF PROCESS; WAIVER OF JURY TRIAL . . . . . . . . . . . 114
SECTION 14.17 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . 115
SECTION 14.18 REPRODUCTION OF DOCUMENTS. . . . . . . . . . . . . . . 115
SECTION 14.19 PRO-RATA PARTICIPATION . . . . . . . . . . . . . . . . 116
SECTION 14.20 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . 116
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ANNEX A COMMITMENTS
ANNEX B WIRE TRANSFER PROCEDURES
EXHIBIT A FORM OF REVOLVING CREDIT NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTANCE
EXHIBIT D FORM OF SETTLEMENT REPORT
Schedule 1.1A Permitted Investments
Schedule 1.1B Permitted Liens
Schedule 1.1C Letter of Credit Fees
Schedule 4.1(a)(9) Landlord's Waivers
Schedule 5.1(a) Organization
Schedule 5.1(b) Capitalization
Schedule 5.1(c) Subsidiaries; Ownership of Stock
Schedule 5.1(e) Compliance with Laws
Schedule 5.1(g) Governmental Approvals
Schedule 5.1(h) Title to Properties
Schedule 5.1(i) Liens
Schedule 5.1(j) Indebtedness and Guaranties
Schedule 5.1(k) Litigation
Schedule 5.1(l) Tax Matters
Schedule 5.1(p) ERISA
Schedule 5.1(t) Location of Offices and Receivables
Schedule 5.1(u) Location of Inventory
Schedule 5.1(v) Equipment
Schedule 5.1(w) Real Estate
Schedule 5.1(x) Corporate and Fictitious Names
Schedule 5.1(aa) Employee Relations
Schedule 5.1(bb) Proprietary Rights
Schedule 5.1(cc) Trade Names
Schedule 5.1(dd) Bank Accounts
Schedule 10.8 Recapitalization Documents
<PAGE>
LOAN AND SECURITY AGREEMENT
Dated as of August 20, 1997
BURKE INDUSTRIES, INC., a California corporation, the financial
institutions party to this Agreement from time to time, and NATIONSBANK, N.A., a
national banking association, as agent for the Lenders, agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Agreement:
ACCOUNT DEBTOR means a Person who is obligated on a Receivable.
ACQUIRE or ACQUISITION, as applied to any Business Unit or Investment,
means the acquiring or acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
AFFILIATE means, with respect to a Person, (a) any partner, officer,
manager, director, employee or managing agent of such Person, (b) any spouse,
parents, siblings, children or grandchildren of such Person, and (c) any other
Person (other than a Subsidiary), (i) that directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such given Person, (ii) that directly or indirectly beneficially owns or
holds 10% or more of any class of voting stock or voting membership, partnership
or other interest of such Person or any Subsidiary of such Person, or (iii) 10%
or more of the voting stock or membership, partnership or other interest of
which is directly or indirectly beneficially owned or held by such Person or a
Subsidiary of such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities or
membership, partnership or other voting interest, by contract or otherwise.
AGENT means NationsBank, N.A., a national banking association, and any
successor agent appointed pursuant to SECTION 13.9 hereof.
AGENT'S OFFICE means the office of the Agent specified in or determined in
accordance with the provisions of SECTION 14.1.
AGREEMENT means and includes this Agreement, including all Schedules,
Exhibits and other attachments hereto, and all amendments, modifications and
supplements hereto and thereto.
AGREEMENT DATE means the date as of which this Agreement is dated.
APPLICABLE LAW means all applicable provisions of constitutions, statutes,
rules, regulations and orders of all governmental bodies and of all orders and
decrees of all courts and arbitrators, including, without limitation,
Environmental Laws.
<PAGE>
APPLICABLE MARGIN means (a) as to Prime Rate Loans, 0%, and (b) as to
Eurodollar Rate Loans, 2.5%.
ASSET DISPOSITION means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction or similar arrangement) by the
Borrower or any of its Subsidiaries other than in the ordinary course (including
inventory), whether in a single transaction or a series of related transactions
(a) having a fair market value in excess of $1.0 million or (b) for aggregate
net proceeds in excess of $1.0 million. For the purposes of this definition,
the term "Asset Disposition" does not include any transfer of properties or
assets (i) that is governed by SECTION 10.7, (ii) between or among the Borrower
and the other Loan Parties pursuant to transactions that do not violate any
other covenant herein, (iii) a Restricted Payment or Permitted Investment that
is permitted by SECTION 10.4 or SECTION 10.6 (including, without limitation, any
formation of or contribution of assets to a joint venture), (iv) leases or
subleases, in the ordinary course of business, to third parties of real property
owned in fee or leased by the Borrower or its Subsidiaries, (v) any disposition
of property of the Borrower or any of its Subsidiaries that, in the reasonable
judgment of the Borrower, has become uneconomic, obsolete or worn out, (vi) the
sale of Cash Equivalents and (vii) any exchange of like property pursuant to
Section 1031 of the Code.
ASSIGNMENT and ACCEPTANCE means an assignment and acceptance in the form
attached hereto as EXHIBIT C assigning all or a portion of a Lender's interests,
rights and obligations under this Agreement pursuant to SECTION 12.1.
BENEFIT PLAN means an employee benefit plan as defined in Section 3(3) of
ERISA (other than a Multiemployer Plan) in respect of which the Borrower or any
Related Company is, or within the immediately preceding six years was, an
"employer" as defined in Section 3(5) of ERISA, including such plans as may be
established after the Agreement Date.
BORROWER means, Burke and shall include, where appropriate in the context,
each Subsidiary of Burke which becomes a Borrowing Subsidiary after the
Effective Date.
BORROWING means the borrowing of a group of Loans of a single Type made by
all Lenders on a single date and, in the case of Eurodollar Rate Loans, having a
single Interest Period, and shall mean and include the continuation or
conversion of an existing Loan or Loans in whole or in part.
BORROWING BASE means at any time an amount equal to the sum of:
(a) 85% (or such lesser percentage as the Agent may in its reasonable
credit judgment determine from time to time) of the face value of Eligible
Receivables due and owing at such time, PLUS
(b) 50% (or such lesser percentage as the Agent may in its reasonable
credit judgment determine from time to time) of the lesser of cost determined on
a FIFO (or first-in-first-out) accounting basis and fair market value of
Eligible Inventory, at such time, MINUS
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(c) the Letter of Credit Reserve and such reserves as the Agent in its
reasonable credit judgment may establish from time to time.
BORROWING BASE CERTIFICATE means a certificate in the form attached hereto
as EXHIBIT B or in such other form as may be acceptable to the Agent.
BORROWING SUBSIDIARY means each Subsidiary of Burke which becomes a party
to this Agreement as a Borrower after the Effective Date by executing Borrowing
Subsidiary Documents.
BORROWING SUBSIDIARY DOCUMENTS means each of the agreements, instruments
and documents, in form and substance satisfactory to the Agent, executed by a
Borrowing Subsidiary by which such Subsidiary becomes a party to this Agreement
as a borrower and undertakes joint and several liability with Burke and each
other Borrower for the Secured Obligations and grants a Lien on all of its
assets as security for the Secured Obligations.
BURKE means, at all times, prior to the effective date of the Merger, Burke
Industries, Inc., a California corporation, and from and after the effective
date of the Merger, means the surviving corporation of the Merger.
BUSINESS DAY means any day other than a Saturday, Sunday or other day on
which banks in Atlanta, Georgia are authorized to close and, when used with
respect to Eurodollar Rate Loans, means any such day on which dealings are also
carried on in the applicable interbank Eurodollar market.
BUSINESS UNIT means the assets constituting the business or a division or
operating unit thereof of any Person.
CAPITAL EXPENDITURES means, with respect to any Person, all expenditures
made and liabilities incurred for the acquisition of assets (other than assets
which constitute a Business Unit or Inventory) which are not, in accordance with
GAAP, treated as expense items for such Person in the year made or incurred or
as a prepaid expense applicable to a future year or years.
CAPITALIZED LEASE means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
CAPITALIZED LEASE OBLIGATION means Indebtedness represented by obligations
under a Capitalized Lease, and the amount of such Indebtedness shall be the
capitalized amount of such obligations determined in accordance with GAAP.
CASH COLLATERAL means collateral consisting of cash or Cash Equivalents on
which the Agent, for the benefit of itself as Agent and the Lenders, has a first
priority Lien.
CASH COLLATERAL ACCOUNT means a special interest-bearing deposit account
consisting of cash maintained at an office of the Agent or an Affiliate of the
Agent and under the sole
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dominion and control of the Agent, for its benefit and for the benefit of the
Lenders, established pursuant to the provisions of SECTION 3.16 for purposes set
forth therein.
CASH EQUIVALENTS means
(a) marketable direct obligations issued or unconditionally guaranteed by
the United States Government or issued by any agency thereof and backed by the
full faith and credit of the United States, in each case maturing within one
year from the date of acquisition thereof;
(b) commercial paper maturing no more than one year from the date issued
and, at the time of acquisition thereof, having a rating of at least A-1 from
S&P's Corporation or at least P-1 from Moody's;
(c) certificates of deposit, Eurodollar deposits or bankers' acceptances
issued in Dollar denominations and maturing within one year from the date of
issuance thereof issued by any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $100,000,000 and, unless issued by
the Agent or a Lender, not subject to set-off or offset rights in favor of such
bank arising from any banking relationship with such bank;
(d) repurchase agreements with a term of not more than seven days for
underlying securities of the types described in clauses (a), (b) and (c) above
with any financial institution meeting the requirements of clause (c) above; and
(e) shares of money market mutual funds or similar funds having assets in
excess of $500,000,000.
CASH FLOW means, for any accounting period of the Borrower, an amount equal
to the sum of the consolidated Net Income of the Borrower and its Consolidated
Subsidiaries for such accounting period, plus depreciation, amortization and
other non-cash charges against Net Income for such period, to the extent the
same were included in the computation of consolidated Net Income, minus cash
outlays for Capital Expenditures (other than Financed Capex) for such period.
CODE means the Internal Revenue Code of 1986.
COLLATERAL means and includes all of the Borrower's and each other Loan
Party's right, title and interest in and to each of the following, wherever
located and whether now or hereafter existing or now owned or hereafter acquired
or arising:
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, letters of credit and the right to receive
payment thereunder, chattel paper, tax refunds, insurance proceeds, any rights
under contracts not yet earned by performance and not evidenced by an instrument
or chattel paper, notes, drafts, instruments, documents, acceptances and all
other debts, obligations and liabilities
4
<PAGE>
in whatever form from any Person, (ii) all guaranties, security and Liens
securing payment thereof, (iii) all goods, whether now owned or hereafter
acquired, and whether sold, delivered, undelivered, in transit or returned,
evidenced by, or the sale or lease of which may have given rise to, any such
right to payment or other debt, obligation or liability, and (iv) all proceeds
of any of the foregoing (the foregoing, collectively, RECEIVABLES),
(b) (i) all inventory, (ii) all goods intended for sale or lease or for
display or demonstration, (iii) all work in process, (iv) all raw materials and
other materials and supplies of every nature and description used or which might
be used in connection with the manufacture, packing, shipping, advertising,
selling, leasing or furnishing of goods or services or otherwise used or
consumed in the conduct of business, and (v) all documents evidencing and
general intangibles relating to any of the foregoing (the foregoing,
collectively, INVENTORY),
(c) (i) all machinery, apparatus, equipment, motor vehicles, tractors,
trailers, rolling stock, fittings, fixtures and other tangible personal property
(other than Inventory) of every kind and description, (ii) all tangible personal
property (other than Inventory) and fixtures used in the Borrower's business
operations or owned by the Borrower or in which the Borrower has an interest,
and (iii) all parts, accessories and special tools and all increases and
accessions thereto and substitutions and replacements therefor, excluding,
however, any such property that is subject to a lease or Lien permitted to exist
by this Agreement which prohibits the creation of the Security Interest therein
(the foregoing, collectively, EQUIPMENT),
(d) all general intangibles, choses in action and causes of action and all
other intangible personal property of every kind and nature (other than
Receivables), including, without limitation, Proprietary Rights, corporate or
other business records, inventions, designs, blueprints, plans, specifications,
trade secrets, goodwill, computer software, customer lists, registrations,
licenses, franchises, tax refund claims, reversions or any rights thereto and
any other amounts payable to such Person from any Benefit Plan, Multiemployer
Plan or other employee benefit plan, rights and claims against carriers and
shippers, rights to indemnification, business interruption insurance and
proceeds thereof, property, casualty or any similar type of insurance and any
proceeds thereof, the beneficiary's interest in proceeds of insurance covering
the lives of key employees and any letter of credit, guarantee, claims, security
interest or other security for the payment by an Account Debtor of any of the
Receivables (the foregoing, collectively, GENERAL INTANGIBLES),
(e) any demand, time, savings, passbook, money market or like depository
account, and all certificates of deposit, maintained with a bank, savings and
loan association, credit union or like organization, other than an account
evidenced by a certificate of deposit that is an instrument under the UCC (the
foregoing, collectively, DEPOSIT ACCOUNTS),
(f) all certificated and uncertificated securities, all security
entitlements, all securities accounts, all commodity contracts and all commodity
accounts, including all Pledged Collateral (as defined in the Pledge Agreement)
(the foregoing, collectively, INVESTMENT PROPERTY),
(g) (i) any investment account maintained by or on behalf of the Borrower
with the Agent or any Lender or any Affiliate of the Agent or any Lender, (ii)
any agreement governing
5
<PAGE>
such account, (iii) all cash, money, notes, securities, instruments, goods,
accounts, documents, chattel paper, general intangibles and other property now
or hereafter held by the Agent or any Lender or any Affiliate of the Agent or
any Lender on behalf of the Borrower in connection with such investment account
or deposited by the Borrower or on the Borrower's behalf to such investment
account or otherwise credited thereto for the Borrower's benefit, or
distributable to the Borrowers from such investment account, together with all
contracts for the sale or purchase of the foregoing, (iv) all of the Borrower's
right, title and interest with respect to the deposit, investment, allocation,
disposition, distribution or withdrawal of the foregoing, (v) all of the
Borrower's right, title and interest with respect to the making of amendments,
modifications or additions of or to the terms and conditions under which the
investment account or investments maintained therein is to be maintained by the
Borrower, any Lender or any Affiliate of the Agent or any Lender on the
Borrower's behalf, and (vi) all of the Borrower's books, records and receipts
pertaining to or confirming any of the foregoing (the foregoing, collectively,
INVESTMENT ACCOUNTS),
(h) all cash or other property deposited with the Agent or any Lender or
any Affiliate of the Agent or any Lender or which the Agent, for its benefit and
for the benefit of the Lenders, or any Lender or such Affiliate is entitled to
retain or otherwise possess as collateral pursuant to the provisions of this
Agreement or any of the Loan Documents or any agreement relating to any Letter
of Credit, including, without limitation, amounts on deposit in the Cash
Collateral Account,
(i) all Real Estate,
(j) all goods and other property, whether or not delivered, (i) the sale
or lease of which gives or purports to give rise to any Receivable, including,
but not limited to, all merchandise returned or rejected by or repossessed from
customers, or (ii) securing any Receivable, including, without limitation, all
rights as an unpaid vendor or lienor (including, without limitation, stoppage in
transit, replevin and reclamation) with respect to such goods and other
properties,
(k) all mortgages, deeds to secure debt and deeds of trust on real or
personal property, guaranties, leases, security agreements and other agreements
and property which secure or relate to any Receivable or other Collateral or are
acquired for the purpose of securing and enforcing any item thereof,
(l) all documents of title, including bills of lading and warehouse
receipts, policies and certificates of insurance, securities, chattel paper and
other documents and instruments,
(m) all files, correspondence, computer programs, tapes, disks and related
data processing software which contain information identifying or pertaining to
any of the Collateral or any Account Debtor or showing the amounts thereof or
payments thereon or otherwise necessary or helpful in the realization thereon or
the collection thereof,
(n) any and all products and cash and non-cash proceeds of the foregoing
(including, but not limited to, any claims to any items referred to in this
definition and any claims against
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third parties for loss of, damage to or destruction of any or all of the
Collateral or for proceeds payable under or unearned premiums with respect to
policies of insurance) in whatever form, including, but not limited to, cash,
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements and other documents.
Notwithstanding anything herein to the contrary, the Collateral shall not
include (i) any agreement with a third party existing on the date hereof that
prohibits the grant of a Lien on (but not merely the assignment of or of any
interest in) such agreement or any of the Borrower's rights thereunder without
the consent of such party or under which a consent to such grant is otherwise
required, which consent has not been obtained, except to the extent rights under
such agreement are covered by Section 9-318 of the UCC; or (ii) any license,
permit or other Governmental Approval that, under the terms and conditions of
such Governmental Approval or under Applicable Law, cannot be subjected to a
Lien in favor of the Agent without the consent of the relevant party which
consent has not been obtained; PROVIDED, HOWEVER, that the Collateral shall
include all items excluded pursuant to clauses (i) or (ii) from and after the
date on which the requisite consent is obtained.
COLLATERAL AVAILABILITY means the excess, if any, of the Borrowing Base in
effect on the date of determination over the aggregate outstanding principal
amount of Revolving Credit Loans.
COMMITMENT means, as to each Lender, the amount set forth opposite such
Lender's name on ANNEX A hereto as reduced from time to time pursuant to the
terms hereof, representing such Lender's obligation, upon and subject to the
terms and conditions of this Agreement, to make its Proportionate Share of Loans
under the Revolving Credit Facility and to participate Ratably in Letters of
Credit.
COMMITMENT PERCENTAGE means, as to any Lender at the time of determination,
the result, expressed as a percentage, obtained by dividing such Lender's
Commitment at such time by the aggregate Commitments at such time.
CONSOLIDATED SUBSIDIARIES means, as to the Borrower, each Loan Party and
each other Subsidiary whose accounts are at the time in question, in accordance
with GAAP and pursuant to the written consent of the Required Lenders, which
consent may be withheld in their absolute discretion conditioned upon, INTER
ALIA, the execution and delivery of Borrowing Subsidiary Documents, guaranties,
security agreements, mortgages and other documents required by the Required
Lenders in their absolute discretion, consolidated with those of the Borrower.
CONTAMINANT means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste.
CONTROLLED DISBURSEMENT ACCOUNT means one or more accounts maintained by
and in the name of the Borrower with a Disbursing Bank for the purposes of
disbursing Revolving Credit Loan proceeds and other amounts held by such
Disbursing Bank.
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COPYRIGHTS means and includes, in each case whether now existing or
hereafter arising;
(a) all copyrights, rights and interests in copyrights, works protectable
by copyright, copyright registrations and copyright applications;
(b) all renewals of any of the foregoing;
(c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the foregoing;
(d) the right to sue for past, present and future infringements of any of
the foregoing; and
(e) all rights corresponding to any of the foregoing throughout the world.
CURRENT ASSETS means, with respect to any Person, the aggregate amount of
assets of such Person which should properly be classified as current assets in
accordance with GAAP, after deducting adequate reserves in each case where a
reserve is appropriate in accordance with GAAP.
CURRENT LIABILITIES means, with respect to any Person, the aggregate amount
of all Liabilities of such Person which should properly be classified as current
liabilities in accordance with GAAP.
CURRENT MATURITIES means, when used in connection with Funded Debt, as of
any date of determination, the principal amount of such Debt coming due on such
date or during the 12-month period following such date in accordance with the
terms of any instrument or agreement evidencing such Debt or relating thereto.
DEBT means, without duplication, (a) Indebtedness for money borrowed, (b)
Indebtedness, whether or not in any such case the same was for money borrowed,
(i) represented by notes payable, drafts accepted and reimbursement obligations
under letters of credit and similar instruments that represent extensions of
credit, (ii) constituting obligations evidenced by bonds, debentures, notes or
similar instruments, or (iii) issued or assumed as full or partial payment for
property (other than trade payables incurred in the ordinary course of
business), (c) Indebtedness that constitutes a Capitalized Lease Obligation, (d)
Indebtedness that is such by virtue of clause (c) of the definition thereof, but
only to the extent that the obligations Guaranteed are obligations that would
constitute Debt, and (e) Hedging Obligations.
DEFAULT means any of the events specified in SECTION 11.1 which, with the
passage of time or giving of notice, or both, would constitute an Event of
Default.
DEFAULT MARGIN means 2.0%.
DEPOSIT ACCOUNT has the meaning set forth in the definition "COLLATERAL."
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DISBURSING BANK means any commercial bank with which a Controlled
Disbursement Account is maintained after the Effective Date.
DOLLAR and $ means freely transferable United States dollars.
EBIT for any accounting period means Net Income for such period before
provision for interest expense and income taxes.
EBITDA for any accounting period, means EBIT for such period, before
provision for depreciation expense and amortization in such period.
EFFECTIVE DATE means the later of:
(a) the Agreement Date, and
(b) the first date on which all of the conditions set forth in SECTIONS
4.1 AND 4.2 shall have been fulfilled or waived by the Lenders.
EFFECTIVE INTEREST RATE means each rate of interest per annum on the
Revolving Credit Loans in effect from time to time pursuant to the provisions of
SECTIONS 3.1(a), (b), (c) AND (d).
ELIGIBLE ASSIGNEE means (i) a commercial bank organized under the laws of
the United States, or any State thereof, having total assets in excess of
$10,000,000,000; (ii) any commercial finance company or asset-based lender,
organized under the laws of the United States or any state thereof, that is an
Affiliate of a commercial bank having total assets in excess of $10,000,000,000;
(iii) any Lender listed on the signature page of this Agreement; and (iv) as to
any Lender, such of its Affiliates as are commercial banks or trust companies,
organized under the laws of an OECD member country and acting through a branch
in the United States; PROVIDED in each case that the representation contained in
SECTION 12.2 hereof shall be applicable with respect to such institution or
Lender.
ELIGIBLE INVENTORY means items of Inventory of the Borrower (including each
Borrowing Subsidiary) held for sale in the ordinary course of the business of
the Borrower (but not including packaging or shipping materials or maintenance
supplies) which meet all of the following requirements: (a) such Inventory is
owned by the Borrower, is subject to the Security Interest, which is perfected
as to such Inventory, and is subject to no other Lien whatsoever other than a
Permitted Lien; (b) such Inventory consists of raw materials or finished goods
and does not consist of work-in-process, supplies or consigned goods; (c) such
Inventory is in good condition and meets all standards applicable to such goods,
their use or sale imposed by any governmental agency, or department or division
thereof, having regulatory authority over such matters; (d) such Inventory is
currently either usable or saleable, at prices approximating at least the cost
thereof, in the normal course of the Borrower's business; (e) such Inventory is
not obsolete or returned or repossessed or used goods taken in trade; (f) such
Inventory is located within the United States at one of the locations listed in
SCHEDULE 5.1(u); (g) such Inventory is in the possession and control of the
Borrower and not any third party and if located in a warehouse or other facility
leased by the Borrower, the lessor has delivered to the Agent a waiver and
consent
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in form and substance satisfactory to the Agent, provided that, for a period of
three months following the Effective Date, up to $3,000,000 in value of
Inventory located in warehouses or leased facilities shall not be subject to the
waiver and consent requirement of this CLAUSE (g); and (h) such Inventory is not
determined by the Agent in its reasonable credit judgment to be ineligible for
any other reason.
ELIGIBLE RECEIVABLE means a Receivable of the Borrower (including each
Borrowing Subsidiary) that consists of the unpaid portion of the obligation
stated on the invoice issued to an Account Debtor with respect to Inventory sold
and shipped to or services performed for such Account Debtor in the ordinary
course of business, net of any credits or rebates owed by the Borrower to the
Account Debtor and net of any commissions payable by the Borrower to third
parties and that meets all of the following requirements: (a) such Receivable
is owned by the Borrower and represents a complete BONA FIDE transaction which
requires no further act under any circumstances on the part of the Borrower to
make such Receivable payable by the Account Debtor; (b) such Receivable is not
unpaid more than 120 days after the date of the original invoice or past due
more than 60 days after its due date, which shall not be later than 60 days
after the invoice date; (c) such Receivable does not arise out of any
transaction with any Subsidiary, Affiliate, creditor, lessor or supplier of the
Borrower; (d) such Receivable is not owing by an Account Debtor more than 50% of
whose then-existing accounts owing to the Borrower do not meet the requirements
set forth in CLAUSE (b) above; (e) if the Account Debtor with respect thereto is
located outside of the United States of America, the goods which gave rise to
such Receivable were shipped after receipt by the Borrower from the Account
Debtor of an irrevocable letter of credit that has been confirmed by a financial
institution acceptable to the Agent, is in form and substance acceptable to the
Agent, payable in the full face amount of the face value of the Receivable in
Dollars at a place of payment located within the United States and has been duly
assigned to the Agent; (f) the Account Debtor with respect to such Receivable is
not located in a state which imposes conditions on the enforceability of
Receivables with which the Borrower has not complied; (g) such Receivable is not
subject to the Assignment of Claims Act of 1940, as amended from time to time,
or any Applicable Law now or hereafter existing similar in effect thereto, as
determined in the sole discretion of the Agent, or to any provision prohibiting
its assignment or requiring notice of or consent to such assignment unless
requirements thereunder relating to the perfection or enforcement of the
Security Interest therein have been complied with, provided that Receivables
subject to the Assignment of Claims Act up to $2,000,000 in the aggregate at any
time shall not be excluded from Eligible Receivables by this CLAUSE (g); (h) the
Borrower is not in breach of any express or implied representation or warranty
with respect to the goods the sale of which gave rise to such Receivable; (i)
the Account Debtor with respect to such Receivable is not insolvent or the
subject of any bankruptcy or insolvency proceedings of any kind or of any other
proceeding or action, threatened or pending, which might, in the Lender's sole
judgment, have a Materially Adverse Effect on such Account Debtor; (j) the goods
the sale of which gave rise to such Receivable were shipped or delivered to the
Account Debtor on an absolute sale basis and not on a bill and hold sale basis,
a consignment sale basis, a guaranteed sale basis, a sale or return basis or on
the basis of any other similar understanding, and such goods have not been
returned or rejected; (k) such Receivable is not owing by an Account Debtor or a
group of affiliated Account Debtors whose then-existing accounts owing to the
Borrower exceed in face amount 20% of the Borrower's total Eligible
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Receivables; (l) such Receivable is evidenced by an invoice or other
documentation in form acceptable to the Agent containing only terms normally
offered by the Borrower, and dated no later than the date of shipment; (m) such
Receivable is a valid, legally enforceable obligation of the Account Debtor with
respect thereto and is not subject to any present, or contingent (and no facts
exist which are the basis for any future), offset, deduction or counterclaim,
dispute or other defense on the part of such Account Debtor; (n) such Receivable
is not evidenced by chattel paper or an instrument of any kind; (o) such
Receivable does not arise from the performance of services, including services
under or related to any warranty obligation of the Borrower or out of service
charges by the Borrower or other fees for the time value of money, provided that
Receivables for services aggregating up to $50,000 shall not be excluded from
Eligible Receivables by this CLAUSE (o); (p) such Receivable is subject to the
Security Interest, which is perfected as to such Receivable, and is subject to
no other Lien whatsoever other than a Permitted Lien and the goods giving rise
to such Receivable were not, at the time of the sale thereof, subject to any
Lien other than a Permitted Lien; and (q) such Receivable is not determined by
the Agent in its reasonable credit judgment to be ineligible for any other
reason.
ENVIRONMENTAL LAWS means all federal, state, local and foreign laws now or
hereafter in effect relating to pollution or protection of the environment,
including laws relating to emissions, discharges, Releases or threatened
Releases of pollutants, Contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport, or handling of pollutants, Contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes, and any and
all regulations, notices or demand letters issued, entered, promulgated or
approved thereunder; such laws and regulations include but are not limited to
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., as
amended; the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 ET SEQ., as amended; the Toxic Substances Control
Act, 15 U.S.C. Section 2601 ET SEQ., as amended; the Clean Air Act, 46 U.S.C.
Section 7401 ET SEQ., as amended; and state and federal lien and environmental
cleanup programs.
ENVIRONMENTAL LIEN means a Lien in favor of any governmental entity for (a)
any liability under Environmental Laws or (b) damages arising from, or costs
incurred by such governmental entity in response to, a Release or threatened
Release of Contaminant into the environment.
EQUIPMENT has the meaning set forth in the definition "COLLATERAL."
ERISA means the Employee Retirement Income Security Act of 1974, as in
effect from time to time.
ERISA EVENT means (a) a "Reportable Event" as defined in Section 4043(c) of
ERISA, but excluding any such event as to which the provision for 30 days'
notice to the PBGC is waived under applicable regulations, (b) the filing of a
notice of intent to terminate a Benefit Plan subject to Title IV of ERISA or the
treatment of an amendment to such a Benefit Plan as a termination under Section
4041 of ERISA, (c) the institution of proceedings by the PBGC to terminate a
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Benefit Plan subject to Title IV of ERISA or the appointment of a trustee to
administer any such Benefit Plan or an event or condition that would constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Benefit Plan subject to Section 4042, (d) the
imposition of any liability under Title IV of ERISA other than for PBGC premiums
due but not yet payable, (e) the filing of an application for a minimum funding
waiver under Section 412 of the Code, (f) a withdrawal by a Borrower or any
Related Employer from a Benefit Plan subject to Section 4063 of ERISA during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA), (g) a Benefit Plan intending to qualify under Section
401(a) of the Code losing such qualified status, (h) the failure to make a
material required contribution to a Benefit Plan, (i) a Borrower or any Related
Company being in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan because of its complete or partial
withdrawal (as described in Section 4023 or 4205 of ERISA) from such
Multiemployer Plan, or (j) the occurrence of a material non-exempt prohibited
transaction within the meaning of Section 4975 of the Code or Section 406 of
ERISA with respect to any Benefit Plan that is not cured within 30 days after
the Borrower has knowledge thereof.
EURODOLLAR RATE means, with respect to any Eurodollar Rate Loan for the
Interest Period applicable thereto, a simple per annum interest rate determined
pursuant to the following formula:
Eurodollar Rate = INTERBANK OFFERED RATE
---------------------------------
1 - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective
date of any change in the Eurodollar Reserve Percentage.
EURODOLLAR RATE LOAN means any Loan bearing interest at a rate determined
by reference to the Eurodollar Rate.
EURODOLLAR RESERVE PERCENTAGE means that percentage (expressed as a
decimal) which is in effect from time to time under Regulation D of the Board of
Governors of the Federal Reserve System, as such regulation may be amended from
time to time, or any successor regulation, as the maximum reserve requirement
(including, without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as that
term is defined in Regulation D (or against any other category of liabilities
that includes deposits by reference to which the interest rate of Eurodollar
Rate Loans is determined), whether or not any Lender has any Eurocurrency
liabilities subject to such reserve requirement at that time. Eurodollar Rate
Loans shall be deemed to constitute Eurocurrency liabilities and as such shall
be deemed subject to reserve requirements without benefits of credits for
proration, exceptions or offsets that may be available from time to time to any
Lender.
EVENT OF DEFAULT means any of the events specified in SECTION 11.1,
provided that any requirement for notice or lapse of time or any other condition
has been satisfied.
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FEDERAL FUNDS EFFECTIVE RATE means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve system arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by NationsBank from three federal funds brokers of
recognized standing selected by NationsBank.
FINANCED CAPEX means Capital Expenditures funded with the proceeds of
Permitted Purchase Money Debt (excluding Loans) and those represented by
Capitalized Lease Obligations.
FINANCIAL OFFICER means the Vice President-Finance, Treasurer or Controller
of the Borrower.
FINANCING STATEMENTS means any and all Uniform Commercial Code financing
statements, in form and substance satisfactory to the Agent, executed and
delivered by the Borrower to the Agent, naming the Agent, for the benefit of the
Lenders, as secured party and the Borrower as debtor, in connection with this
Agreement.
FISCAL MONTH means each of the 12 consecutive four or five week periods
beginning on the first day of a Fiscal Year and occurring in the pattern of two
four-week periods, followed by a five-week period (except that in each Fiscal
Year comprising 53 weeks, the 1st Fiscal Month also has five weeks).
FISCAL QUARTER means each of the four periods of three Fiscal Months
beginning on the first day of a Fiscal Year and on the day following the last
day of each succeeding Fiscal Quarter.
FISCAL YEAR means the period beginning on the Saturday after the Friday
closest to December 31 of one calendar year and ending on the Friday closest to
December 31 of the immediately succeeding calendar year.
FIXED CHARGE COVERAGE RATIO means the ratio, of (i) EBITDA minus Unfunded
Capex, in each case of the Borrower and its Consolidated Subsidiaries for the
indicated accounting period to (ii) the sum of accrued interest expense plus
payments of Capitalized Lease Obligations plus payments of Debt other than the
Loans or any other revolving Debt permitted under this Agreement plus Restricted
Distributions with respect to capital stock of the Borrower, in each case of the
Borrower and its Consolidated Subsidiaries for the indicated accounting period.
FUNDED DEBT means Debt having a maturity of more than 12 months from the
date of determination or having a maturity of less than 12 months from such date
but by its terms being renewable or extendible beyond 12 months from such date
at the option of the Person liable thereon.
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GAAP means generally accepted accounting principles in effect on the
Agreement Date consistently applied and maintained throughout the period
indicated and, when used with reference to the Borrower or any Subsidiary,
consistent with the prior financial practice of the Borrower, as reflected on
the financial statements referred to in SECTION 5.1(n); PROVIDED, HOWEVER, that,
in the event that changes shall be mandated by the Financial Accounting
Standards Board or any similar accounting authority of comparable standing, or
shall be recommended by the Borrower's independent public accountants, such
changes shall be included in GAAP as applicable to the Borrower only from and
after such date as the Borrower, the Required Lenders and the Agent shall have
amended this Agreement to the extent necessary to reflect any such changes in
the financial covenants set forth in ARTICLE 10.
GENERAL INTANGIBLES has the meaning set forth in the definition
"COLLATERAL."
GOVERNMENTAL APPROVALS means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
governmental bodies, whether federal, state, local or foreign national or
provincial and all agencies thereof.
GUARANTOR means each of Burke Flooring Products, Inc., Burke Custom
Processing, Inc. and Burke Rubber Company, Inc. each a California corporation
and a Wholly Owned Subsidiary of the Borrower.
GUARANTY, GUARANTEED or to GUARANTEE as applied to any obligation of
another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), directly or indirectly, in any
manner, of any part or all of such obligation of such other Person, and
(b) an agreement, direct or indirect, contingent or otherwise, and whether
or not constituting a guaranty, the practical effect of which is to assure the
payment or performance (or payment of damages in the event of nonperformance) of
any part or all of such obligation of such other Person whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or lessor) of property or
the purchase or sale of services primarily for the purpose of enabling the
obligor with respect to such obligation to make any payment or performance
(or payment of damages in the event of nonperformance) of or on account of
any part or all of such obligation, or to assure the owner of such
obligation against loss,
(iii) the supplying of funds to or in any other manner investing
in the obligor with respect to such obligation,
(iv) repayment of amounts drawn down by beneficiaries of letters of
credit, or
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(v) the supplying of funds to or investing in a Person on account of
all or any part of such Person's obligation under a Guaranty of any
obligation or indemnifying or holding harmless, in any way, such Person
against any part or all of such obligation.
HEDGING OBLIGATIONS means the obligations of any Person under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or the value of foreign currencies
or prices of commodities, PROVIDED, that such obligations are incurred in the
ordinary course of business of such Person and bear a reasonable relationship to
the principal amount of a Debt of such Person or reasonably anticipated receipts
or payment obligations of such Person in the designated foreign currency or such
Person's obligation to supply or requirements for such commodities.
INDEBTEDNESS of any Person means, without duplication, all Liabilities of
such Person, and to the extent not otherwise included in Liabilities, the
following:
(a) all obligations for money borrowed or for the deferred purchase price
of property or services or in respect of drafts accepted or similar instruments
or reimbursement obligations under letters of credit,
(b) all obligations (including, during the noncancellable term of any
lease in the nature of a title retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held by
such Person is subject, whether or not the obligation secured thereby shall have
been assumed by such Person,
(c) all obligations of other Persons which such Person has Guaranteed,
including, but not limited to, all obligations of such Person consisting of
recourse liability with respect to accounts receivable sold or otherwise
disposed of by such Person,
(d) all obligations of such Person in respect of interest rate hedging
agreements, and
(e) in the case of the Borrower (without duplication) all obligations
under the Revolving Credit Loans.
INTERBANK OFFERED RATE means, for any Eurodollar Rate Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Telerate Page 3750 in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period. If for any
reason such rate is not available, the term "Interbank Offered Rate" shall mean,
for any Eurodollar Rate Loan for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest Period;
PROVIDED, HOWEVER, is more than one rate as specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates.
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INTEREST PAYMENT DATE means the first day of each calendar month commencing
on September 1, 1997 and continuing thereafter until the Secured Obligations
have been irrevocably paid in full and on the date such Secured Obligations are
due (whether at maturity, by reason of acceleration or otherwise).
INTEREST PERIOD means with respect to each Eurodollar Rate Loan, the period
commencing on the date of the making or continuation of or conversion to such
Eurodollar Rate Loan and ending one, two, three, six or, if offered by the
Agent, nine or twelve, months thereafter, as the Borrower may elect in the
applicable Notice of Borrowing or Notice of Conversion or Continuation;
PROVIDED, that:
(i) any Interest Period that would otherwise end on a day that is
not a Business Day shall, subject to the provisions of CLAUSE (iii) below,
be extended to the next succeeding Business Day unless such Business Day
falls in the next calendar month, in which case such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to CLAUSE (iii) below, end on the last Business Day of a calendar
month;
(iii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date; and
(iv) notwithstanding CLAUSE (iii) above, no Interest Period shall
have a duration of less than one month and if any applicable Interest
Period would be for a shorter period, such Interest Period shall not be
available hereunder.
INVENTORY has the meaning set forth in the definition "COLLATERAL."
INVESTMENT means, with respect to any Person:
(a) the acquisition or ownership by such Person of any share of capital
stock, evidence of Indebtedness or other security issued by any other Person,
(b) any loan, advance or extension of credit to, or contribution to the
capital of, any other Person, excluding advances to employees in the ordinary
course of business for business expenses or relocation,
(c) any Guaranty of the obligations of any other Person,
(d) any other investment (other than the Acquisition of a Business Unit)
in any other Person, and
(e) any commitment or option to make any of the investments listed in
CLAUSES (a) through (d) above if, in the case of an option, the consideration
therefor exceeds $100 and to the extent of such consideration.
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INVESTMENT ACCOUNT has the meaning set forth in the definition
"COLLATERAL."
INVESTMENT PROPERTY has the meaning set forth in the definition of
"COLLATERAL."
IRS means the Internal Revenue Service.
JFLCO means JFL Merger Co., a California corporation.
JFLEI means J.F. Lehman Equity Investors I, L.P., a Delaware limited
partnership.
LENDER means at any time any financial institution party to this agreement
at such time, including any such Person becoming a party hereto pursuant to the
provisions of ARTICLE 12, and LENDERS means at any time all of the financial
institutions party to this Agreement at such time, including any such Persons
becoming parties hereto pursuant to the provisions of ARTICLE 12.
LETTER OF CREDIT means each standby letter of credit issued for the
account of the Borrower or any Borrowing Subsidiary by NationsBank pursuant to
ARTICLE 2A.
LETTER OF CREDIT AVAILABILITY means, as of the date of determination, the
aggregate amount of additional Letter of Credit Obligations which may be
incurred at the time of determination in accordance with SECTION 2A.2, which
shall be an amount equal to the lesser of (i) the Letter of Credit Facility
minus the Letter of Credit Obligations and (ii) the Revolving Credit
Availability, in each case, on such date.
LETTER OF CREDIT DOCUMENTS means the documents, agreements and other
writings required by NationsBank to be executed and/or delivered in connection
with the issuance of a Letter of Credit not inconsistent with the provisions of
this Agreement, including, without limitation, any letter of credit application
and Reimbursement Agreement not inconsistent with the provisions of this
Agreement.
LETTER OF CREDIT FACILITY means a subfacility of the Revolving Credit
Facility providing for the issuance of Letters of Credit described in ARTICLE 2A
up to an aggregate amount of Letter of Credit Obligations at any one time
outstanding not to exceed the amount of $1,000,000.
LETTER OF CREDIT FEES means fees charged by NationsBank for its account and
for the account of the Lenders in connection with the issuance of a Letter of
Credit determined in accordance with SCHEDULE 1.1C - LETTER OF CREDIT FEES
attached hereto.
LETTER OF CREDIT OBLIGATIONS means the aggregate face amount of all
outstanding Letters of Credit available to be drawn (assuming all conditions to
drawing are satisfied), plus the aggregate amount of any unreimbursed drawings
under any Letters of Credit.
LETTER OF CREDIT RESERVE means, at any time, an amount equal to the Letter
of Credit Obligations at such time.
LIABILITIES of any Person means all items (except for items of capital
stock, additional paid-in capital or retained earnings, or of general
contingency or deferred tax reserves) which in
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accordance with GAAP would be included in determining total liabilities as shown
on the liability side of a balance sheet of such Person as at the date as of
which Liabilities are to be determined.
LIEN as applied to the property of any Person means:
(a) any mortgage, deed to secure debt, deed of trust, lien, pledge,
charge, lease constituting a Capitalized Lease Obligation, conditional sale or
other title retention agreement, or other security interest, security title or
encumbrance of any kind in respect of any property of such Person, or upon the
income or profits therefrom,
(b) any arrangement, express or implied, under which any property of such
Person is transferred, sequestered or otherwise identified for the purpose of
subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to the payment of the general, unsecured creditors of
such Person,
(c) any Indebtedness which is unpaid more than 30 days after the same
shall have become due and payable and which if unpaid might by law (including,
but not limited to, bankruptcy and insolvency laws), or otherwise, be given any
priority whatsoever over the claims of general unsecured creditors of such
Person,
(d) the filing of, or any agreement to give, any financing statement under
the UCC or its equivalent in any jurisdiction, excluding informational financing
statements relating to property leased by the Borrower, and
(e) in the case of Real Estate, reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances.
LOAN means any Revolving Credit Loan, as well as all such loans
collectively, as the context requires.
LOAN ACCOUNT and LOAN ACCOUNTS shall have the meanings ascribed thereto in
SECTION 3.5.
LOAN DOCUMENTS means collectively this Agreement, the Notes, the Security
Documents and each other instrument, agreement or document executed by the
Borrower, or any Subsidiary of the Borrower, or any Affiliate of the Borrower or
such Subsidiary in connection with this Agreement whether prior to, on or after
the Effective Date and each other instrument, agreement or document referred to
herein or contemplated hereby.
LOAN PARTY means each of the Borrower, each Guarantor and each Borrowing
Subsidiary.
LOAN YEAR means each period of 12 consecutive months commencing on the
Effective Date and on each anniversary thereof.
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MARGIN STOCK means margin stock as defined in Section 221.1(h) of
Regulation U, as the same may be amended or supplemented from time to time.
MATERIALLY ADVERSE EFFECT means any act, omission, situation, circumstance,
event or undertaking which, singly or in any combination with one or more other
acts, omissions, situations, circumstances, events or undertakings, could
reasonably be expected by the Agent to have, a materially adverse effect upon
(a) the business, assets, properties, liabilities, condition (financial or
otherwise), or results of operations of the Borrower and its Subsidiaries taken
as a whole, (b) the value of the Collateral, the Security Interest or the
priority of the Security Interest, (c) the respective ability of the Borrower or
any of its Subsidiaries to perform any obligations under this Agreement or any
other Loan Document to which it is a party, or (d) the legality, validity,
binding effect or enforceability of any Loan Document or the ability of the
Agent or any Lender to enforce any rights or remedies under or in connection
with any Loan Document.
MERGER means the merger of JFLCo and Burke, with Burke as the surviving
corporation, consummated pursuant to and in accordance with the terms of the
Merger Agreement as part of the Recapitalization.
MERGER AGREEMENT means the Agreement and Plan of Merger dated as of August
8, 1997 among JFLEI, JFLCo, Burke and certain shareholders of Burke.
MOODY'S means Moody's Investors Service, Inc.
MORTGAGES means and includes any and all of the mortgages, deeds of trust,
deeds to secure debt, assignments and other instruments executed and delivered
by the Borrower to or for the benefit of the Agent by which the Agent, on behalf
of the Lenders, acquires a Lien on the Borrower's Real Estate or a collateral
assignment of the Borrower's interest under leases of Real Estate, and all
amendments, modifications and supplements thereto.
MULTIEMPLOYER PLAN means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which the Borrower or a Related Company is required to
contribute or has contributed within the immediately preceding six years.
NATIONSBANK means NationsBank, N.A.
NET AMOUNT means, with respect to any Investments made by any Person, the
gross amount of all such Investments minus the aggregate amount of all cash
received and the fair value, at the time of receipt by such Person, of all
property received as payments of principal or premiums, returns of capital,
liquidating dividends or distributions, proceeds of sale or other dispositions
with respect to such Investments.
NET INCOME or NET LOSS means, as applied to any Person for any accounting
period, the net income or net loss, as the case may be, of such Person for the
period in question after giving effect to deduction of or provision for all
operating expenses, all taxes and reserves (including reserves for deferred
taxes) and all other proper deductions, all determined in accordance with GAAP,
provided that there shall be excluded: (a) the net income or net loss of any
Person
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accrued prior to the date it becomes a Subsidiary of, or is merged into or
consolidated with, the Person whose Net Income is being determined or a
Subsidiary of such Person; (b) the net income or net loss of any Person (other
than a consolidated Subsidiary of such Person) in which the Person whose Net
Income is being determined or any Subsidiary of such Person has an ownership
interest, except, in the case of net income, to the extent that any such income
has actually been received by such Person or a Subsidiary of such Person in the
form of cash dividends or similar distributions; (c) any restoration of any
contingency reserve, except to the extent that provision for such reserve was
made out of income during such period; (d) any net gains or losses on the sale
or other disposition, not in the ordinary course of business, of Investments,
Business Units and other capital assets, provided that there shall also be
excluded any related charges for taxes thereon; (e) any net gain arising from
the collection of the proceeds of any insurance policy; (f) any write-up of any
asset; and (g) any other extraordinary or non-recurring item.
NET OUTSTANDINGS of any Lender means, at any time, the sum of (a) all
amounts paid by such Lender (other than pursuant to Section 13.7) to the Agent
in respect of Loans by such Lender, minus (b) all amounts received by the Agent
and paid by the Agent to such Lender for application, pursuant to this
Agreement, to reduction of the outstanding principal balance of the Loans of
such Lender.
NET PROCEEDS means proceeds received by the Borrower or any of its
Subsidiaries in cash from any Asset Disposition (including, without limitation,
payments under notes or other debt securities received in connection with any
Asset Disposition), net of: (a) the transaction costs of such sale, lease,
transfer or other disposition; (b) any tax liability arising from such
transaction; and (c) amounts applied to repayment of Indebtedness (other than
the Secured Obligations) secured by a Lien on the asset or property disposed.
NET WORTH means, with respect to any Person, such Person's total
shareholder's equity (including capital stock, additional paid-in capital and
retained earnings, after deducting treasury stock) which would appear as such on
a balance sheet of such Person prepared in accordance with GAAP.
NON-RATABLE LOAN means a Prime Rate Loan made by NationsBank in accordance
with the provisions of SECTION 3.8(b)(ii).
NOTE means any of the Revolving Credit Notes and NOTES means more than one
such Note.
NOTICE OF BORROWING means a written notice, or telephonic notice followed
by a confirming same-day written notice, requesting a Borrowing of either a
Prime Rate Loan or a Eurodollar Rate Loan, which is given by telex or facsimile
transmission in accordance with the applicable provisions of Section 2.2 and
which specifies (i) the amount of the requested Borrowing, (ii) the date of the
requested Borrowing, and (iii) if the requested Borrowing is of a Eurodollar
Rate Loan, the duration of the applicable Interest Period.
NOTICE OF CONVERSION OR CONTINUATION has the meaning specified in SECTION
3.12.
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OPERATING LEASE means any lease (other than a lease constituting a
Capitalized Lease Obligation) of real or personal property.
PBGC means the Pension Benefit Guaranty Corporation and any successor
agency.
PATENT ASSIGNMENT means the Assignment for Security-Patents, dated on or
about the Effective Date, made by the Borrower to the Agent.
PATENTS means and includes, in each case whether now existing or hereafter
arising:
(i) any and all patents and patent applications,
(ii) inventions and improvements described and claimed therein,
(iii) reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof,
(iv) income, royalties, damages, claims and payments now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past and future infringements thereof,
(v) rights to sue for past, present and future infringements
thereof, and
(vi) all rights corresponding to any of the foregoing throughout the
world.
PERMITTED INVESTMENTS means Investments of the Borrower or any Subsidiary
in:
(a) Cash Equivalents,
(b) sales of inventory on credit in the ordinary course of business,
(c) shares of capital stock, evidence of Indebtedness or other security
acquired by the Borrower or such Subsidiary in consideration for or as evidence
of (i) past-due or restructured Receivables in an aggregate face amount of such
Receivables at any time not to exceed $100,000 or (ii) proceeds of an Asset
Disposition as permitted hereby,
(d) the Borrower or any Borrowing Subsidiary,
(e) any Guarantor,
(f) Guaranties permitted pursuant to SECTION 10.3,
(g) those items described on SCHEDULE 1.1A - PERMITTED INVESTMENTS,
(h) Investments in Hedging Obligations, and
(i) other Investments not in excess of $500,000 in the aggregate in any
Fiscal Year of the Borrower,
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PERMITTED LIENS means:
(a) Liens securing taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA)
or the claims of materialmen, mechanics, carriers, warehousemen, landlords,
buyers, banks and other non-consensual Liens incurred in the ordinary course of
business, for labor, materials, supplies, rentals or services, but (i) in all
cases only if payment shall not at the time be required to be made in accordance
with SECTION 8.6, and (ii) in the case of warehousemen or landlords, from and
after 90 days from the Effective Date, only if such Liens are junior to the
Security Interest in any of the Collateral,
(b) Liens consisting of deposits or pledges made in the ordinary course of
business in connection with, or to secure payment of, obligations under workers'
compensation, unemployment insurance or similar legislation or under payment,
performance or similar bonds,
(c) Liens constituting encumbrances in the nature of zoning restrictions,
easements, and rights or restrictions of record on the use of real property,
which do not materially detract from the value of such property or impair the
use thereof in the business of the Borrower or its Subsidiaries,
(d) Purchase Money Liens servicing Permitted Purchase Money Debt,
(e) Liens shown on SCHEDULE 1.1B - PERMITTED LIENS,
(f) Liens of the Agent, for the benefit of the Lenders, arising under this
Agreement and the other Loan Documents,
(g) any attachment or judgment Lien in existence less than 30 days after
the entry thereof or with respect to which (i) .execution has been stayed, (ii)
payment is covered by insurance (and the insurer has acknowledged liability) or
(iii) the Borrower or Subsidiary is in good faith prosecuting an appeal or other
appropriate proceedings for review, has set aside on its books such reserves as
may be required by GAAP with respect to such judgment or award and there is no
substantial risk of loss of any Collateral,
(h) Liens existing on assets of any Person at the time such Person becomes
a Subsidiary, provided (i) such Lien was not created in contemplation of such
Person becoming a Subsidiary, and (ii) such Lien does not encumber any assets
other than the assets subject to such Lien at the time such Person becomes a
Subsidiary,
(i) other Liens not affecting Eligible Inventory or Eligible Receivables
arising in the ordinary course of business of the Borrower or any Subsidiary
that (i) do not arise in connection with Debt (other than trade payables created
in the ordinary course of business), (ii) do not in the aggregate materially
detract from the value of the assets subject thereto or materially impair the
use thereof in the operation of such business and (iii) do not secure
obligations aggregating in excess of $500,000 at any one time outstanding,
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(j) Liens not affecting Eligible Inventory or Eligible Receivables
securing Hedging Obligations,
(k) Liens that encumber documents and other property relating to letters
of credit and the products and proceeds thereof, securing reimbursement
obligations with respect to such letters of credit,
(l) Liens upon specific items of Inventory, other than Eligible Inventory,
or other goods and proceeds of the Borrower or any Subsidiary securing its
obligations in respect of bankers' acceptances issued or created for the account
of any Person to facilitate the purchase, shipping, or storage of such inventory
or other goods, and
(m) any Lien constituting a renewal, extension or replacement, in whole or
in part, of any Lien described in the foregoing clauses (a) through (l),
provided that any such extension, renewal or replacement is no more restrictive
than the Lien so extended, renewed or replaced and does not secure any
additional amount of obligations or extend to any additional Collateral.
PERMITTED PURCHASE MONEY DEBT means Purchase Money Debt of the Borrower or
any Subsidiary incurred after the Agreement Date,
(a) which is secured by a Purchase Money Lien,
(b) the aggregate principal amount of which does not exceed an amount
equal to 100% of the lesser of
(i) the cost (including the principal amount of such Debt, whether or
not assumed) of the tangible personal property (other than Inventory) or
fixtures installed on or improvements to Real Estate (other than Real
Estate subject to a Mortgage) subject to such Lien, and
(ii) the fair value of such tangible property (described in clause (i))
at the time of its acquisition, and
(c) which, when aggregated with the principal amount of all other such
Debt and Capitalized Lease Obligations of the Borrower and its Subsidiaries at
the time outstanding, does not exceed $3,000,000.
PERSON means an individual, corporation, limited liability company,
partnership, association, trust or unincorporated organization, or a government
or any agency or political subdivision thereof.
PLEDGE AGREEMENT means the Stock Pledge Agreement dated as of the Effective
Date, between the Borrower and the Agent, whereby the Borrower pledges the
outstanding shares of capital stock issued by and any intercompany notes owing
to the Borrower by any domestic Subsidiary.
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PREFERRED STOCK means shares of the Borrower's 11.5% Cumulative Redeemable
Preferred Stock par value $.01 per share.
PRIME RATE means during the period from the Effective Date through the
last day of the month in which the Effective Date falls, the per annum rate of
interest publicly announced by the Agent at its principal office as its "prime
rate" as in effect on the Effective Date, and thereafter during each succeeding
calendar month, means such "prime rate" as in effect on the last Business Day of
the immediately preceding calendar month. Any change in an interest rate
resulting from a change in the Prime Rate shall become effective as of 12:01
a.m. on the first day of the month following the month in which such change was
announced. The Prime Rate is a reference used by the Agent in determining
interest rates on certain loans and is not intended to be the lowest rate of
interest charged on any extension of credit to any debtor. The Agent lends at
rates above and below the Prime Rate.
PRIME RATE LOAN means any Revolving Credit Loan that bears interest at a
rate computed with reference to the Prime Rate , and PRIME RATE LOANS means more
than one such Loan.
PRINCIPAL means (i) J.F. Lehman & Company, (ii) each Affiliate of J.F.
Lehman & Company as of the Agreement Date, and (iii) each officer or employee
(including their respective immediate family members) of J.F. Lehman & Company
as of the Agreement Date.
PRO FORMA means the PRO FORMA balance sheet of the Borrower as [OF JULY 4,
1997], immediately after giving effect to the transactions contemplated by this
Agreement and the Recap Documents.
PROPORTIONATE SHARE or RATABLE SHARE or RATABLE (and with corollary meaning
RATABLY) means, as to a Lender, such Lender's share of an amount in Dollars or
other property at the time of determination equal to (i) the Commitment
Percentage of such Lender, or (ii) if the Commitments are terminated, the
result, expressed as a percentage obtained by dividing the principal amount of
the Loans then owing to such Lender by the total principal amount of all Loans
then owing to all Lenders, or (iii) if no Loans are outstanding, the result,
expressed as a percentage obtained by dividing the Secured Obligations owing to
such Lender by the total amount of Secured Obligations then owing to all
Lenders.
PROPRIETARY RIGHTS means all of the Borrower's now owned and hereafter
arising or acquired: Patents, Copyrights, Trademarks, including, without
limitation, the Proprietary Rights set forth on Schedule 5.1(bb) hereto, and all
other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing, and
all rights to sue for past, present and future infringement of any of the
foregoing.
PURCHASE MONEY DEBT means Debt (including Capitalized Leases) created to
finance the payment of all or any part of the purchase price of (not in excess
of the fair market value thereof) or cost of constructing any tangible personal
property (other than Inventory) or fixtures or improvements to Real Estate
(other than Real Estate subject to a Mortgage) and incurred at the time of or
within 30 days prior to or after the acquisition of a tangible asset or
completion of construction or such improvements.
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PURCHASE MONEY LIEN means any Lien securing Purchase Money Debt, but only
if such Lien shall at all times be confined solely to the property (other than
Inventory) the purchase price (or construction cost or cost of improvements) of
which was financed through the incurrence of the Purchase Money Debt secured by
such Lien.
REAL ESTATE means all of the Borrower's now or hereafter owned or leased
estates in real property, including, without limitation, all fees, leaseholds
and future interests, together with all of the Borrower's now or hereafter owned
or leased interests in the improvements and emblements thereon, the fixtures
attached thereto and the easements appurtenant thereto, including, without
limitation the real property described on SCHEDULE 5.1(w).
RECAPITALIZATION means the issuance of the Senior Notes, the execution and
delivery of the Senior Note Indenture and related documents, the issuance of the
Preferred Stock and the Warrants, the execution and delivery of the Shareholders
Agreement, and the execution and delivery of this Agreement by Burke, and the
consummation of the Merger.
RECAP DOCUMENTS means the Merger Agreement, the Senior Note Indenture and
the other agreements, certificates, opinions and other documents delivered in
connection with consummation of the transactions contemplated thereby (other
than the Loan Documents).
RECEIVABLES has the meaning set forth in the definition "COLLATERAL."
REGISTER has the meaning specified in SECTION 12.1(d).
REGULATION U means Regulation U of the Board of Governors of the Federal
Reserve System (or any successor), as the same may be amended or supplemented
from time to time.
REIMBURSEMENT AGREEMENT means, with respect to a Letter of Credit, such
form of application therefor and form of reimbursement agreement therefor
(whether in a single document or several documents) as NationsBank may employ in
the ordinary course of business for its own account, with such modifications
thereto as may be agreed upon by NationsBank and the Borrower, provided that
such application and agreement and any modifications thereto are not
inconsistent with the terms of this Agreement.
REIMBURSEMENT OBLIGATIONS means the reimbursement or repayment obligations
of the Borrower to NationsBank pursuant to SECTION 2A.6 or pursuant to a
Reimbursement Agreement with respect to amounts that have been drawn under
Letters of Credit.
RELATED COMPANY means any (i) corporation or limited liability company
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Borrower; (ii) partnership,
limited liability company or other trade or business (whether or not
incorporated) under common control (within the meaning of Section 414(c) of the
Code) with the Borrower; (iii) member of the same affiliated service group
(within the meaning of Section 414(m) of the Code) as the Borrower, any
corporation described in CLAUSE (i) above or any entity described in CLAUSE
(ii) above; or (iv) any other entity required to be aggregated with the Borrower
pursuant to Section 414(o) of the Code.
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RELATED PARTY with respect to any Principal means (i) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal or (ii) trust,
corporation, partnership, or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more interest in
which are such Principal and/or such other Persons referred to in the
immediately preceding clause (i).
RELEASE means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment or into or out of any property, including the movement of
Contaminants through or in the air, soil, surface water or groundwater.
REMEDIAL ACTION means actions required to (i) clean up, remove, treat or in
any other way address Contaminants in the indoor or outdoor environment; (ii)
prevent the Release or threat of Release or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; or (iii) perform
pre-remedial studies and investigations and post-remedial monitoring and care.
REQUIRED LENDERS means, at any time, any combination of Lenders whose
Commitment Percentages at such time aggregate in excess of 50%.
RESTRICTED DISTRIBUTION by any Person means (i) its retirement, redemption,
purchase, or other acquisition or retirement for value of any capital stock or
other equity securities (except equity securities acquired on the conversion
thereof into other equity securities of such Person member interests) or
partnership interests issued by such Person, (ii) the declaration or payment of
any dividend or distribution in cash or property on or with respect to any such
securities (other than dividends payable solely in shares of its capital stock
or other equity securities) or partnership interests, excluding, however, any
such dividend, distribution or payment to a Loan Party by any Subsidiary of the
Borrower, (iii) any other payment by such Person in respect of such securities,
member interests or partnership interests.
RESTRICTED PAYMENT means (a) any redemption or prepayment or other
retirement, prior to the stated maturity thereof or prior to the due date of any
regularly scheduled installment or amortization payment with respect thereto, of
any Debt (other than the Loans) or of any Indebtedness, which Debt or
Indebtedness is junior and subordinate to the Secured Obligations, (b) the
payment by any Person of the principal amount of or interest on any Indebtedness
(other than trade debt) owing to an Affiliate of such Person or to any Affiliate
of any such Affiliate other than such payments among Loan Parties and (c) the
payment of any management, consulting or similar fee by any Person to any
Affiliate of such Person.
REVOLVING CREDIT AVAILABILITY means the lesser of (i) the Revolving Credit
Facility minus the sum of the Letter of Credit Reserve and the aggregate
outstanding principal amount of all Revolving Credit Loans and (ii) the
Borrowing Base minus the sum of the aggregate outstanding principal amount of
all Revolving Credit Loans.
REVOLVING CREDIT FACILITY means the credit facility providing for Revolving
Credit Loans based upon the Borrowing Base described in SECTION 2.1 up to an
aggregate principal amount at
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any one time outstanding not to exceed $15,000,000 or such lesser or greater
amount as shall be agreed upon from time to time in writing by the Agent, the
Lenders and the Borrower.
REVOLVING CREDIT LOANS means loans made to the Borrower pursuant to SECTION
2.1 and any Non-Ratable Loans.
REVOLVING CREDIT NOTE means each Revolving Credit Note made by the Borrower
payable to the order of a Lender evidencing the obligation of the Borrower to
pay the aggregate unpaid principal amount of the Loans made to it by such Lender
under the Revolving Credit Facility (and any promissory note or notes that may
be issued from time to time in substitution, renewal, extension, replacement or
exchange therefor whether payable to such Lender or to a different Lender in
connection with a Person becoming a Lender after the Effective Date or
otherwise) substantially in the form of EXHIBIT A hereto, with all blanks
properly completed, either as originally executed or as the same may from time
to time be supplemented, modified, amended, renewed, extended or refinanced.
S&P means Standard & Poor's Ratings Group.
SCHEDULE OF INVENTORY means a schedule delivered by the Borrower to the
Agent pursuant to the provisions of SECTION 7.12(b).
SCHEDULE OF RECEIVABLES means a schedule delivered by the Borrower to the
Agent pursuant to the provisions of SECTION 7.12(a).
SECURED OBLIGATIONS means, in each case whether now in existence or
hereafter arising,
(a) the principal of, and interest and premium, if any, on, the Loans,
(b) all Letter of Credit Obligations, and
(c) all indebtedness, liabilities, obligations, covenants and duties of
the Borrower or any Subsidiary of the Borrower to the Agent or to the Lenders or
to any Affiliate of the Agent or the Lender of every kind, nature and
description arising under or in respect of this Agreement, the Notes or any of
the other Loan Documents, whether direct or indirect, absolute or contingent,
due or not due, contractual or tortious, liquidated or unliquidated, and whether
or not evidenced by any note, and whether or not for the payment of money,
including without limitation, fees required to be paid pursuant to ARTICLE 3 and
expenses required to be paid or reimbursed pursuant to SECTION 14.2 and any
Hedging Obligations of the Borrower or such Subsidiary to the Agent, any Lender
or any such Affiliate.
SECURITY DOCUMENTS means each of the following:
(a) the Mortgage,
(b) the Financing Statements,
(c) the Pledge Agreement,
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(d) the Subsidiary Guaranty,
(e) the Subsidiary Security Agreement, and
(f) each other writing executed and delivered by any Loan Party or any
other Person securing the Secured Obligations, including, without limitation,
the Borrowing Subsidiary Documents.
SECURITY INTEREST means the Liens of the Agent, for the benefit of itself
as Agent and the Lenders and Affiliates of the Lenders, on and in the Collateral
effected hereby or by any of the Security Documents or pursuant to the terms
hereof or thereof.
SENIOR NOTES means the Borrower's 10% Senior Notes due 2007 in the original
principal amount of $110,000,000, issued pursuant to the Senior Note Indenture,
including Exchange Notes issued (and as defined) thereunder.
SENIOR NOTE INDENTURE means the Indenture dated as of August 20, 1997,
between the Borrower and United States Trust Company of New York, Trustee.
SETTLEMENT DATE means each Business Day after the Effective Date selected
by the Agent in its sole discretion subject to and in accordance with the
provisions of SECTION 3.8(c)(i) as of which a Settlement Report is delivered by
the Agent and on which settlement is to be made among the Lenders in accordance
with the provisions of SECTION 3.8.
SETTLEMENT REPORT means each report, substantially in the form attached
hereto as EXHIBIT D, prepared by the Agent and delivered to each Lender and
setting forth, among other things, as of the Settlement Date indicated thereon
and as of the next preceding Settlement Date, the aggregate principal balance of
all Revolving Credit Loans outstanding, each Lender's Proportionate Share
thereof, each Lender's Net Outstandings and all Non-Ratable Loans made, and all
payments of principal, interest and fees received by the Agent from the Borrower
during the period beginning on such next preceding Settlement Date and ending on
such Settlement Date.
SOLVENT and with corollary meaning SOLVENCY means when applied to a Loan
Party, that such Loan Party has capital sufficient to carry on its business and
transactions in which it is about to engage and is able to pay its Indebtedness
as it matures and owns property having a value, both at fair valuation and at
present fair salable value, greater than the amount of its Indebtedness.
SUBSIDIARY
(a) when used to determine the relationship of a Person to another Person,
means a Person of which an aggregate of more than 50% of the stock of any class
or classes or more than 50% of other ownership interests is owned of record or
beneficially by such other Person, or by one or more Subsidiaries of such other
Person, or by such other Person and one or more Subsidiaries of such Person,
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(i) if the holders of such stock, or other ownership interests (A)
are ordinarily, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or other individuals performing
similar functions) of such Person, even though the right so to vote has
been suspended by the happening of such a contingency, or (B) are entitled,
as such holders, to vote for the election of a majority of the directors
(or individuals performing similar functions) of such Person, whether or
not the right so to vote exists by reason of the happening of a
contingency, or
(ii) in the case of such other ownership interests, if such ownership
interests constitute a majority voting interest, and
(b) when used without other designation of ownership, means a Subsidiary
of the Borrower.
SUBSIDIARY GUARANTY means the Guaranty in favor of the Agent executed and
delivered by the Guarantors or of the Effective Date.
SUBSIDIARY SECURITY AGREEMENT means the Security Agreement executed and
delivered by the Guarantors and the Agent as of the Effective Date.
SUPPORTING LETTER OF CREDIT has the meaning set forth in SECTION 2A.9.
TERMINATION DATE means August 20, 2002, such earlier date as all Secured
Obligations shall have been irrevocably paid in full and the Revolving Credit
Facility shall have been terminated, or such later date as to which the same may
be extended pursuant to the provisions of SECTION 2.5.
TRADEMARK ASSIGNMENT means the Assignment for Security - Trademarks, dated
on or about the Effective Date, by the Borrower to the Agent.
TRADEMARKS means and includes in each case whether now existing or
hereafter arising;
(a) trademarks (including service marks), trade names and trade styles and
the registrations and applications for registration thereof and the goodwill of
the business symbolized by the trademarks,
(b) licenses of the foregoing, whether as licensee or licensor,
(c) renewals thereof,
(d) income, royalties, damages and payments now or hereafter due and/or
payable with respect thereto, including, without limitation, damages, claims and
payments for past and future infringements thereof,
(e) rights to sue for past, present and future infringements thereof,
including the right to settle suits involving claims and demands for royalties
owing, and
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(f) all rights corresponding to any of the foregoing throughout the world.
TYPE when used in respect of any Loan or Borrowing, shall refer to the rate
by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined.
UNFUNDED CAPEX means all Capital Expenditures other than Financed Capex.
UNFUNDED VESTED ACCRUED BENEFITS means with respect to any Benefit Plan
that is a pension plan within the meaning of Section 3(2) of ERISA, the amount
(if any) by which (a) the present value of all vested nonforfeitable benefits
under such Benefit Plan EXCEEDS (b) the fair market value of all such Benefit
Plan assets allocable to such benefits, as determined using such reasonable
actuarial assumptions and methods as are specified in the Schedule B (Actuarial
Information) to the most recent Annual Report (Form 5500) filed with respect to
such Benefit Plan.
UCC means the Uniform Commercial Code as in effect from time to time in the
State of New York.
WARRANTS means warrants to purchase shares representing up to 20% of the
Borrower's common stock, issued to the initial purchasers of the Preferred
Stock.
WHOLLY OWNED SUBSIDIARY when used to determine the relationship of a
Subsidiary to a Person means a Subsidiary all of the issued and outstanding
shares (other than directors' qualifying shares) of the capital stock of which
shall at the time be owned by such Person or one or more of such Person's Wholly
Owned Subsidiaries or by such Person and one or more of such Person's Wholly
Owned Subsidiaries.
SECTION 1.2 GENERAL INTERPRETIVE RULES.
(a) All accounting terms not specifically defined herein shall have the
meanings ascribed thereto by GAAP.
(b) The terms accounts, chattel paper, contract rights, documents,
equipment, instruments, general intangibles, inventory and proceeds, as and when
used in this Agreement or the Security Documents, shall have the meanings given
those terms in the UCC.
(c) Unless otherwise specified, the words "hereof," "herein," "hereunder"
and words of similar import, when used in this Agreement, refer to this
Agreement as a whole and not to any particular provision, section or subsection
of this Agreement.
(d) Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. Words denoting individuals include
corporations and vice versa.
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(e) References to any legislation or statute or code, or to any provisions
of any legislation or statute or code, shall include any modification or
reenactment of, or any legislative, statutory or code provision substituted for,
such legislation, statute or code or provision thereof.
(f) References to any document or agreement (including this Agreement)
shall include references to such document or agreement as amended, novated,
supplemented, modified or replaced from time to time, so long as and to the
extent that such amendment, novation, supplement, modification or replacement is
either not prohibited by the terms of this Agreement or is consented to by the
Required Lenders and the Agent.
(g) Except where specifically restricted in a Loan Document, references to
any Person include its successor or permitted substitutes and assigns permitted
or not prohibited under such Loan Document.
(h) References to the time of day are to the time of day in the city in
which the Agent's Office is located, unless otherwise specified.
(i) The terms "payment", "prepayment", "distribution" and similar terms
used in the definitions of "Restricted Distribution" and "Restricted Payment"
and in SECTION 8.6, shall include payment by means of the transfer of funds or
of property and, in the event of a transfer of property, the payment shall be
deemed to be in an amount equal to the greater of the fair market value and the
book value of the property at the time of the transfer.
(j) Titles of Articles and Sections in this Agreement are for convenience
only, do not constitute part of this Agreement and neither limit nor amplify the
provisions of this Agreement, and all references in this Agreement to Articles,
Sections, subsections, paragraphs, clauses, subclauses, Schedules or Exhibits
shall refer to the corresponding Article, Section, subsection, paragraph, clause
or subclause of, or Schedule or Exhibit attached to, this Agreement, unless
specific reference is made to the articles, sections or other subdivisions or
divisions of, or to schedules or exhibits to, another document or instrument.
(k) Whenever from the context it appears appropriate, the term "Loan",
including such terms as used as part of a defined term including the term
"Loan", shall mean and include a Loan made by all Lenders to the Borrower as
well as a Lender's Proportionate Share of any Loan.
(l) Whenever the phrase "to the knowledge of the Borrower" or words of
similar import relating to the knowledge of the Borrower are used herein, such
phrase shall mean and refer to the actual knowledge of the President or chief
financial officer of the Borrower.
(m) Each reference herein to "reasonable attorneys' fees" or "reasonable
counsel fees" shall mean and refer to the reasonable fees (and expenses)
actually incurred by the party retaining such attorneys or counsel, computed on
the basis customarily employed by such attorneys or counsel and not on the basis
of a percentage of recovery or percentage of claim or other similar basis. Each
party hereto knowingly and intentionally waives any benefit of any otherwise
applicable statutory provision that would entitle it to recover attorneys' fees
on such a percentage of basis.
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(n) Unless otherwise specified herein, any Lien created or purported to be
created hereby or by or pursuant to any Loan Document in favor of the Agent and
each payment made to the Agent, is and shall be deemed to have been created in
favor of the Agent, for its benefit as Agent and for the Ratable benefit of the
Lenders, or made to and received by the Agent for the Ratable benefit of the
Lenders.
SECTION 1.3 EXHIBITS AND SCHEDULES. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
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ARTICLE 2
REVOLVING CREDIT FACILITY
SECTION 2.1 REVOLVING CREDIT LOANS. Upon the terms and subject to
the conditions of, and in reliance upon the representations and warranties made
under, this Agreement, each Lender agrees, severally, but not jointly, to make
Revolving Credit Loans under the Revolving Credit Facility to the Borrower from
time to time from the Effective Date to but not including the Termination Date,
as requested or deemed requested by the Borrower in accordance with the terms of
SECTION 2.2, in amounts equal to such Lender's Proportionate Share of each
Revolving Credit Loan requested or deemed requested hereunder up to an aggregate
amount at any one time outstanding equal to such Lender's Proportionate Share of
the lesser of (i) the Revolving Credit Facility minus the Letter of Credit
Reserve and (ii) the Borrowing Base; PROVIDED, HOWEVER, that no Borrowing of a
Revolving Credit Loan shall exceed the Revolving Credit Availability at the time
and the aggregate principal amount of all outstanding Loans under the Revolving
Credit Facility (after giving effect to the Loans requested) shall not exceed
the lesser of (i) the Revolving Credit Facility minus the Letter of Credit
Reserve and (ii) the Borrowing Base. It is expressly understood and agreed that
the Lenders may and at present intend to use the lesser of the amounts described
in the foregoing clauses (i) and (ii) as a maximum ceiling on Loans made to the
Borrower under the Revolving Credit Facility; PROVIDED, HOWEVER, that it is
agreed that should the aggregate outstanding amount of such Loans exceed the
ceiling so determined or any other limitation set forth in this Agreement, such
Loans shall nevertheless constitute Secured Obligations and, as such, shall be
entitled to all benefits thereof and security therefor. The principal amount of
any Loans made under the Revolving Credit Facility may be repaid, without
premium or penalty, at any time and reborrowed by the Borrower, subject to the
terms and conditions of this Agreement, in accordance with the terms of this
SECTION 2.1. The Agent's and each Lender's books and records reflecting the
date and the amount of each Loans made under the Revolving Credit Facility and
each repayment of principal thereof shall constitute PRIMA FACIE evidence of the
accuracy of the information contained therein, subject to the provisions of
SECTION 3.8.
SECTION 2.2 MANNER OF BORROWING REVOLVING CREDIT LOANS. Borrowings
under the Revolving Credit Facility shall be made as follows:
(a) REQUESTS FOR BORROWING.
(i) PRIME RATE LOANS. Unless the Borrower shall previously have
requested a Eurodollar Rate Loan and authorized the application of the
proceeds thereof to any purpose described in CLAUSES (A) through (D) below
and the Lenders shall have disbursed such Eurodollar Rate Loan for such
purpose, a request for the Borrowing of a Prime Rate Loan shall be made, or
shall be deemed to be made, in the following manner:
(A) the Borrower may request a Prime Rate Loan by giving the
Agent a Notice of Borrowing, before 11:30 a.m. on the proposed date of
the Borrowing,
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PROVIDED that if such notice is received after 11:30 a.m. on the proposed date
of Borrowing, the proposed Borrowing will be postponed automatically to the next
Business Day;
(B) whenever a check or other item is presented to a Disbursing
Bank for payment against a Controlled Disbursement Account in an
amount greater than the then available balance in such account, such
Disbursing Bank shall, and is hereby irrevocably authorized by the
Borrower to, give the Agent notice thereof, which notice shall be
deemed to be a request for a Prime Rate Loan on the date of such
notice in an amount equal to the excess of such check or other item
over such available balance, and such request shall be irrevocable;
and
(C) unless payment is otherwise made by the Borrower, the
becoming due of any Secured Obligations, including interest, required
to be paid under this Agreement or any of the other Loan Documents
shall be deemed to be a request for a Prime Rate Loan on the due date
in such amount, and such request shall be irrevocable.
(D) the receipt by the Agent of notification from NationsBank
to the effect that a drawing has been made under a Letter of Credit and
that the Borrower has failed to reimburse NationsBank therefor in
accordance with the terms of the Letter of Credit, the Reimbursement
Agreement and ARTICLE 2A, shall be deemed to be a request for a Prime
Rate Loan on the date such notification is received in the amount of
such drawing which is so unreimbursed.
(ii) EURODOLLAR RATE REVOLVING CREDIT LOANS. At any time after the
Effective Date, the Borrower may request a Eurodollar Rate Loan under the
Revolving Credit Facility by giving the Agent a Notice of Borrowing (which
notice shall be irrevocable) not later than 11:30 a.m. on the date three
Business Days before the day on which the requested Eurodollar Rate
Revolving Credit Loan is to be made.
(iii) NOTIFICATION OF LENDERS. In the case of each Eurodollar
Rate Loan and, unless the Agent has elected periodic settlements pursuant
to SECTION 3.8, in the case of each Prime Rate Loan, the Agent shall
promptly notify the Lenders of any Notice of Borrowing given or deemed
given pursuant to this SECTION 2.2(a) by 12:00 noon on the proposed
Borrowing date (in the case of Prime Rate Loans) or by 3:00 p.m. three
Business Days before the proposed Borrowing date (in the case of Eurodollar
Rate Loans). Not later than 1:30 p.m. on the proposed Borrowing date, each
Lender will make available to the Agent, for the account of the Borrower,
at the Agent's Office in funds immediately available to the Agent, such
Lender's Proportionate Share of the Prime Rate Loan or Eurodollar Rate
Loan, as the case may be.
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(b) DISBURSEMENT OF LOANS. The Borrower hereby irrevocably authorizes the
Agent to and the Agent will disburse the proceeds of each Borrowing requested,
or deemed to be requested, pursuant to this SECTION 2.2(a) as follows:
(i) the proceeds of each Borrowing requested under SECTIONS
2.2(a)(i)(A) or (B) or 2.2(a)(ii) shall be disbursed by the Agent in
Dollars in immediately available funds by wire transfer to a Controlled
Disbursement Account or, in the absence of a Controlled Disbursement
Account, by wire transfer to such other account as may be agreed upon by
the Borrower and the Agent from time to time, and
(ii) the proceeds of each Borrowing deemed requested under SECTION
2.2(a)(i)(C) or (D) shall be disbursed by the Agent by way of direct
payment of the relevant Secured Obligation.
SECTION 2.3 REPAYMENT OF REVOLVING CREDIT LOANS. The Revolving
Credit Loans will be repaid as follows:
(a) The outstanding principal amount of all the Revolving Credit Loans is
due and payable, and shall be repaid by the Borrower in full, not later than the
Termination Date;
(b) If at any time the aggregate outstanding unpaid principal amount of
the Revolving Credit Loans exceeds the lesser of (i) the Revolving Credit
Facility minus the Letter of Credit Reserve and (ii) the Borrowing Base in
effect at such time, the Borrower shall repay the Revolving Credit Loans in an
amount sufficient to reduce the aggregate unpaid principal amount of such
Revolving Credit Loans by an amount equal to such excess, together with accrued
and unpaid interest on the amount so repaid to the date of repayment;
(c) The Borrower hereby instructs the Agent to repay the Revolving Credit
Loans outstanding on any day in an amount equal to the amount received by the
Agent on such day pursuant to SECTION 7.1(b); PROVIDED that payments received in
excess of outstanding Revolving Credit Loans or payments received on account of
Eurodollar Rate Loans which would otherwise result in prepayment of such Loans
prior to the end of the Interest Period applicable thereto may, upon the
instruction of the Borrower to the Agent not later than 1:00 p.m. on any
Business Day, be applied to the Cash Collateral Account or any Investment
Account; and
(d) Each Eurodollar Rate Loan is due and payable on the last day of the
Interest Period applicable thereto, except to the extent converted or continued
in accordance with SECTION 3.12.
Repayments pursuant to SECTION 2.3(b) or (c) shall be applied first to the
Prime Rate Revolving Credit Loans and then to Eurodollar Rate Loans.
SECTION 2.4 REVOLVING CREDIT NOTE. Each Lender's Revolving Credit
Loans and the obligation of the Borrower to repay such Revolving Credit Loans
shall also be evidenced by a Revolving Credit Note payable to the order of such
Lender. Each Revolving Credit Note
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shall be dated the Effective Date (or later "effective date" under any
Assignment and Acceptance) and be duly and validly executed and delivered by the
Borrower.
SECTION 2.5 EXTENSION OF REVOLVING CREDIT FACILITY. Upon the request of
the Borrower, the Lenders may, in their sole discretion, effective as of any
anniversary of the Effective Date, agree to extend the Revolving Credit Facility
for a one-year period.
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ARTICLE 2A
LETTER OF CREDIT FACILITY
SECTION 2A.1 AGREEMENT TO ISSUE. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, NationsBank agrees to issue for the account of the
Borrower one or more Letters of Credit in accordance with this ARTICLE 2A, from
time to time during the period commencing on the Effective Date and ending on
the Termination Date.
SECTION 2A.2 AMOUNTS. NationsBank shall not have any obligation to issue
any Letter of Credit at any time:
(a) if, after giving effect to the issuance of the requested Letter of
Credit, (i) the aggregate Letter of Credit Obligations of the Borrower would
exceed the Letter of Credit Facility then in effect or (ii) the aggregate
principal amount of the Revolving Credit Loans outstanding would exceed the
Borrowing Base (after reduction for the Letter of Credit Reserve in respect of
such Letter of Credit) or (iii) if no Revolving Credit Loans are outstanding,
the aggregate Letter of Credit Obligations would exceed the Borrowing Base
(without reduction for the Letter of Credit Reserve); or
(b) which has a term longer than one calendar year or an expiration date
after the last Business Day that is more than 30 days prior to the Termination
Date.
SECTION 2A.3 CONDITIONS. The obligation of NationsBank to issue any
Letter of Credit is subject to the satisfaction of (a) the applicable conditions
precedent contained in ARTICLE 4 and (b) the following additional conditions
precedent in a manner satisfactory to the Agent and NationsBank:
(i) the Borrower shall have delivered to NationsBank and the Agent
at such times and in such manner as NationsBank or the Agent may prescribe
an application in form and substance satisfactory to NationsBank and the
Agent for the issuance of the Letter of Credit, a Reimbursement Agreement
and such other documents as may be required pursuant to the terms thereof,
and the form and terms of the proposed Letter of Credit shall be reasonably
satisfactory to NationsBank and the Agent and not inconsistent with the
provisions of this Agreement; and
(ii) as of the date of issuance, no order of any court, arbitrator or
governmental authority having jurisdiction or authority over NationsBank
shall purport by its terms to enjoin or restrain banks generally from
issuing letters of credit of the type and in the amount of the proposed
Letter of Credit, and no law, rule or regulation applicable to banks
generally and no request or directive (whether or not having the force of
law) from any governmental authority with jurisdiction over banks generally
shall prohibit, or request that NationsBank refrain from, the issuance of
letters of credit generally or the issuance of such Letter of Credit.
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SECTION 2A.4 ISSUANCE OF LETTERS OF CREDIT.
(a) REQUEST FOR ISSUANCE. The Borrower shall give NationsBank and the
Agent written notice of the Borrower's request for the issuance of a Letter of
Credit no later than three (3) Business Days prior to the proposed date of
issuance of the Letter of Credit, unless a shorter period is otherwise agreed by
NationsBank and the Agent. Such notice shall be irrevocable and shall specify
the original face amount of the Letter of Credit requested, the effective date
(which date shall be a Business Day) of issuance of such requested Letter of
Credit, whether such Letter of Credit may be drawn in a single or in multiple
draws, the date on which such requested Letter of Credit is to expire (which
date shall be a Business Day earlier than the 30th day prior to the Termination
Date), the purpose for which such Letter of Credit is to be issued and the
beneficiary of the requested Letter of Credit. The Borrower shall attach to
such notice the form of the Letter of Credit that the Borrower requests to be
issued.
(b) RESPONSIBILITIES OF THE AGENT; ISSUANCE. The Agent shall determine,
as of the Business Day immediately preceding the requested effective date of
issuance of the Letter of Credit set forth in the notice from the Borrower
pursuant to SECTION 2A.4(a), the amount of Letter of Credit Availability. If
(i) the form of the Letter of Credit delivered by the Borrower to the Agent is
acceptable to NationsBank and the Agent in their reasonable discretion, (ii) the
undrawn face amount of the requested Letter of Credit is less than or equal to
the Letter of Credit Availability and (iii) the Agent has received a certificate
from the Borrower stating that the applicable conditions set forth in SECTION
2A.3 have been satisfied, then NationsBank will cause the Letter of Credit to be
issued.
(c) NOTICE OF ISSUANCE. Promptly after the issuance of any Letter of
Credit, NationsBank shall give the Agent written or facsimile notice, or
telephonic notice confirmed promptly thereafter in writing, of the issuance of
such Letter of Credit, and the Agent shall give each Lender written or facsimile
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of such Letter of Credit.
(d) NO EXTENSION OR AMENDMENT. No Letter of Credit shall be extended or
amended unless the requirements of this SECTION 2A.4 are met as though a new
Letter of Credit were being requested and issued.
SECTION 2A.5 DUTIES OF NATIONSBANK. Any action taken or omitted to be
taken by NationsBank under or in connection with any Letter of Credit, if taken
or omitted in the absence of gross negligence or willful misconduct, shall not
result in any liability of NationsBank to any Lender or relieve any Lender of
its obligations hereunder to NationsBank. In determining whether to pay under
any Letter of Credit, NationsBank shall have no obligation to any Lender other
than to confirm that any documents required to be delivered under such Letter of
Credit in connection with such drawing have been presented and appear on their
face to comply with the requirements of such Letter of Credit.
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SECTION 2A.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS.
(a) PAYMENT TO ISSUER. Notwithstanding any provisions to the contrary in
any Reimbursement Agreement, the Borrower agrees to reimburse NationsBank for
any drawings (whether partial or full) under each Letter of Credit issued by
NationsBank and agrees to pay to NationsBank the amount of all other
Reimbursement Obligations and other amounts payable to NationsBank under or in
connection with such Letter of Credit immediately when due, irrespective of any
claim, set-off, defense or other right which the Borrower may have at any time
against NationsBank or any other Person.
(b) RECOVERY OR AVOIDANCE OF PAYMENTS. In the event any payment by or on
behalf of the Borrower with respect to any Letter of Credit (or any
Reimbursement Obligation relating thereto) received by NationsBank, or by the
Agent and distributed by the Agent to the Lenders on account of their respective
participations therein, is thereafter set aside, avoided or recovered from
NationsBank or the Agent in connection with any receivership, liquidation or
bankruptcy proceeding, the Lenders shall, upon demand by the Agent, pay to the
Agent, for the account of the Agent or NationsBank, their respective
Proportionate Shares of such amount set aside, avoided or recovered together
with interest at the rate required to be paid by the Agent upon the amount
required to be repaid by it.
SECTION 2A.7 PARTICIPATIONS.
(a) PURCHASE OF PARTICIPATIONS. Immediately upon issuance by NationsBank
of a Letter of Credit, each Lender shall be deemed to have irrevocably and
unconditionally purchased and received without recourse or warranty, an
undivided interest and participation in such Letter of Credit, equal to such
Lender's Proportionate Share of the face amount thereof (including, without
limitation, all obligations of the Borrower with respect thereto, other than
amounts owing to NationsBank with respect to the issuance thereof, and any
security therefor or guaranty pertaining thereto).
(b) SHARING OF LETTER OF CREDIT PAYMENTS. In the event that NationsBank
makes a payment under any Letter of Credit and NationsBank shall not have been
repaid such amount pursuant to SECTION 2A.6, then NationsBank shall be deemed to
have made a Non-Ratable Loan in the amount of such payment, and notwithstanding
the occurrence or continuance of a Default or Event of Default at the time of
such payment, such Non-Ratable Loan shall be subject to the provisions of
SECTION 3.8(b) and the absolute obligations of the Lenders to pay for their
respective participation interests therein.
(c) SHARING OF REIMBURSEMENT OBLIGATION PAYMENTS. Whenever NationsBank
receives a payment from or on behalf of the Borrower on account of a
Reimbursement Obligation as to which the Agent has previously received for the
account of NationsBank payment from a Lender pursuant to this SECTION 2A.7,
NationsBank shall promptly pay to the Agent, for the benefit of such Lender,
such Lender's Proportionate Share of the amount of such payment from the
Borrower in Dollars. Each such payment shall be made by NationsBank on the
Business Day on which NationsBank receives immediately available funds from the
Agent pursuant to the
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immediately preceding sentence, if received prior to 11:00 a.m. on such
Business Day, and otherwise on the next succeeding Business Day.
(d) DOCUMENTATION. Upon the request of any Lender, the Agent shall
furnish to such Lender copies of any Letter of Credit, Reimbursement Agreement
or application for any Letter of Credit and such other documentation as may
reasonably be requested by such Lender.
(e) OBLIGATIONS IRREVOCABLE. The obligations of each Lender to make
payments to the Agent with respect to any Letter of Credit and participation
therein pursuant to the provisions of SECTION 3.8(b) hereof or otherwise and the
obligations of the Borrower to make payments to NationsBank or to the Agent, for
the account of Lenders, shall be irrevocable, shall not be subject to any
qualification or exception whatsoever and shall be made in accordance with the
terms and conditions of this Agreement (assuming, in the case of the obligations
of the Lenders to make such payments, that the Letter of Credit has been issued
in accordance with SECTION 2A.4), including, without limitation, any of the
following circumstances:
(i) Any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;
(ii) The existence of any claim, set-off, defense or other right
which the Borrower may have at any time against a beneficiary named in a
Letter of Credit or any transferee of any Letter of Credit (or any Person
for whom any such transferee may be acting), any Lender, NationsBank or any
other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions
(including any underlying transactions between the Borrower or any other
Person and the beneficiary named in any Letter of Credit);
(iii) Any draft, certificate or any other document presented under
the Letter of Credit upon which payment has been made in good faith and
according to its terms proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) The surrender or impairment of any Collateral or any other
security for the Secured Obligations or the performance or observance of
any of the terms of any of the Loan Documents;
(v) The occurrence of any Default or Event of Default; or
(vi) NationsBank's or the Agent's failure to deliver the notice
provided for in SECTION 2A.4(c).
SECTION 2A.8 INDEMNIFICATION, EXONERATION.
(a) INDEMNIFICATION. In addition to amounts payable as elsewhere provided
in this ARTICLE 2A, the Borrower agrees to protect, indemnify, pay and save the
Lenders and the Agent harmless from and against any and all claims, demands,
liabilities, damages, losses, costs,
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charges and expenses (including reasonable attorneys' fees) which any Lender or
the Agent may incur or be subject to as a consequence, directly or indirectly,
of
(i) the issuance of any Letter of Credit, other than as a result of
its gross negligence or willful misconduct, as determined by a court of
competent jurisdiction, or
(ii) the failure of NationsBank to honor a drawing under any Letter
of Credit as a result of any act or omission, whether such act or omission
is rightful or wrongful, of any present or future DE JURE or DE FACTO
governmental authority (all such acts or omissions being hereinafter
referred to collectively as GOVERNMENT ACTS).
(b) ASSUMPTION OF RISK BY THE BORROWER. As among the Borrower, the
Lenders and the Agent, the Borrower assumes all risks of the acts and omissions
of, or misuse of any of the Letters of Credit by, the respective beneficiaries
of such Letters of Credit, subject to the NationsBank's and the Agent's duties
imposed herein. In furtherance and not in limitation of the foregoing, subject
to the provisions of the applications for the issuance of Letters of Credit, the
Lenders and the Agent shall not be responsible for:
(i) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any Person in connection with the
application for and issuance of and presentation of drafts with respect to
any of the Letters of Credit, even if it should prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason;
(iii) the failure of the beneficiary of any Letter of Credit to
comply duly with conditions required in order to draw upon such Letter of
Credit;
(iv) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher;
(v) errors in interpretation of technical terms;
(vi) any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of Credit or
of the proceeds thereof;
(vii) the misapplication by the beneficiary of any Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or
(viii) any consequences arising from causes beyond the control of
the Lenders or the Agent, including, without limitation, any Government
Acts.
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None of the foregoing shall affect, impair or prevent the vesting of any of the
Agent's rights or powers under this SECTION 2A.8 nor shall any of the foregoing
affect the rights and obligations of the Borrower as the account party and
NationsBank as issuer of Letters of Credit, which rights and obligations shall
be defined and governed by the Letter of Credit Documents and Applicable Law.
(c) EXONERATION. In furtherance and extension, and not in limitation, of
the specific provisions set forth above, any action taken or omitted by the
Agent, NationsBank or any Lender under or in connection with any of the Letters
of Credit or any related certificates, if taken or omitted in good faith, shall
not result in any liability of any Lender or the Agent to the Borrower or
relieve the Borrower of any of its obligations hereunder to any such Person.
SECTION 2A.9 SUPPORTING LETTER OF CREDIT; CASH COLLATERAL ACCOUNT.
During the continuation of an Event of Default or if, notwithstanding the
provisions of SECTION 2A.2(b), any Letter of Credit is outstanding on the
Termination Date, then on or prior to the Termination Date, the Borrower shall,
promptly on demand by the Agent, deposit with the Agent, for the ratable benefit
of the Lenders, with respect to each Letter of Credit then outstanding, as the
Agent shall specify, either (a) a standby letter of credit (a SUPPORTING LETTER
OF CREDIT) in form and substance satisfactory to the Agent, issued by an issuer
satisfactory to the Agent in its reasonable judgment in an amount equal to the
greatest amount for which such Letter of Credit may be drawn, under which
Supporting Letter of Credit the Agent shall be entitled to draw amounts
necessary to reimburse NationsBank, the Agent and the Lenders for payments made
by them under such Letter of Credit or under any reimbursement or guaranty
agreement with respect thereto, or (b) Cash Collateral in an amount necessary to
reimburse NationsBank, the Agent and the Lenders for payments made by
NationsBank, the Agent and the Lenders under such Letter of Credit or under any
reimbursement or guaranty agreement with respect thereto. Such Supporting
Letter of Credit or Cash Collateral shall be held by the Agent for the benefit
of the Lenders, as security for, and to provide for the payment of, the
Reimbursement Obligations. In the event the Borrower fails to comply with
either CLAUSE (a) or (b) above, the Borrower shall be deemed to have requested a
Prime Rate Loan in the amount necessary to provide the Cash Collateral described
in clause (b) to be held by the Agent as therein provided. In addition, the
Agent may at any time after such Event of Default or Termination Date apply any
or all of such Cash Collateral to the payment of any or all of the Secured
Obligations then due and payable. The Cash Collateral shall be deposited in the
Cash Collateral Account and shall be administered in accordance with the
provision of SECTION 3.16.
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ARTICLE 3
GENERAL LOAN PROVISIONS
SECTION 3.1 INTEREST.
(a) PRIME RATE LOANS. Subject to the provisions of SECTION 3.1(d), the
Borrower will pay interest on the unpaid principal amount of each Prime Rate
Loan, for each day from the day such Loan is made until such Loan is paid
(whether at maturity, by reason of acceleration, or otherwise) or is converted
to a Eurodollar Rate Loan, at a rate per annum equal to the sum of (i) the
Applicable Margin and (ii) the Prime Rate, payable monthly in arrears as it
accrues on each Interest Payment Date.
(b) EURODOLLAR RATE LOANS. Subject to the provisions of SECTION 3.1(d),
the Borrower will pay interest on the unpaid principal amount of each Eurodollar
Rate Loan for the applicable Interest Period at a rate per annum equal to the
sum of (i) the Applicable Margin and (ii) the Eurodollar Rate, payable monthly
in arrears as it accrues on each Interest Payment Date and on the last day of
such Interest Period, and when such Eurodollar Rate Loan is due (whether at
maturity, by reason of acceleration or otherwise).
(c) OTHER SECURED OBLIGATIONS. The Borrower will, to the extent permitted
by Applicable Law, pay interest on the unpaid principal amount of any Secured
Obligation that is due and payable other than the Loans in accordance with
SECTIONS 3.1(a) or (d), as applicable, as if such Secured Obligation were a
Prime Rate Revolving Credit Loan.
(d) DEFAULT RATE. If an Event of Default shall occur and be continuing,
at the election of the Required Lenders, the unpaid principal amount of the
Loans and the other Secured Obligations shall no longer bear interest in
accordance with the terms of SECTION 3.1(a), 3.1(b) or 3.1(c), but shall bear
interest for each day from the date of such Event of Default until Event of
Default shall have been cured or waived, at a rate per annum equal to the sum of
(i) the Default Margin and (ii) the rate otherwise applicable to such Loan,
payable on demand. The interest rate provided for in the preceding sentence
shall, to the extent permitted by Applicable Law, apply to and accrue on the
amount of any judgment entered with respect to any Secured Obligation and shall
continue to accrue at such rate during any proceeding described in SECTION
11.1(g) or (h).
(e) CALCULATION OF INTEREST. The interest rates provided for in SECTIONS
3.1(a), (b), (c) and (d) shall be computed on the basis of a year of 360 days
and the actual number of days elapsed. Each interest rate determined with
reference to the Prime Rate shall be adjusted automatically as of the opening of
business on the effective date of each change in the Prime Rate.
(f) MAXIMUM RATE. It is not intended by the Lenders, and nothing
contained in this Agreement or the Notes shall be deemed, to establish or
require the payment of a rate of interest in excess of the maximum rate
permitted by Applicable Law (the MAXIMUM RATE). If, in any month, the Effective
Interest Rate, absent such limitation, would have exceeded the Maximum Rate,
then the Effective Interest Rate for that month shall be the Maximum Rate, and,
if in future
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months, the Effective Interest Rate would otherwise be less than the Maximum
Rate, then the Effective Interest Rate shall remain at the Maximum Rate until
such time as the amount of interest paid hereunder equals the amount of interest
which would have been paid if the same had not been limited by the Maximum Rate.
In the event that, upon payment in full of the Secured Obligations, the total
amount of interest paid or accrued under the terms of this Agreement is less
than the total amount of interest which would have been paid or accrued if the
Effective Interest Rate had at all times been in effect, then the Borrower
shall, to the extent permitted by Applicable Law, pay to the Lenders an amount
equal to the excess, if any, of (i) the lesser of (A) the amount of interest
which would have been charged if the Maximum Rate had, at all times, been in
effect and (B) the amount of interest which would have accrued had the Effective
Interest Rate, at all times, been in effect or (ii) the amount of interest
actually paid or accrued under this Agreement. In the event the Lenders
receive, collect or apply as interest any sum in excess of the Maximum Rate,
such excess amount shall be applied to the reduction of the principal balance of
the Secured Obligations, and if no such principal is then outstanding, such
excess or part thereof remaining, shall be paid to the Borrower. For the
purposes of computing the Maximum Rate, to the extent permitted by Applicable
Law, all interest and charges, discounts, amounts, premiums or fees deemed to
constitute interest under applicable law, shall be amortized, prorated,
allocated and spread in substantially equal parts throughout the full term of
this Agreement. The provisions of this SECTION 3.1(f) shall be deemed to be
incorporated into every Loan Document (whether or not any provision of this
SECTION 3.1(f) is specifically referred to therein).
SECTION 3.2 CERTAIN FEES.
(a) ORIGINATION FEE. On the Effective Date, as additional consideration
for the extensions of credit provided for hereunder, the Borrower shall pay to
the Agent for the Ratable benefit of the Lenders, in addition to any interest
due under this Agreement, an origination fee in an amount equal to 2% of the
aggregate Commitments in effect on the Effective Date. The origination fee
provided for herein shall compensate the Lenders for the internal costs
associated with the origination, structuring, processing, approving and closing
of the transactions contemplated by this Agreement, including, but not limited
to, administrative, general overhead and lost opportunity costs, but not
including any out-of-pocket expenses for which the Borrower has agreed to
reimburse the Agent or any Lender, including, without limitation, the Agent's or
any Lender's out-of-pocket expenses incurred in connection with its due
diligence examination of the Borrower and the closing of the transactions
contemplated by this Agreement. The origination fee shall be fully earned on
the Effective Date and shall not be subject to refund or rebate.
(b) AGENT FEE. For administration and other services performed by the
Agent in connection with its continuing administration of this Agreement, the
Borrower shall pay to the Agent, for its own account, and not for the account of
the Lenders, an annual fee of $25,000, payable on the Effective Date and on each
anniversary of the Effective Date for so long as any Secured Obligation shall
remain outstanding or the Revolving Credit Facility shall not have been
terminated.
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(c) COMMITMENT FEE. In connection with and as consideration for the
holding available for the use of the Borrower hereunder the full amount of the
Revolving Credit Facility, the Borrower will pay a fee to the Agent, for the
Ratable benefit of the Lenders, for each day from the Effective Date until the
Termination Date, in an amount equal to 1/2 of 1% per annum of the unused
portion of the Revolving Credit Facility for such day. Such fee shall be
payable quarterly in arrears on the first day of each January, April, July and
October and on the date of any permanent reduction in the Revolving Credit
Facility.
(d) LETTER OF CREDIT FEES. As consideration for the issuance by
NationsBank of a Letter of Credit, the Borrower agrees to pay to NationsBank all
applicable Letter of Credit Fees. Such fees shall be payable to NationsBank in
advance on the date of issuance of each Letter of Credit and shall be calculated
according to the face amount of such Letter of Credit based on its stated term.
In the event any Letter of Credit is canceled or terminated prior to the
expiration of its stated term, the Lender will make appropriate adjustments in
such fees based on the actual average daily face amount of outstanding Letters
of Credit and will refund to the Borrower the amount of any excess fee paid
pursuant to this Section 3.2(d).
(e) GENERAL. All fees shall be fully earned by the Agent of the Lenders,
as the case may be, when due and payable and, except as otherwise set forth
herein or required by applicable law, shall not be subject to refund or rebate.
All fees are for compensation for services and are not, and shall not be deemed
to be, interest or a charge for the use of money.
SECTION 3.3 MANNER OF PAYMENT.
(a) Except as otherwise expressly provided in SECTION 7.1(b), each payment
(including prepayments) by the Borrower on account of the principal of or
interest on the Loans or of any other amounts payable to the Lenders under this
Agreement or any Note shall be made not later than 12:00 noon on the date
specified for payment under this Agreement to the Agent, for the account of the
Lenders, at the Agent's Office, in Dollars, in immediately available funds and
shall be made without any setoff, counterclaim or deduction whatsoever. Any
payment received after such time but before 2:00 p.m. on such day shall be
deemed a payment on such date for the purposes of SECTION 11.1, but for all
other purposes shall be deemed to have been made on the next succeeding Business
Day.
(b) The Borrower hereby irrevocably authorizes each Lender and each
Affiliate of such Lender and each participant herein to charge any account of
the Borrower or any other Loan Party maintained with such Lender or such
Affiliate or participant with such amounts as may be necessary from time to time
to pay any Secured Obligations (whether or not owed to such Lender, Affiliate or
participant) which are not paid when due. The Lenders will use reasonable
efforts to give the Borrower notice of any such charge.
SECTION 3.4 GENERAL. If any payment under this Agreement or any
Note shall be specified to be made on a day which is not a Business Day, it
shall be made on the next succeeding day which is a Business Day and such
extension of time shall in such case be included in computing interest, if any,
in connection with such payment.
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SECTION 3.5 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT.
(a) Each Lender shall open and maintain on its books a loan account in the
Borrower's name (each, a LOAN ACCOUNT and collectively, the LOAN ACCOUNTS).
Each such Loan Account shall show as debits thereto each Loan made under this
Agreement by such Lender to the Borrower and as credits thereto all payments
received by such Lender and applied to principal of such Loans, so that the
balance of the Loan Account at all times reflects the principal amount due such
Lender from the Borrower.
(b) The Agent shall maintain on its books a control account for the
Borrower in which shall be recorded (i) the amount of each disbursement made
hereunder, (ii) the amount of any principal or interest due or to become due
from the Borrower hereunder, and (iii) the amount of any sum received by the
Agent hereunder from the Borrower and each Lender's share therein.
(c) The entries made in the accounts pursuant to SUBSECTIONS (a) and (b)
shall be PRIMA FACIE evidence, in the absence of manifest error, of the
existence and amounts of the obligations of the Borrower therein recorded and in
case of discrepancy between such accounts, in the absence of manifest error, the
accounts maintained pursuant to SUBSECTION (b) shall be controlling.
(d) The Agent will account separately to the Borrower monthly with a
statement of Loans, charges and payments made to and by the Borrower pursuant to
this Agreement, and such accounts rendered by the Agent shall be deemed final,
binding and conclusive, save for manifest error, unless the Agent is notified by
the Borrower in writing to the contrary within 30 days of the date the account
to the Borrower was so rendered. Such notice by the Borrower shall be deemed an
objection to only those items specifically objected to therein. Failure of the
Agent to render such account shall in no way affect the rights of the Agent or
of the Lenders hereunder.
SECTION 3.6 REDUCTION OF COMMITMENTS; TERMINATION OF AGREEMENT.
(a) The Borrower shall have the right Ratably to reduce the unused Commitments,
without charge, by giving the Agent not less than three Business Days' prior
written notice of such reduction, which reduction shall be effective on the
Business Day specified in the Borrower's notice and shall be in an amount equal
to $500,000 or an integral multiple in excess thereof and shall not reduce the
Revolving Credit Facility below the sum of the amount of the aggregate Letter of
Credit Reserve. As of the date of reduction set forth in such notice, the
Revolving Credit Facility shall be permanently reduced to the amount stated in
the Borrower's notice for all purposes herein, and the Borrower shall pay the
amount necessary to reduce the amount of the Revolving Credit Loans outstanding
under the Revolving Credit Facility to an amount equal to or less than the
Revolving Credit Facility as so reduced,
(b) Subject to the provisions of SECTION 3.10, the Borrower shall have the
right, at any time, to terminate this Agreement upon not less than 30 Business
Days' prior written notice, which notice shall specify the effective date of
such termination. Upon receipt of such notice, the Agent shall promptly notify
each Lender thereof. On the date specified in such notice, such termination
shall be effected, provided, that the Borrower shall, on or prior to such date,
pay to the Agent, for its account and the account of the Lenders, in same day
funds, an amount equal to
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all Secured Obligations (other than with respect to Letter of Credit
Obligations) outstanding on such date, including, without limitation, all (i)
accrued interest thereon, (ii) all accrued fees provided for hereunder, and
(iii) any amounts payable as Cash Collateral or to the Lenders pursuant to
SECTIONS 3.10, 3.15, 3.16, 14.2, 14.3, and 14.14 and, in addition thereto, shall
deliver to the Agent, in respect of each outstanding Letter of Credit, either a
Supporting Letter of Credit or Cash Collateral as provided in SECTION 2A.9.
Additionally, the Borrower shall provide the Agent and the Lenders with
customary indemnification in respect of returned and dishonored payment items in
form and substance satisfactory to the Agent. Following a notice of termination
as provided for in this SECTION 3.6(b) and upon payment in full of the amounts
specified in this SECTION 3.6(b), and execution and delivery of any required
indemnification, this Agreement shall be terminated and the Agent, the Lenders
and the Borrower shall have no further obligations to any other party hereto,
except for the obligations to the Agent and the Lenders pursuant to Section
14.13 hereof, which shall survive any termination of this Agreement.
SECTION 3.7 MAKING LOANS.
(a) NATURE OF OBLIGATIONS OF LENDERS TO MAKE LOANS. The obligations of
the Lenders under this Agreement to make the Loans are several and are not joint
or joint and several.
(b) ASSUMPTION BY AGENT. Subject to the provisions of SECTION 3.8 and
notwithstanding the occurrence of a Default or Event of Default or other failure
of any condition to the making of Loans under the Revolving Credit Facility
hereunder subsequent to the Initial Loans, unless the Agent shall have received
notice from a Lender in accordance with the provisions of SECTION 3.7(c) prior
to a proposed Borrowing date that such Lender will not make available to the
Agent such Lender's Proportionate Share of the Revolving Credit Loan to be
borrowed on such date, the Agent may assume that such Lender will make such
Proportionate Share available to the Agent in accordance with SECTION 2.2(a),
and the Agent may, in reliance upon such assumption, make available to the
Borrower on such date a corresponding amount. If and to the extent such Lender
shall not make such Proportionate Share available to the Agent, such Lender and
the Borrower severally agree to repay to the Agent forthwith on demand such
corresponding amount, together with interest thereon for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent (i) by the Borrower, at the Effective Interest Rate or, if
lower, subject to SECTION 3.1(f), the Maximum Rate or (ii) by such Lender, at
the Federal Funds Effective Rate. If such Lender shall repay to the Agent such
corresponding amount, the amount so repaid shall constitute such Lender's
Proportionate Share of the Loan made on such Borrowing date for purposes of this
Agreement. The failure of any Lender to make its Proportionate Share of any
Loan available shall not (without regard to whether a Borrower shall have
returned the amount thereof to the Agent in accordance with this SECTION 3.7)
relieve it or any other Lender of its obligation, if any, hereunder to make its
Proportionate Share of the Loan available on such Borrowing date, but no Lender
shall be responsible for the failure of any other Lender to make its
Proportionate Share of a Loan available on the Borrowing date.
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(c) NOTICE OF INTENTION NOT TO LEND. Unless and until the Agent shall
have received written notice from the Required Lenders as to the existence of a
Default, an Event of Default or some other circumstance that would relieve the
Lenders of their respective obligations to make Loans hereunder, which notice
shall be in writing and shall be signed by the Required Lenders and shall
expressly state that the Required Lenders do not intend to make available to the
Agent such Lenders' Ratable Shares of Loans made after the effective date of
such notice, the Agent shall be entitled to continue to make the assumptions
described in SECTION 3.7(b). After receipt of the notice described in the
preceding sentence, which shall become effective on the third Business Day after
receipt of such notice by the Agent unless otherwise agreed to by the Agent, the
Agent shall be entitled to make the assumptions described in SECTION 3.7(b) as
to any Loans as to which it has not received a written notice to the contrary
prior to 11:00 a.m. on the Business Day next preceding the day on which the Loan
is to be made. The Agent shall not be required to make any Loan as to which it
shall have received notice by a Lender of such Lender's intention not to make
its Ratable Share of such Loan available to the Agent.
SECTION 3.8 SETTLEMENT AMONG LENDERS.
(a) REVOLVING CREDIT LOANS. It is agreed that each Lender's Net
Outstandings are intended by the Lenders to be equal at all times to such
Lender's Ratable Share of the aggregate principal amount of all Revolving Credit
Loans outstanding. Notwithstanding such agreement, the several and not joint
obligation of each Lender to make its Ratable Share of Loans under the Revolving
Credit Facility in accordance with the terms of this Agreement and each Lender's
right to receive its Ratable Share of principal payments on Revolving Credit
Loans, the Lenders agree that in order to facilitate the administration of this
Agreement and the Loan Documents that settlement among them may take place on a
periodic basis in accordance with the provisions of this SECTION 3.8.
(b) SETTLEMENT PROCEDURES. To the extent and in the manner hereinafter
provided in this SECTION 3.8, settlement among the Lenders as to Prime Rate
Loans may occur periodically on Settlement Dates determined from time to time by
the Agent, which may occur before or after the occurrence or during the
continuance of a Default or Event of Default and whether or not all of the
conditions set forth in SECTION 4.2 have been met. On each Settlement Date
payments shall be made by or to NationsBank and the other Lenders in the manner
provided in this SECTION 3.8 in accordance with the Settlement Report delivered
by the Agent pursuant to the provisions of this SECTION 3.8 in respect of such
Settlement Date so that as of each Settlement Date, and after giving effect to
the transactions to take place on such Settlement Date, each Lender's Net
Outstandings shall equal such Lender's Ratable Share of the Revolving Credit
Loans.
(i) SELECTION OF SETTLEMENT DATES. If the Agent elects, in its
discretion, but subject to the consent of NationsBank, to settle accounts
among the Lenders with respect to principal amounts of Prime Rate Loans
less frequently than each Business Day, then the Agent shall designate
periodic Settlement Dates which may occur on any Business Day after the
Effective Date; PROVIDED, HOWEVER, that (A) the Agent shall designate as a
Settlement Date any Business Day which is an Interest Payment Date, (B) a
Settlement Date shall occur not less often than every five Business Days,
and (C) settlements with
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respect to Eurodollar Rate Loans shall take place on the Borrowing date,
each Interest Payment Date and on the last day of each Interest Period
applicable thereto. The Agent shall designate a Settlement Date by
delivering to each Lender a Settlement Report not later than 12:00 noon on
the proposed Settlement Date, which Settlement Report will be in the form
of Exhibit D hereto and shall be with respect to the period beginning on
the next preceding Settlement Date and ending on such designated Settlement
Date.
(ii) NON-RATABLE LOANS AND PAYMENTS. Between Settlement Dates, the
Agent shall request and NationsBank may (but shall not be obligated to)
advance to the Borrower out of NationsBank's own funds, the entire
principal amount of any Prime Rate Revolving Credit Loan requested or
deemed requested pursuant to SECTION 2.2(a) (any such Loan being referred
to as a NON-RATABLE LOAN). The making of each Non-Ratable Loan by
NationsBank shall be deemed to be a purchase by NationsBank of a 100%
participation in each other Lender's Proportionate Share of such
Non-Ratable Loan. All payments of principal, interest and any other amount
with respect to such Non-Ratable Loan shall be payable to and received by
the Agent for the account of NationsBank. Upon demand by NationsBank, with
notice thereof to the Agent, each other Lender shall pay to NationsBank, as
the repurchase of such participation, an amount equal to 100% of such
Lender's Proportionate Share of the principal amount of such Non-Ratable
Loan. Any payments received by the Agent between Settlement Dates which in
accordance with the terms of this Agreement are to be applied to the
reduction of the outstanding principal balance of Revolving Credit Loans,
shall be paid over to and retained by NationsBank for such application, and
such payment to and retention by NationsBank shall be deemed, to the extent
of each other Lender's Proportionate Share of such payment, to be a
purchase by each such other Lender of a participation in the Revolving
Credit Loans (including the repurchase of participations in Non-Ratable
Loans) held by NationsBank. Upon demand by another Lender, with notice
thereof to the Agent, NationsBank shall pay to the Agent, for the account
of such other Lender, as a repurchase of such participation, an amount
equal to such other Lender's Proportionate Share of any such amounts (after
application thereof to the repurchase of any participations of NationsBank
in such other Lender's Proportionate Share of any Non-Ratable Loans) paid
only to NationsBank by the Agent.
(iii) SETTLEMENT. On each Settlement Date each Lender shall
transfer to the Agent and the Agent shall transfer to each Lender such
amounts as are necessary to insure that, after giving effect to all such
transfers, each Lender's Net Outstandings are equal to such Lenders
Proportionate Share of the aggregate principal amount of all Revolving
Loans then outstanding.
(iv) RETURN OF PAYMENTS. If any amounts received by NationsBank in
respect of the Secured Obligations are later required to be returned or
repaid by NationsBank to the Borrower or any other obligor or their
respective representatives or successors in interest, whether by court
order, settlement or otherwise, in excess of the NationsBank's
Proportionate Share of all such amounts required to be returned by all
Lenders, each other Lender shall, upon demand by NationsBank with notice to
the Agent, pay to the Agent for the account of NationsBank, an amount equal
to the excess of such Lender's
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Proportionate Share of all such amounts required to be returned by all
Lenders over the amount, if any, returned directly by such Lender.
(v) PAYMENTS TO AGENT, LENDERS.
(A) Payment by any Lender to the Agent shall be made not later
than 1:00 p.m. on the Business Day such payment is due, provided that
if such payment is due on demand by another Lender, such demand is
made on the paying Lender not later than 10:00 a.m. on such Business
Day. Payment by the Agent to any Lender shall be made by wire
transfer, promptly following the Agent's receipt of funds for the
account of such Lender and in the type of funds received by the Agent,
PROVIDED that if the Agent receives such funds at or prior to 1:00
p.m., the Agent shall pay such funds to such Lender by 2:00 p.m. on
such Business Day. If a demand for payment is made after the
applicable time set forth above, the payment due shall be made by 2:00
p.m. on the first Business Day following the date of such demand.
(B) If a Lender shall, at any time, fail to make any payment to
the Agent required hereunder, the Agent may, but shall not be required
to, retain payments that would otherwise be made to such Lender
hereunder and apply such payments to such Lender's defaulted
obligations hereunder, at such time, and in such order, as the Agent
may elect in its sole discretion.
(C) With respect to the payment of any funds under this Section
3.8(c), whether from the Agent to a Lender or from a Lender to the
Agent, the party failing to make full payment when due pursuant to the
terms hereof shall, upon demand by the other party, pay such amount
together with interest on such amount at the Federal Funds Effective
Rate.
(c) SETTLEMENT OF OTHER SECURED OBLIGATIONS. All other amounts received
by the Agent on account of, or applied by the Agent to the payment of, any
Secured Obligation owed to the Lenders (including, without limitation, fees
payable to the Lenders pursuant to SECTIONS 3.2(a) and (c) and proceeds from the
sale of, or other realization upon, all or any part of the Collateral following
an Event of Default) that are received by the Agent on or prior to 1:00 p.m. on
a Business Day will be paid by the Agent to each Lender on the same Business
Day, and any such amounts that are received by the Agent after 1:00 p.m. will be
paid by the Agent to each Lender on the following Business Day. Unless
otherwise stated herein, the Agent shall distribute to each Lender such Lender's
Proportionate Share of fees payable to the Lenders pursuant to Sections 3.2(a)
and (c) and shall distribute to each Lender such Lender's Proportionate Share
(or if different, such Lender's share based upon the amount of the Secured
Obligations then owing to each Lender) of the proceeds from the sale of, or
other realization upon, all or any part of the Collateral following an Event of
Default.
SECTION 3.9 [RESERVED]
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SECTION 3.10 PAYMENTS NOT AT END OF INTEREST PERIOD; FAILURE TO BORROW.
If for any reason any payment of principal with respect to any Eurodollar Rate
Loan is made on any day prior to the last day of the Interest Period applicable
to such Eurodollar Rate Loan or, after having given a Notice of Borrowing with
respect to any Eurodollar Rate Loan or a Notice of Conversion or Continuation
with respect to any Loan to be continued as or converted into a Eurodollar Rate
Loan, such Loan is not made or is not continued as or converted into a
Eurodollar Rate Loan due to the Borrower's failure to borrow or to fulfill the
applicable conditions set forth in ARTICLE 4, the Borrower shall pay to each
Lender an amount sufficient to pay or reimburse such Lender for the payment of
any costs and expenses incurred or suffered by such Lender as a result of such
failure.
The Borrower shall pay such amount upon presentation by such Lender to the
Borrower (with a copy to the Agent) of a statement in reasonable detail setting
forth the amount and such Lender's calculation thereof pursuant hereto, which
statement shall be deemed true and correct absent manifest error.
SECTION 3.11 ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS.
Calculation of all amounts payable to the Lenders under this ARTICLE 3 shall be
made as though each Lender had actually funded or committed to fund its
Eurodollar Rate Loans through the purchase of an underlying deposit in an amount
equal to the amount of such ratable share and having a maturity comparable to
the relevant Interest Period for such Eurodollar Rate Loan; PROVIDED, HOWEVER,
each Lender may fund its Eurodollar Rate Loans in any manner it deems fit and
the foregoing assumption shall be utilized only for the calculation of amounts
payable under this ARTICLE 3.
SECTION 3.12 CONVERSION OR CONTINUATION. Provided that no Event of
Default shall have occurred and be continuing (but subject to the provisions of
SECTION 3.14, the Borrower may request that all or any part of any outstanding
Loan be converted into a Loan or Loans of a different Type or be continued as a
Loan or Loans of the same Type, in the same aggregate principal amount, on any
Business Day (which, in the case of continuation of a Eurodollar Rate Loan or
conversion of a Eurodollar Rate Loan in whole or in part to a Prime Rate Loan,
shall be the last day of the Interest Period applicable to such Loan). In each
such case, the Borrower shall notify the Agent in writing (which notice shall be
irrevocable) by telecopy not later than 11:30 a.m. on the date two Business Days
before the day on which such proposed conversion or continuation is to be
effective (and such effective date of any continuation shall be the last day of
the Interest Period for the Eurodollar Rate Loan). Each such notice (a NOTICE
OF CONVERSION OR CONTINUATION) shall (i) identify the Loan to be converted or
continued, the aggregate outstanding principal balance thereof and, if a
Eurodollar Rate Loan, the last day of the Interest Period applicable to such
Loan, (ii) specify the effective date of such conversion or continuation, (iii)
specify the principal amount of such Loan to be converted or continued and, if
converted, the Type or Types into which the same is to be converted, and (iv)
the Interest Period to be applicable to the Eurodollar Rate Loan as converted or
continued. Such telecopied notice shall be immediately followed by a signed,
written confirmation thereof by the Borrower in a form acceptable to the Agent,
PROVIDED that if such confirmation differs in any
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respect from the action taken by the Lenders, the records of the Agent shall
control absent manifest error.
SECTION 3.13 DURATION OF INTEREST PERIODS; MAXIMUM NUMBER OF EURODOLLAR
RATE LOANS; MINIMUM INCREMENTS.
(a) Subject to the provisions of the definition INTEREST PERIOD, the
duration of each Interest Period applicable to a Eurodollar Rate Loan shall be
as specified in the applicable Notice of Borrowing or Notice of Conversion or
Continuation. The Borrower may elect a subsequent Interest Period to be
applicable to any Eurodollar Rate Loan by giving a Notice of Conversion or
Continuation with respect to such Loan in accordance with SECTION 3.12.
(b) If the Agent does not receive a notice of election in accordance with
SECTION 3.12 with respect to the continuation of any Eurodollar Rate Loan within
the applicable time limits specified in SECTION 3.12, or if, when such notice
must be given, an Event of Default exists or such Type of Loan is not available,
the Borrower shall be deemed to have elected to convert such Eurodollar Rate
Loan in whole into a Prime Rate Loan on the last day of the Interest Period
therefor.
(c) Notwithstanding the foregoing, the Borrower may not select an Interest
Period that would end, but for the provisions of the definition INTEREST PERIOD,
after the Termination Date.
(d) In no event shall there be more than 5 Eurodollar Rate Loans
outstanding hereunder at any time.
(e) Each Eurodollar Rate Loan shall be in a minimum amount of $1,000,000.
SECTION 3.14 CHANGED CIRCUMSTANCES.
(a) If the introduction of or any change in or in the interpretation of
(in each case, after the date hereof) any law or regulation makes it unlawful,
or any Governmental Authority asserts, after the date hereof, that it is
unlawful, for any Lender to perform its obligations hereunder to make Eurodollar
Rate Loans or to fund or maintain Eurodollar Rate Loans hereunder, such Lender
shall notify the Agent of such event and the Agent shall notify the Borrower of
such event, and the right of the Borrower to select Eurodollar Rate Loans for
any subsequent Interest Period or in connection with any subsequent conversion
of any Loan shall be suspended until the Agent shall notify the Borrower that
the circumstances causing such suspension no longer exist, and the Borrower
shall forthwith prepay in full all Eurodollar Rate Loans then outstanding and
shall pay all interest accrued thereon through the date of such prepayment or
conversion, unless the Borrower, within three Business Days after such notice
from the Agent, requests the conversion of all Eurodollar Rate Loans then
outstanding into Prime Rate Loans; PROVIDED, that if the date of such repayment
or proposed conversion is not the last day of the Interest Period applicable to
such Eurodollar Rate Loan, the Borrower shall also pay any amount due pursuant
to SECTION 3.10.
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(b) If the Agent shall, at least one Business Day before the date of any
requested Revolving Credit Loan or the effective date of any conversion or
continuation of an existing Loan to be made or continued as or converted into a
Eurodollar Rate Loan (each such requested Revolving Credit Loan made and Loan to
be converted or continued, a PENDING LOAN), notify the Borrower that the
Eurodollar Rate will not adequately reflect the cost to the Lenders of making or
funding such Pending Loan as a Eurodollar Rate Loan or that the Interbank
Offered Rate is not determinable from any interest rate reporting service of
recognized standing, then the right of the Borrower to select Eurodollar Rate
Loan for such Pending Loan, any subsequent Revolving Credit Loan or in
connection with any subsequent conversion or continuation of any Loan shall be
suspended until the Agent shall notify the Borrower that the circumstances
causing such suspension no longer exist, and each Pending Loan and each such
subsequent Loan requested to be made, continued or converted shall be made or
continued as or converted into a Prime Rate Loan.
SECTION 3.15 INCREASED CAPITAL. (a) If any Lender shall have determined
that the adoption of any applicable law, rule, regulation, guideline, directive
or request (whether or not having force of law) regarding capital requirements
for banks or bank holding companies, or any change therein or in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender with any of the foregoing, in each case,
after the Agreement Date, imposes or increases a requirement by such Lender to
allocate capital resources to such Lender's Commitment to make Loans hereunder
which has or would have the effect of reducing the return on such Lender's
capital to a level below that which such Lender could have achieved (taking into
consideration such Lender's then existing policies with respect to capital
adequacy and assuming full utilization of such Lender's capital) but for such
adoption, change or compliance by any amount deemed by such Lender to be
material: (i) such Lender shall promptly after its determination of such
occurrence give notice thereof to the Borrower; and (ii) the Borrower shall pay
to such Lender as an additional fee from time to time on demand such amount as
such Lender certifies to be the amount that will compensate it for such
reduction. A certificate of such Lender claiming compensation under this
SECTION 3.15 shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid to it hereunder and
the method by which such amounts were determined. In determining such amount,
such Lender may use any reasonable averaging and attribution methods.
(b) Before making any demand pursuant to SECTION 3.15(a), each Lender
agrees to use its best efforts (consistent with its internal policy and legal
and regulatory restrictions) to designate a different lending office if the
making of such a designation would avoid the need for such notice or demand, or
reduce the amount of such increased cost or reduction in return and would not,
in the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender. No demand by any Lender pursuant to SECTION 3.15(a) shall claim
compensation for any period more than 180 days prior to the date of such demand.
(c) If the obligation of any Lender to make Eurodollar Rate Loans has been
suspended pursuant to SECTION 3.14 or if the Borrower becomes obligated to pay
additional
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amounts to any Lender under SECTION 3.15(a), then, unless such Lender has
theretofore taken steps to remove or cure, and has removed or cured, the
conditions creating the cause for such suspension or obligation to pay
additional amounts or has withdrawn its demand under SECTION 3.15(a), the
Borrower shall have the right to seek, with the assistance of the Agent, a
mutually satisfactory substitute lender or lenders (which may be one or more of
the Lenders) to purchase the Loans of such Lender and assume the rights and
obligations of such Lender under this Agreement and the other Loan Documents,
pursuant to an Assignment and Acceptance and otherwise in accordance with the
applicable provisions of ARTICLE 12.
SECTION 3.16 CASH COLLATERAL ACCOUNT; INVESTMENT ACCOUNTS. At any time
when outstanding Revolving Credit Loans exceed $1,000,000 in the aggregate the
Borrower shall comply with the requirements of this SECTION 13.16.
(a) CASH COLLATERAL ACCOUNT. The Borrower shall establish a Cash
Collateral Account in which to deposit Collateral consisting of cash or Cash
Equivalents from time to time. The Cash Collateral Account shall be in the name
of the Agent and the Agent shall have sole dominion and control over, and sole
access to, the Cash Collateral Account. Neither the Borrower nor any Person
claiming on behalf of or through the Borrower shall have any right to withdraw
any of the funds held in the Cash Collateral Account. The Borrower agrees that
it will not at any time (x) sell or otherwise dispose of any interest in the
Cash Collateral Account or any funds held therein or (y) create or permit to
exist any Lien upon or with respect to the Cash Collateral Account or any funds
held therein, except as provided in or contemplated by this Agreement. The
Agent shall exercise reasonable care in the custody and preservation of any
funds held in the Cash Collateral Account and shall be deemed to have exercised
such care if such funds are accorded treatment substantially equivalent to that
which the Agent accords other funds deposited with the Agent, it being
understood that the Agent shall not have any responsibility for taking any
necessary steps to preserve rights against any parties with respect to any funds
held in the Cash Collateral Account. Subject to the right of the Agent to
withdraw funds from the Cash Collateral Account as provided herein, the Agent
will, so long as no Default or Event of Default shall have occurred and be
continuing, from time to time invest funds on deposit in the Cash Collateral
Account, reinvest proceeds of any such investments which may mature or be sold,
and invest interest or other income received from any such investments, in each
case, in Cash Equivalents, as the Borrower may direct prior to the occurrence of
a Default or Event of Default and as the Agent may select after the occurrence
and during the continuance of a Default or Event of Default. Such proceeds,
interest and income which are not so invested or reinvested in Cash Equivalents
shall be deposited and held by the Agent in the Cash Collateral Account. The
Agent makes no representation or warranty as to, and shall not be responsible
for, the rate of return, if any, earned in any Cash Collateral. Any earnings on
Cash Collateral shall be held as additional Cash Collateral on the terms set
forth in this SECTION 3.16.
(b) INVESTMENT ACCOUNTS. The Borrower may from time to time establish one
or more Investment Accounts with the Agent, any Lender or any Affiliate of a
Lender, for the purpose of investing in Cash Equivalents any cash collateral.
The Borrower hereby acknowledges and agrees that each such Investment Account
shall constitute Collateral hereunder and shall be maintained with the Agent, a
Lender or Affiliate of a Lender as security for the Secured
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Obligations. Notwithstanding the foregoing, until such time as the Agent shall
otherwise instruct the Agent, Lender or Affiliate of a Lender maintaining such
account, the Borrower shall be entitled to direct the investment of the funds
deposited therein. The Borrower agrees that it will not at any time (x) sell or
otherwise dispose of any interest in any Investment Account or any funds held
therein other than by application thereof to any Secured Obligation, or (y)
create or permit to exist any Lien upon or with respect to any Investment
Account or any funds held therein, except as provided in or contemplated by this
Agreement. The Borrower agrees that at any time, and from time to time, at the
expense of the Borrower, the Borrower will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent or any Lender may request, in order to
perfect and protect any security interest in any Investment Account granted or
purported to be granted hereby or to enable the Borrower, for its benefit and
the benefit of the Lenders, to exercise and enforce its rights and remedies
hereunder with respect to such Investment Account.
SECTION 3.17 FUNDS TRANSFER SERVICES.
(a) The Borrower acknowledges that the Lender has made available to it as
ANNEX B hereto a description of security procedures regarding funds transfers
executed by the Lender or an affiliate bank at the request of the Borrower (the
SECURITY PROCEDURES). The Borrower and the lender agree that the Security
Procedures are commercially reasonable. The Borrower further acknowledges that
the full scope of the Security Procedures which the Lender or such affiliate
bank offers and strongly recommends for funds transfers is available only if the
Borrower communicates directly with the Lender or such affiliate bank as
applicable in accordance with said procedures. If the Borrower attempts to
communicate by any other method or otherwise not in accordance with the Security
Procedures, the Lender or such affiliate bank, as applicable, shall not be
required to execute such instructions, but if the Lender or such affiliate bank,
as applicable, does so, the Borrower will be deemed to have refused the Security
Procedures that the Lender or such affiliate bank as applicable offers and
strongly recommends, and the Borrower will be bound by any funds transfer,
whether or not authorized, which is issued in the Borrower's name and accepted
by the Lender or such affiliate bank, as applicable, in good faith. The Lender
or such affiliate bank, as applicable, may modify the Security Procedures at
such time or times and in such manner as the Lender or such affiliate bank, as
applicable, in its sole discretion, deems appropriate to meet prevailing
standards of good banking practice. By continuing to use the Lender's or such
affiliate bank's, as applicable, wire transfer services after receipt of any
modification of the Security Procedures, the Borrower agrees that the Security
Procedures, as modified, are likewise commercially reasonable. The Borrower
further agrees to establish and maintain procedures to safeguard the Security
Procedures and any information related thereto.
(b) The Lender or such affiliate bank, as applicable, will generally use
the Fedwire funds transfer system for domestic funds transfers, and the funds
transfer system operated by the Society for Worldwide International Financial
Telecommunication (SWIFT) for international funds transfers. International
funds transfers may also be initiated through the Clearing House InterBank
Payment System (CHIPs) or international cable. However, the Lender or such
affiliate bank, as applicable, may use any means and routes that the Lender or
such affiliate bank, as applicable, in its sole discretion, may consider
suitable for the transmission of funds. Each payment order, or cancellation
thereof, carried out through a funds transfer system or a
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clearinghouse will be governed by all applicable funds transfer system rules and
clearing house rules and clearing arrangements, whether or not the Lender or
such affiliate bank, as applicable, is a member of the system, clearinghouse or
arrangement and the Borrower acknowledges that the Lender's of such affiliate
bank's, as applicable, right to reverse, adjust, stop payment or delay posting
of an executed payment order is subject to the laws, regulations, rules,
circulars and arrangements described herein.
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ARTICLE 4
CONDITIONS PRECEDENT
SECTION 4.1 CONDITIONS PRECEDENT TO REVOLVING CREDIT LOANS.
Notwithstanding any other provision of this Agreement, the obligations of the
Lenders to make Loans hereunder is subject to the satisfaction of each of the
following conditions, prior to or contemporaneously with the making of the first
such Loans:
(a) CLOSING DOCUMENTS. The Agent shall have received each of the
following, all of which shall be satisfactory in form and substance to the Agent
and its special counsel:
(1) this Agreement, duly executed and delivered by the Borrower;
(2) the Notes, each dated the Effective Date and duly executed and
delivered by the Borrower;
(3) the Subsidiary Guaranty and the Subsidiary Security Agreement,
duly executed and delivered by the Guarantors;
(4) the Pledge Agreement duly executed and delivered by the Borrower
and the certificates representing the shares covered thereby, in form for
transfer by delivery or accompanied by duly executed stock powers in blank;
(5) certified copies of the articles of incorporation and by-laws and
shareholder agreements, if any, of the Borrower and each Guarantor as in
effect on the Effective Date and all corporate action, including
shareholder approval, if necessary, taken by the Borrower and each
Guarantor or its shareholders to authorize the execution, delivery and
performance of the Loan Documents to which it is a party and, in the case
of the Borrower, the Borrowings under this Agreement;
(6) certificates of incumbency and specimen signatures with respect
to each of the officers of the Borrower and each Guarantor who is
authorized to execute and deliver any Loan Document on behalf of the
Borrower or such Guarantor or any document, certificate or instrument to be
delivered in connection with this Agreement or the other Loan Documents
and, in the case of the Borrower, to request Borrowings under this
Agreement;
(7) a certificate evidencing the good standing of the Borrower and
each Guarantor in the jurisdiction of its incorporation and in each other
jurisdiction in which it is qualified as a foreign corporation to transact
business;
(8) the Financing Statements duly executed and delivered by the
Borrower and each Guarantor, and evidence satisfactory to the Agent that
the Financing Statements have been filed in each jurisdiction where such
filing may be necessary or appropriate to perfect the Security Interest;
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(9) landlord's waiver and consent agreements duly executed on behalf
of each lessor of real property described on SCHEDULE 4.1(a)(9);
(10) the Mortgage (encumbering Real Estate located at 2250 South Tenth
Street, San Jose, Santa Clara County, California) duly executed and
delivered by the Borrower and evidencing the recording of such instrument
in the appropriate jurisdiction for the recording thereof on the Real
Estate subject thereto or, at the option of the Agent, in proper form for
recording in such jurisdiction;
(11) one or more fully paid mortgagee title insurance policies or, at
the option of the Lender, unconditional commitments for the issuance
thereof with all requirements and conditions to the issuance of the final
policy deleted or marked satisfied, issued by a title insurance company
satisfactory to the Agent, each in an amount equal to not less than the
fair market value of the Real Estate subject to the Mortgage insured
thereby, insuring that such Mortgage creates a valid first lien on, and
security title to, all Real Estate described therein, with no survey
exceptions and no other exceptions which the Agent shall not have approved
in writing;
(12) such materials and information concerning the Real Estate as the
Agent may require, including, without limitation, certificates of occupancy
covering the Real Estate subject to the Mortgage, and owner's affidavits as
to such matters relating to the Real Estate as the Lender may request;
(13) a report from a qualified engineering firm or other qualified
consultant acceptable to the Agent with respect to an investigation and
assessment of all Real Estate, which shall be based on a thorough review of
past and present uses, occupants, ownership and tenancy of the property,
adjacent properties or upgradient properties regarding (A) subsurface
ground water hazards, soils and/or test boring reports; (B) contact with
local, state or federal agencies regarding known or suspected hazardous
material contamination of the property or other properties in the area; (C)
review of aerial photographs; (D) visual site inspection noting unregulated
fills, storage tanks or areas, ground discoloration or soil odors; and (E)
other investigative methods deemed necessary by the consultant or the Agent
to enable the consultant to report that there is no apparent or likely
contamination of the property;
(14) if deemed necessary in the sole judgment of the Agent to further
investigate suspected or likely contamination, supplemental environmental
reports prepared by qualified consultants of the analysis of core drilling
or ground water samples from the property, showing no contamination by
hazardous materials;
(15) [RESERVED];
(16) a Schedule of Inventory, a Schedule of Receivables and a Schedule
of Equipment, each prepared as of a recent date;
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(17) certificates or binders of insurance relating to (i) each of the
policies of insurance covering any of the Collateral together with loss
payable clauses which comply with the terms of SECTION 7.8 and (ii) each of
the policies of insurance required by the Mortgages, together with
mortgagee clauses satisfactory to the Lender;
(18) a Borrowing Base Certificate prepared as of July 31, 1997 duly
executed and delivered by a Financial Officer of the Borrower demonstrating
Collateral Availability, after giving effect to any Loans to be made on
such day, of not less than $5,000,000, together with such additional
evidence of Collateral Availability as the Agent may require;
(19) copies of all the financial statements referred to in SECTION
5.1(n) and meeting the requirements thereof;
(20) a certificate of the Vice President-Finance of the Borrower
stating that, to the best of his knowledge and based on an examination
sufficient to enable him to make an informed statement, (a) all of the
representations and warranties made or deemed to be made under this
Agreement are true and correct in all material respects as of the Effective
Date, both with and without giving effect to any Loans to be made at such
time and the application of the proceeds thereof, and (b) no Default or
Event of Default exists;
(21) evidence satisfactory to the Agent of the release and termination
of (or agreement to release and terminate) all Liens other than Permitted
Liens.
(22) [RESERVED];
(23) a signed opinion of Gibson, Dunn & Crutcher LLP, counsel for the
Borrower and the Guarantors, opining as to such matters in connection with
this Agreement as the Lender or its counsel may reasonably request;
(24) an opinion as to the Solvency of the Borrower and its
Subsidiaries of Houlihan Lokey Howard & Zukin, prepared on a basis
(including, giving PRO FORMA effect to the Recapitalization and the
transactions contemplated by this Agreement) and otherwise in form and
substance satisfactory to the Agent;
(25) the Patent Assignment duly executed and delivered by the
Borrower;
(26) the Trademark Assignment duly executed and delivered by the
Borrower; and
(27) such other documents or and Lender, through the Agent, may
reasonably request.
(b) FEES AND EXPENSES. The Borrower shall have paid all of the fees and
all expenses which the Borrower is obligated to pay or reimburse in accordance
with the terms of this Agreement, accrued to the Effective Date.
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(c) SECURITY INTERESTS. The Agent shall have received satisfactory
evidence that the Agent (for the benefit of Lenders) has a valid and perfected
first priority security interest as of such date in all of the Collateral,
subject only to Permitted Liens.
(d) RECAPITALIZATION. The Merger and the other transactions contemplated
by the Recapitalization shall have been consummated in accordance with the terms
and conditions of the Merger Agreement and the other Recap Documents, without
the waiver of any material term thereof; the Agent shall have received evidence
satisfactory to it of the issuance of the Senior Notes in accordance with the
terms of the Senior Note Indenture and receipt by the Borrower of gross cash
proceeds of the Senior Notes in an amount not less than $106,700,000; the Agent
shall have received evidence satisfactory to it that, after giving effect to the
Merger, JFLEI will own not less than 65% of the voting common stock of the
Borrower on a fully diluted basis; and the Agent shall have received evidence
satisfactory to it that after giving effect to the Merger, the value of
contributed equity of the Borrower is not less than $38,000,000, including at
least $20,000,000 of cash paid for shares of common stock of JFLCo and not more
than $18,000,000 of cash paid for shares of the Preferred Stock. Such evidence
shall include copies, certified as correct and complete by an appropriate
officer of the Borrower, of the Merger Agreement, the Senior Note Indenture and
the other Recap Documents, as well as reliance letters for the benefit of the
Agent and the Lenders as to the legal opinions delivered in connection with the
consummation of such transactions.
(e) MATERIALLY ADVERSE EFFECT. The Lenders and the Agent shall be
satisfied that no Materially Adverse Effect has occurred since July 4, 1997.
SECTION 4.2 ALL LOANS; LETTERS OF CREDIT. At the time of making of
each Loan and the issuance of each Letter of Credit:
(a) all of the representations and warranties made or deemed to be made
under this Agreement shall be true and correct in all material respects at such
time (except any such representations or warranty stated to be made as of a
specific date, which representation or warranty shall be true and correct as of
such date) both with and without giving effect to the Letter of Credit to be
issued or the Loans to be made at such time and the application of the proceeds
thereof, and
(b) the corporate actions of the Borrower referred to in SECTION 4.1(a)(5)
shall remain in full force and effect and the incumbency of officers shall be as
stated in the certificates of incumbency delivered pursuant to SECTION 4.1(a)(6)
or as subsequently modified and reflected in a certificate of incumbency
delivered to the Agent.
Each request or deemed request for any Borrowing or the issuance of any
Letter of Credit hereunder shall be deemed to be a certification by the Borrower
to the Agent and the Lenders as to the matters set forth in SECTION 4.2(a) and
(b) and the Agent may, without waiving either condition, consider the conditions
specified in SECTIONS 4.2(a) and (b) fulfilled and a representation by the
Borrower to such effect made, if no written notice to the contrary is received
by the Agent prior to the making of the Loan then to be made or the issuance of
the requested Letter of Credit.
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SECTION 4.3 CONDITIONS AS COVENANTS. In the event that the Lenders
make the Initial Loans prior to the satisfaction of all conditions precedent set
forth in SECTION 4.1, and such conditions are not waived in writing by the
Agent, the Borrower shall nevertheless cause such condition or conditions to be
satisfied within 30 days after the making of such Initial Loans.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BORROWER
SECTION 5.1 REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants to the Agent and to the Lenders as follows:
(a) ORGANIZATION; POWER; QUALIFICATION. The Borrower and each of its
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, having the power
and authority to own its properties and to carry on its business as now being
and hereafter proposed to be conducted and is duly qualified and authorized to
do business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification or authorization. The
jurisdictions in which each of the Borrower and each of its Subsidiaries is
qualified to do business as a foreign corporation are listed on SCHEDULE 5.1(a).
(b) CAPITALIZATION; SHAREHOLDER AGREEMENTS. The outstanding capital stock
of the Borrower has been duly and validly issued and is fully paid and
nonassessable, and the number and owners of such shares of capital stock of the
Borrower are set forth on SCHEDULE 5.1(b). The issuance and sales of the
Borrower's capital stock have been registered or qualified under applicable
federal and state securities laws or are exempt therefrom. Except as set forth
on Schedule 5.1(b), there are no shareholders agreements, options, subscription
agreements or other agreements or understandings to which the Borrower is a
party in effect with respect to the capital stock of the Borrower, including,
without limitation, agreements providing for special voting requirements or
arrangements for approval of corporate actions or other matters relating to
corporate governance or restrictions on share transfer or providing for the
issuance of any securities convertible into shares of the capital stock of the
Borrower, any warrants or other rights to acquire any shares or securities
convertible into such shares, or any agreement that obligates the Borrower,
either by its terms or at the election of any other Person, to repurchase such
shares under any circumstances.
(c) SUBSIDIARIES. SCHEDULE 5.1(c) correctly sets forth the name of each
Subsidiary of the Borrower, its jurisdiction of incorporation, the name of its
immediate parent or parents, and the percentage of its issued and outstanding
securities owned by the Borrower or any other Subsidiary of the Borrower and
indicating whether such Subsidiary is a Consolidated Subsidiary. Except as set
forth on SCHEDULE 5.1(c),
(i) no Subsidiary of the Borrower has issued any securities
convertible into shares of such Subsidiary's capital stock or any options,
warrants or other rights to acquire any shares or securities convertible
into such shares,
(ii) the outstanding stock and securities of each Subsidiary of the
Borrower are owned by the Borrower or a Wholly Owned Subsidiary of the
Borrower, or by the Borrower and one or more of its Wholly Owned
Subsidiaries, free and clear of all Liens (other than Permitted Liens),
warrants, options and rights of others of any kind whatsoever, and
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(iii) the Borrower has no Subsidiaries.
The outstanding capital stock of each Subsidiary of the Borrower has been
duly and validly issued and is fully paid and nonassessable by the issuer, and
the number and owners of the shares of such capital stock are set forth on
Schedule 5.1(c).
(d) AUTHORIZATION OF AGREEMENT, NOTES, LOAN DOCUMENTS AND BORROWING. The
Borrower has the right and power, and has taken all necessary action to
authorize it, to execute, deliver and perform this Agreement and each of the
Loan Documents in accordance with their respective terms. This Agreement and
each of the Loan Documents have been duly executed and delivered by the duly
authorized officers of the Borrower and each is, or each when executed and
delivered in accordance with this Agreement will be, a legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
(e) COMPLIANCE OF AGREEMENT, NOTES, LOAN DOCUMENTS AND BORROWING WITH
LAWS, ETC. Except as set forth on SCHEDULE 5.1(e), the execution, delivery and
performance of this Agreement and each of the Loan Documents in accordance with
their respective terms and the borrowings hereunder do not and will not, by the
passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any Applicable Law
relating to the Borrower or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute a default
under the articles or certificate of incorporation, by-laws or any
shareholders' agreement of the Borrower or any of its Subsidiaries,
(iii) conflict with, result in a breach of or constitute a default
under any material provisions of any indenture, agreement or other
instrument to which the Borrower or any of its Subsidiaries is a party or
by which the Borrower, any of its Subsidiaries or any of the Borrower's or
such Subsidiaries' property may be bound or any Governmental Approval
relating to the Borrower or any of its Subsidiaries, or
(iv) result in or require the creation or imposition of any Lien upon
or with respect to any property now owned or hereafter acquired by the
Borrower other than the Security Interest.
(f) BUSINESS. Each of the Borrower and each Subsidiary is engaged
principally in the business of manufacturing or assembling and selling (i)
precision aerospace components for commercial and military aircraft, or (ii)
resilient floor covering accessories or (iii) engineered commercial products for
intermediate and end markets or other businesses reasonably related or
complimentary thereto.
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(g) COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS.
(i) Except as set forth in SCHEDULE 5.1(g), the Borrower and each of
its Subsidiaries, to the best of the knowledge of the Borrower,
(A) has all Governmental Approvals, including permits relating
to federal, state and local Environmental Laws, ordinances and
regulations, required by any Applicable Law for it to conduct its
business, each of which is in full force and effect, is final and not
subject to any pending review on appeal and is not the subject of any
pending or, to the knowledge of the Borrower, threatened attack by
other direct or collateral proceeding, and
(B) is in compliance with each Governmental Approval applicable
to it and in compliance with all other Applicable Laws relating to it,
including, without being limited to, all Environmental Laws and all
occupational health and safety laws applicable to the Borrower, any of
its Subsidiaries or their respective properties,
except for failures to obtain or maintain Governmental Approvals and
instances of noncompliance which could not, singly or in the aggregate,
reasonably be expected to cause a Default or Event of Default or have a
Materially Adverse Effect and in respect of which reserves against the
Borrower's or such Subsidiary's reasonably anticipated liability have been
established on the books of the Borrower or such Subsidiary, as applicable,
to the extent required by GAAP.
(ii) Without limiting the generality of the above, except as
disclosed on a report delivered pursuant to Sections 4.1(a)(13) or (14) or
with respect to matters which could not reasonably be expected to have,
singly or in the aggregate, a Materially Adverse Effect, to the best of the
knowledge of the Borrower, except as set forth on Schedule 5.1(g):
(A) the operations of the Borrower and each of its Subsidiaries
comply in all material respects with all applicable environmental,
health and safety requirements of Applicable Law;
(B) the Borrower and each of its Subsidiaries has obtained all
environmental, health and safety permits necessary for its operation,
and all such permits are in good standing and the Borrower and each of
its Subsidiaries is in compliance in all material respects with all
terms and conditions of such permits;
(C) neither the Borrower nor any of its Subsidiaries nor any of
their respective present or past property or operations are subject to
any order from or agreement with any public authority or private party
respecting (x) any environmental, health or safety requirements of
Applicable Law, (y) any Remedial Action, or (z) any liabilities and
costs arising from the Release or threatened Release of a Contaminant
into the environment;
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(D) none of the operations of the Borrower or of any of its
Subsidiaries is subject to any judicial or administrative proceeding
alleging a violation of any environmental, health or safety
requirement of Applicable Law;
(E) none of the present or past operations of the Borrower or
any of its Subsidiaries is the subject of any investigation by any
public authority evaluating whether any Remedial Action is needed to
respond to a Release or threatened Release of a Contaminant into the
environment;
(F) [RESERVED];
(G) neither the Borrower nor any of its Subsidiaries has filed
any notice under any requirement of Applicable Law reporting a Release
of a Contaminant into the environment;
(H) except in compliance in all material respects with
applicable Environmental Laws, during the course of the Borrower's or
any of its Subsidiaries' ownership of or operations on the Real
Estate, there has been no (1) generation, treatment, recycling,
storage or disposal of hazardous waste, as that term is defined under
40 CFR Part 261 or any state equivalent, (2) use of underground
storage tanks or surface impoundments, (3) use of asbestos-containing
materials, or (4) use of polychlorinated biphenyls (PCBs) used in
hydraulic oils, electrical transformers or other equipment;
(I) neither the Borrower nor any of its Subsidiaries has
entered into any negotiations or agreements with any Person (including,
without limitation, any prior owner of any of the Real Estate or other
property of the Borrower or any of its Subsidiaries) relating to any
Remedial Action or environment-related claim;
(J) neither the Borrower nor any of its Subsidiaries has
received any notice or claim to the effect that it is or may be liable
to any Person as a result of the Release or threatened Release of a
Contaminant into the environment;
(K) neither the Borrower nor any of its Subsidiaries has any
material contingent liability in connection with any Release or
threatened Release of any Contaminant into the environment;
(L) no Environmental Lien has attached to any of the Real
Estate or other property of the Borrower or of any of its Subsidiaries;
(M) the presence and condition of all asbestos-containing
material which is on or part of the Real Estate (excluding any raw
materials used in the manufacture of products or products themselves)
do not violate in any material respect any currently applicable
requirement of Applicable Law; and
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(N) since 1989, neither the Borrower nor any of its
Subsidiaries has manufactured, distributed or sold products which
contain asbestos-containing material.
(iii) The Borrower has notified the Lenders and the Agent of the
receipt by the Borrower or by any of its Subsidiaries of any notice of a
material violation of any Environmental Laws and occupational health and
safety laws applicable to the Borrower, any of its Subsidiaries or any of
their respective properties.
(h) TITLE TO PROPERTIES. Except as set forth in SCHEDULE 5.1(h), the
Borrower and each of its Subsidiaries has valid and legal title to or leasehold
interest in all personal property and Real Estate owned and other assets used in
its business, including those reflected on the most recent balance sheet of the
Borrower delivered pursuant to SECTION 5.1(n).
(i) LIENS. Except as set forth in SCHEDULE 5.1(i), none of the properties
and assets of the Borrower or any Subsidiary of the Borrower is subject to any
Lien, except Permitted Liens. Other than the Financing Statements, no financing
statement under the Uniform Commercial Code of any State or other instrument
evidencing a Lien which names the Borrower or any Subsidiary of the Borrower as
debtor has been filed (and has not been terminated) in any State or other
jurisdiction, and neither the Borrower nor any Subsidiary of the Borrower has
signed any agreement (that remains in effect) authorizing any secured party
thereunder to file any such financing statement or instrument, except to perfect
those Liens listed on Schedule 5.1(i) and consensual Permitted Liens. No
financing statement under the Uniform Commercial Code of any State or other
instrument evidencing a Lien which names JFLCo as debtor has been filed (and has
not been terminated) in any State or other jurisdiction.
(j) INDEBTEDNESS AND GUARANTIES. SCHEDULE 5.1(j) is a complete and
correct listing of all (i) Debt and (ii) Guaranties of each of the Borrower and
each of its Subsidiaries (other than the Secured Obligations). Each of the
Borrower and its Subsidiaries has performed and is in compliance with all of the
material terms of such Debt and Guaranties and all instruments and agreements
relating thereto, and no default or event of default, or event or condition
which with notice or lapse of time, or both, would constitute such a default or
event of default, exists with respect to any such Debt or Guaranty as of the
Effective Date.
(k) LITIGATION. Except as set forth on SCHEDULE 5.1(k), there are no
actions, suits or proceedings pending (nor, to the knowledge of the Borrower,
are there any actions, suits or proceedings threatened) against the Borrower or
such Subsidiaries or any of the Borrower's or any of its Subsidiaries'
properties in any court or before any arbitrator of any kind or before or by any
governmental body, except actions, suits or proceedings which could not
reasonably be expected, singly or in the aggregate, to have a Materially Adverse
Effect, and there are no strikes or walkouts in progress, pending or, to the
best of the Borrower's knowledge contemplated, relating to any labor contracts
to which the Borrower or any of its Subsidiaries is a party, relating to any
labor contracts being negotiated, or otherwise, which would have a Materially
Adverse Effect.
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(l) TAX RETURNS AND PAYMENTS. Except as set forth on SCHEDULE 5.1(l), all
United States federal, state and local as well as foreign national, provincial
and all material local and other tax returns of the Borrower and each of its
Subsidiaries required by Applicable Law to be filed have been duly filed, and
all United States federal, state and local and foreign national, provincial and
local and other taxes, assessments and other governmental charges or levies upon
the Borrower and each of its Subsidiaries and the Borrower's and any of its
Subsidiaries' property, income, profits and assets which are due and payable
have been paid, except any such nonpayment which is at the time permitted under
SECTION 8.6. The charges, accruals and reserves on the books of the Borrower
and each of its Subsidiaries in respect of United States federal, state and
local and foreign national, provincial and local taxes for all fiscal years and
portions thereof since 1983 (the last year in respect of which the Internal
Revenue Service has examined and closed the income tax returns for the Borrower)
are in the judgment of the Borrower adequate, and the Borrower knows of no
reason to anticipate any additional assessments for any of such years which,
singly or in the aggregate, might have a Materially Adverse Effect.
(m) BURDENSOME PROVISIONS. Neither the Borrower nor any of its
Subsidiaries is a party to any indenture, agreement, lease or other instrument,
or subject to any charter or corporate restriction, Governmental Approval or
Applicable Law compliance with the terms of which could reasonably be expected
to have a Materially Adverse Effect.
(n) FINANCIAL STATEMENTS.
(i) The Borrower has furnished to the Agent and the Lenders (A)
copies of the audited balance sheet of Burke and its consolidated
Subsidiaries as of January 3, 1997, and the related statements of income,
cash flow and shareholders' equity for the Fiscal Year then ended, reported
on by Ernst & Young LLP, which financial statements are complete and
correct and present fairly in all material respects in accordance with GAAP
consistently applied the financial position of Burke and its consolidated
Subsidiaries as of January 3, 1997, and the results of operations of Burke
and its consolidated Subsidiaries for the Fiscal Year then ended and (B)
copies of the unaudited balance sheet of Burke and its consolidated
Subsidiaries as at July 4, 1997, and the related statements of income and
cash flow for the six-month period then ended, which financial statements
are complete and correct and present fairly in all material respects in
accordance with GAAP, (but for the absence of notes and subject to year-end
audit adjustments) consistently applied, the financial position of Burke
and its consolidated Subsidiaries as at July 4, 1997 and the results of
operations of Burke and its consolidated Subsidiaries for the six-month
period then ended.
(ii) The Borrower has furnished to the Agent and the Lenders copies
of the Pro Forma. The Pro Forma is complete and presents fairly in all
material respects, on a PRO FORMA basis, the financial position of the
Borrower and its consolidated Subsidiaries as at July 4, 1997 and as of the
Effective Date there has been no material change therein.
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(iii) The Borrower has furnished to the Agent and the Lenders
copies of the Projections. The Projections have been prepared by or under
the supervision of the Borrower, are complete and have been prepared on the
basis of reasonable assumptions and in good faith, utilizing historical
financial information that was prepared in accordance with GAAP.
(iv) Except as disclosed or reflected in the financial statements
described in CLAUSES (i) and (ii) above, the Borrower does not have any
material liabilities, contingent or otherwise, and there were no material
unrealized or anticipated losses of the Borrower.
(o) ADVERSE CHANGE. Since the date of the last financial statements
delivered to the Agent pursuant to SECTION 5.1(n), after giving effect to the
transactions reflected in the Pro Forma,
(i) no material adverse change has occurred in the business, assets,
liabilities, financial condition, or results of operations of the Borrower,
and
(ii) no event has occurred or failed to occur which has had, or may
have, singly or in the aggregate, a Materially Adverse Effect.
(p) ERISA. Neither the Borrower nor any Related Company maintains or
contributes to any Benefit Plan other than those listed on SCHEDULE 5.1(p).
Each such Benefit Plan is in substantial compliance with ERISA and the Code,
including but not limited to those provisions thereof relating to reporting and
disclosure, and neither the Borrower nor any Related Company has received any
notice (that has not been withdrawn or corrected) asserting that a Benefit Plan
is not in compliance with ERISA. No material liability to the PBGC or to a
Multiemployer Plan has been, or is expected to be, incurred by the Borrower or
any Related Company. Each Benefit Plan intended to qualify under Section 401(a)
of the Code so qualifies and any related trust is exempt from federal income tax
under Section 501(a) of the Code. A favorable determination letter from the IRS
has been issued (or applied for) with respect to each such plan and trust and
nothing has occurred since the date of any such determination letter that has
been issued, that would adversely affect such qualification of tax-exempt
status. No Benefit Plan subject to the minimum funding standards of the Code
has failed to meet such standards. Neither the Borrower nor any Related Company
has transferred any pension plan liability in a transaction that could be
subject to Sections 4069 or 4212(c) of ERISA. There are no material pending or
threatened claims against any Benefit Plan, other than claims for benefits. No
non-exempt prohibited transaction within the meaning of Section 4975 of the Code
or Section 406 of ERISA has occurred with respect to a Benefit Plan that would
result in any material Liability to the Borrower. Except under plans listed on
SCHEDULE 5.1(p), no employee or former employee of the Borrower or any Related
Company is or may become entitled to any benefit under a Benefit Plan that is a
"welfare plan" within the meaning of Section 3(1) of ERISA following such
employee's termination of employment. Except as set forth on SCHEDULE 5.1(p),
each such welfare plan that is a group health plan has been operated in
compliance with the provisions of Section 4980B of the Code and Sections 601-609
of ERISA and any applicable provisions of state law that are similar.
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(q) ABSENCE OF DEFAULTS. Neither the Borrower nor any of its Subsidiaries
is in default under its articles or certificate of incorporation or by-laws and
no event has occurred, which has not been remedied, cured or waived,
(i) which constitutes a Default or an Event of Default, or
(ii) which constitutes, or which with the passage of time or giving
of notice, or both, would constitute, a default or event of default by the
Borrower or any of its Subsidiaries under any material agreement (other
than this Agreement) or judgment, decree or order to which the Borrower or
any of its Subsidiaries is a party or by which the Borrower, any of its
Subsidiaries or any of the Borrower's or any of its Subsidiaries'
properties may be bound or which would require the Borrower or any of its
Subsidiaries to make any payment under any thereof prior to the scheduled
maturity date therefor, except (A) in the case only of any such agreement,
for alleged defaults which are being contested in good faith by appropriate
proceedings and with respect to which reserves in respect of the Borrower's
or such Subsidiary's reasonably anticipated liability have been established
on the books of the Borrower or such Subsidiary in accordance with GAAP, or
(B) which would not have a Materially Adverse Effect.
(r) ACCURACY AND COMPLETENESS OF INFORMATION. All written information
other than annual budgets, reports and other papers and data produced by or on
behalf of J.F. Lehman & Company, JFLEI, Burke or the Borrower and furnished by
J.F. Lehman & Company, JFLEI, Burke or the Borrower to the Agent or any Lender
were, at the time the same were so furnished, complete and correct in all
material respects, to the extent necessary to give the recipient a true and
accurate knowledge of the subject matter. No fact is known to the Borrower,
other than general economic conditions, which has had, or may in the future have
(so far as the Borrower can reasonably foresee), a Materially Adverse Effect
which has not been set forth in the financial statements or disclosure delivered
prior to the Effective Date, in each case referred to in Section 5.1(n), or in
such written information, reports or other papers or data or otherwise disclosed
in writing to the Agent and the Lenders prior to the Agreement Date. No
document other than annual budgets furnished or written statement made to the
Agent or any Lender by J.F. Lehman & Company, Burke or the Borrower in
connection with the negotiation, preparation or execution of this Agreement or
any of the Loan Documents contains or will contain any untrue statement of a
fact (that has not been corrected and superseded prior to the Agreement Date)
material to the creditworthiness of the Borrower or omits or will omit to state
a material fact necessary in order to make the statements contained therein not
misleading.
(s) SOLVENCY. In each case after giving effect to the Debt represented by
the Loans outstanding and to be incurred, the transactions contemplated by this
Agreement, and the Recap Documents, the Borrower and each of its Subsidiaries is
Solvent.
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(t) RECEIVABLES.
(i) STATUS.
(A) Each Receivable reflected as an Eligible Receivable in the
computations included in any Borrowing Base Certificate meets the
criteria enumerated in CLAUSES (a) through (p) of the definition of
Eligible Receivables, except as disclosed in such Borrowing Base
Certificate or as disclosed in a timely manner in a subsequent
Borrowing Base Certificate or otherwise in writing to the Agent.
(B) The Borrower has no knowledge of any fact or circumstance
not disclosed to the Agent in a Borrowing Base Certificate or
otherwise in writing which would impair the validity or collectibility
of any Receivable of $50,000 or more or of Receivables which
(regardless of the individual amount thereof) aggregate $100,000 or
more.
(ii) CHIEF EXECUTIVE OFFICE. As of the Effective Date, the chief
executive office of the Borrower and the books and records relating to the
Receivables are located at the address or addresses set forth on SCHEDULE
5.1(t); Burke has not maintained its chief executive office or books and
records relating to any Receivables at any other address at any time during
the year immediately preceding the Agreement Date except as disclosed on
SCHEDULE 5.1(t).
(u) INVENTORY.
(i) SCHEDULE OF INVENTORY. All Inventory included as Eligible
Inventory in any Schedule of Inventory or Borrowing Base Certificate
delivered to the Agent pursuant to Section 7.13 meets the criteria
enumerated in clauses (a) through (g) of the definition of Eligible
Inventory, except as disclosed in such Schedule of Inventory or Borrowing
Base Certificate or in a subsequent Schedule of Inventory or Borrowing Base
Certificate, or as otherwise specifically disclosed in writing to the
Agent.
(ii) CONDITION. All Inventory is in good condition (ordinary wear
and tear excepted), meets all standards imposed by any governmental agency,
or department or division thereof, having regulatory authority over such
goods, their use or sale, and is currently either usable or salable in the
normal course of the Borrower's business, except to the extent reserved
against in the financial statements referred to in Section 5.1(n) or
delivered pursuant to ARTICLE 9 or as disclosed on a Schedule of Inventory
delivered to the Agent pursuant to SECTION 7.13(b).
(iii) LOCATION. As of the Effective Date, all Inventory is
located on the premises set forth on SCHEDULE 5.1(u) or is Inventory in
transit to one of such locations, except as otherwise disclosed in writing
to the Agent, and Burke has not, in the last year, located such Inventory
at premises other than those set forth on SCHEDULE 5.1(u).
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(v) EQUIPMENT. As of the Effective Date, all Equipment is in good order
and repair (ordinary wear and tear excepted) in all material respects and is
located on the premises set forth on SCHEDULE 5.1(v) and has been so located at
all times during the last year, except as set forth on SCHEDULE 5.1(v).
(w) REAL PROPERTY. As of the Effective Date, the Borrower owns no Real
Estate and leases no Real Estate other than that described on SCHEDULE 5.1(w).
(x) CORPORATE AND FICTITIOUS NAMES. Except as otherwise disclosed on
SCHEDULE 5.1(x), during the five-year period preceding the Agreement Date,
neither the Borrower nor any predecessor thereof has been known as or used any
corporate or fictitious name other than the corporate name of the Borrower on
the Effective Date.
(y) FEDERAL RESERVE REGULATIONS. Neither the Borrower nor any of its
Subsidiaries is engaged and none will engage, principally or as one of its
important activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" (as each of the quoted terms is
defined or used in Regulations G and U of the Board of Governors of the Federal
Reserve System). No part of the proceeds of any of the Loans will be used for
so purchasing or carrying margin stock or, in any event, for any purpose which
violates, or which would be inconsistent with, the provisions of Regulation G,
T, U or X of such Board of Governors. If requested by the Agent or any Lender,
the Borrower will furnish to the Agent and the Lenders a statement or statements
in conformity with the requirements of said Regulation G, T, U or X to the
foregoing effect.
(z) INVESTMENT COMPANY ACT. The Borrower is not an "investment company"
or a company "controlled" by an "investment company" (as each of the quoted
terms is defined or used in the Investment Company Act of 1940, as amended).
(aa) EMPLOYEE RELATIONS. The Borrower and each of its Subsidiaries is not,
except as set forth on SCHEDULE 5.1(aa), party to any collective bargaining
agreement nor has any labor union been recognized as the representative of the
Borrower's or any of its Subsidiaries' employees, and, as of the Effective Date,
the Borrower knows of no pending or threatened strikes, work stoppage or other
labor disputes involving the Borrower's or any of its Subsidiaries' employees.
(bb) PROPRIETARY RIGHTS. SCHEDULE 5.1(bb) sets forth a correct and
complete list of all of the Proprietary Rights. None of the Proprietary Rights
is subject to any licensing agreement or similar arrangement except as set forth
on SCHEDULE 5.1(bb) or as entered into in the sale or distribution of the
Borrower's Inventory in the ordinary course of business. To the best of the
Borrower's knowledge, none of the Proprietary Rights infringes on or conflicts
with any other Person's property, and no other Person's property infringes on or
conflicts with the Proprietary Rights, in any manner that would have a
Materially Adverse Effect. The Proprietary Rights described on SCHEDULE 5.1(bb)
constitute all of the property of such type necessary to the current and
anticipated future conduct of the Borrower's business.
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(cc) TRADE NAMES. All trade names or styles under which the Borrower sells
Inventory or Equipment or creates Receivables, or to which instruments in
payment of Receivables are made payable, are listed on SCHEDULE 5.1(cc).
(dd) BANK ACCOUNTS, LOCKBOXES, ETC. SCHEDULE 5.1(dd) is a complete and
correct list of all checking accounts, deposit accounts, lockboxes and other
bank accounts (whether general or special) maintained by the Borrower and its
Subsidiaries.
SECTION 5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties set forth in this ARTICLE 5 and all statements
contained in any certificate, financial statement, or other instrument,
delivered by or on behalf of the Borrower pursuant to or in connection with this
Agreement or any of the Loan Documents (including, but not limited to, any such
representation, warranty or statement made in or in connection with any
amendment thereto) shall constitute representations and warranties made under
this Agreement. All representations and warranties made under this Agreement
shall be made or deemed to be made at and as of the Agreement Date, at and as of
the Effective Date and at and as of the date of each Loan, except that
representations and warranties which, by their terms are applicable only to one
such date shall be deemed to be made only at and as of such date. All
representations and warranties made or deemed to be made under this Agreement
shall survive and not be waived by the execution and delivery of this Agreement,
any investigation made by or on behalf of the Lender or any borrowing hereunder.
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ARTICLE 6
SECURITY INTEREST
SECTION 6.1 SECURITY INTEREST.
(a) To secure the payment, observance and performance of the Secured
Obligations, the Borrower hereby mortgages, pledges and assigns all of the
Collateral to the Agent, for the benefit of itself as Agent and the Lenders and
Affiliates of the Lenders, and grants to the Agent, for the benefit of itself as
Agent and the Lenders, including NationsBank as issuer of the Letters of Credit
and the lender of Non-Ratable Loans, and Affiliates of the Lenders, a continuing
security interest in, and a continuing Lien upon, all of the Collateral.
(b) As additional security for all of the Secured Obligations, the
Borrower grants to the Agent, for the benefit of itself as Agent and the Lenders
and Affiliates of the Lenders, including NationsBank as issuer of the Letters of
Credit and the lender of Non-Ratable Loans, a security interest in, and assigns
to the Agent, for the benefit of itself as Agent and the Lenders and Affiliates
of the Lenders, all of the Borrower's right, title and interest in and to, any
deposits or other sums at any time credited by or due from each Lender and each
Affiliate of a Lender to the Borrower, or credited by or due from any
participant of any Lender to the Borrower, with the same rights therein as if
the deposits or other sums were credited by or due from such Lender. The
Borrower hereby authorizes each Lender and each Affiliate of such Lender and
each participant to pay or deliver to the Agent, for the account of the Lenders,
without any necessity on the Agent's or any Lender's part to resort to other
security or sources of reimbursement for the Secured Obligations, at any time
during the continuation of any Event of Default or in the event that the Agent
should make demand for payment hereunder in accordance with the terms hereof and
without further notice to the Borrower (such notice being expressly waived), any
of the aforesaid deposits (general or special, time or demand, provisional or
final) or other sums for application to any Secured Obligation, irrespective of
whether any demand has been made or whether such Secured Obligation is mature,
and the rights given the Agent, the Lenders, their Affiliates and participants
hereunder are cumulative with such Person's other rights and remedies, including
other rights of set-off. The Agent will promptly notify the Borrower of its
receipt of any such funds for application to the Secured Obligations, but
failure to do so will not affect the validity or enforceability thereof. The
Agent may give notice of the above grant of a security interest in and
assignment of the aforesaid deposits and other sums, and authorization, to, and
make any suitable arrangements with, any Lender, any such Affiliate of any
Lender or participant for effectuation thereof, and the Borrower hereby
irrevocably appoints the Agent as its attorney to collect any and all such
deposits or other sums to the extent any such payment is not made to the Agent
or any Lender by such Lender, Affiliate or participant.
SECTION 6.2 CONTINUED PRIORITY OF SECURITY INTEREST.
(a) The Security Interest granted by the Borrower shall at all times be
valid, perfected and enforceable against the Borrower and all third parties in
accordance with the terms of this Agreement, as security for the Secured
Obligations, and the Collateral shall not at any time be
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subject to any Liens that are prior to, on a parity with or junior to the
Security Interest, other than Permitted Liens.
(b) The Borrower shall, at its sole cost and expense, take all action that
may be necessary or desirable, or that the Agent may reasonably request, so as
at all times to maintain the validity, perfection, enforceability and rank of
the Security Interest in the Collateral in conformity with the requirements of
SECTION 6.2(a), or to enable the Agent and the Lenders to exercise or enforce
their rights hereunder, including, but not limited to:
(i) paying all taxes, assessments and other claims lawfully levied
or assessed on any of the Collateral, except to the extent that such taxes,
assessments and other claims constitute Permitted Liens,
(ii) using reasonable efforts to obtain after the Agreement Date,
landlords', mortgagees', bailees', warehousemen's or processors' releases,
subordinations or waivers, and mechanics' releases, subordinations or
waivers,
(iii) delivering to the Agent, for the benefit of the Lenders,
endorsed or accompanied by such instruments of assignment as the Agent may
specify, and stamping or marking, in such manner as the Agent may specify,
any and all chattel paper, instruments, letters and advices of guaranty and
documents evidencing or forming a part of the Collateral, and
(iv) executing and delivering financing statements, pledges,
designations, hypothecations, notices and assignments in each case in form
and substance satisfactory to the Agent relating to the creation, validity,
perfection, maintenance or continuation of the Security Interest under the
Uniform Commercial Code or other Applicable Law; PROVIDED, HOWEVER, that
after the Effective Date, unless a Default or Event of Default exists or
the Agent requests that specific action be taken by the Borrower with
respect to material Collateral, the Borrower shall not be required to take
any action other than the execution and filing of Financing Statements,
filings in the United States Patent and Trademark Office, endorsement and
delivery of shares of Subsidiaries pursuant to appropriate pledge
agreements and stock transfer powers and endorsement and delivery of
instruments and chattel paper having a value in excess of $100,000.
(c) The Agent is hereby authorized to file one or more financing or
continuation statements or amendments thereto without the signature of or in the
name of the Borrower for any purpose described in SECTION 6.2(b). The Agent
will give the Borrower notice of the filing of any such statements or
amendments, which notice shall specify the locations where such statements or
amendments were filed. A carbon, photographic, xerographic or other
reproduction of this Agreement or of any of the Security Documents or of any
financing statement filed in connection with this Agreement is sufficient as a
financing statement, to the extent permitted by Applicable Law.
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(d) The Borrower shall mark its books and records as directed by the Agent
and as may be necessary or appropriate to evidence, protect and perfect the
Security Interest and shall cause its financial statements to reflect the
Security Interest.
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ARTICLE 7
COLLATERAL COVENANTS
Until the Revolving Credit Facility has been terminated and all the Secured
Obligations have been paid in full, unless the Required Lenders shall otherwise
consent in the manner provided in SECTION 14.9:
SECTION 7.1. COLLECTION OF RECEIVABLES.
(a) At the request of the Agent, the Borrower will cause all monies,
checks, notes, drafts and other payments relating to or constituting proceeds of
trade accounts receivable to be forwarded to a lockbox for deposit in a blocked
account in accordance with the procedures set out in the corresponding blocked
account agreement (which shall be in form and substance satisfactory to the
Agent). The Borrower will promptly cause all monies, checks, notes, drafts and
other payments relating to or constituting proceeds of other Receivables, of any
other Collateral and of any trade accounts receivable that are not forwarded to
a lockbox, to be transferred to or deposited in a blocked account. In
particular, the Borrower will:
(i) advise each Account Debtor on trade accounts receivable to
address all remittances with respect to amounts payable on account thereof
to a specified lockbox,
(ii) advise each other Account Debtor that makes payment to the
Borrower by wire transfer, automated clearinghouse (ACH) transfer or
similar means to make payment directly to a specified blocked account, and
(iii) stamp all invoices relating to trade accounts receivable with a
legend satisfactory to the Agent indicating that payment is to be made to
the Borrower via a specified lockbox.
(b) The Borrower and the Agent shall cause all collected balances in
each blocked account to be transmitted daily by wire transfer, ACH transfer,
depository transfer check or other means in accordance with the procedures set
forth in the corresponding blocked account agreement, to the Agent at the
Agent's Office:
(i) for application, on account of the Secured Obligations, as
provided in SECTIONS 2.3(c), 14.2, and 14.3, such credits to be entered as
of the Business Day they are received if they are received prior to 1:30
p.m. and to be conditioned upon final payment in cash or solvent credits of
the items giving rise to them, and
(ii) with respect to the balance, so long as no Default or Event
of Default has occurred and is continuing, for transfer by wire transfer,
ACH transfer or depository transfer check to such account of the Borrower
as the Borrower and Agent may have agreed.
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(c) Any monies, checks, notes, drafts or other payments referred to in
SUBSECTION (a) of this SECTION 7.1 which, notwithstanding the terms of such
subsection, are received by or on behalf of the Borrower will be held in trust
for the Agent and will be delivered to the Agent or a depository of a blocked
account, as promptly as possible, in the exact form received, together with any
necessary endorsements for application by the Agent directly to the Secured
Obligations or, if applicable, for deposit in the blocked account maintained
with such depository and processing in accordance with the terms of the
corresponding blocked account agreement.
SECTION 7.2 VERIFICATION AND NOTIFICATION.. The Agent shall have
the right at any time and from time to time,
(a) in accordance with the Agent's usual procedures, in the name of the
Agent, the Lenders or in the name of the Borrower, to verify the validity,
amount or any other matter relating to any Receivables by mail, telephone,
telegraph or otherwise,
(b) to review, audit and make extracts from all records and files related
to any of the Receivables, and
(c) if an Event of Default has occurred and is continuing, to notify the
Account Debtors or obligors under any Receivables of the assignment of such
Receivables to the Agent and to direct such Account Debtor or obligors to make
payment of all amounts due or to become due thereunder directly to the Agent
and, upon such notification and at the expense of the Borrower, to enforce
collection of any such Receivables and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as the
Borrower might have done.
SECTION 7.3 DISPUTES, RETURNS AND ADJUSTMENTS.
(a) In the event any amounts due and owing under any Eligible Receivable
for an amount in excess of $250,000 are in dispute between the Account Debtor
and the Borrower, the Borrower shall provide the Agent with prompt written
notice thereof.
(b) The Borrower shall notify the Agent promptly of all returns and
credits in excess of $250,000 in respect of any Eligible Receivable, which
notice shall specify the Receivable affected.
(c) The Borrower may, in the ordinary course of business unless a Default
or an Event of Default has occurred and is continuing, grant any extension of
time for payment of any Receivable or compromise, compound or settle the same
for less than the full amount thereof, or release wholly or partly any Person
liable for the payment thereof, or allow any credit or discount whatsoever
thereon; PROVIDED that (i) unless the Agent otherwise consents, no such action
results in the reduction of more than $500,000 in the amount payable with
respect to any Eligible Receivable or of more than $750,000 with respect to all
Eligible Receivables in any fiscal year of the Borrower (in each case, excluding
the allowance of credits or discounts generally available to Account Debtors in
the ordinary course of the Borrower's business), and (ii) the Agent is promptly
notified of the amount of such adjustments and the Receivable(s) affected
thereby.
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SECTION 7.4 INVOICES.
(a) The Borrower will not use any invoices other than invoices in the form
delivered to the Agent prior to the Agreement Date without giving the Agent 30
days' prior notice of the intended use of a different form of invoice together
with a copy of such different form.
(b) Upon the request of the Agent, the Borrower shall deliver to the
Agent, at the Borrower's expense, copies of customers' invoices or the
equivalent, original shipping and delivery receipts or other proof of delivery,
customers' statements, customer address lists, the original copy of all
documents, including, without limitation, repayment histories and present status
reports, relating to Receivables and such other documents and information
relating to the Receivables as the Agent shall specify.
SECTION 7.5 DELIVERY OF INSTRUMENTS. Subject to the provisions of
SECTION 6.2(b), in the event any Receivable is at any time evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, the Borrower will notify the Agent and, if requested to do so by the
Agent, promptly thereafter deliver such instrument to the Agent, appropriately
endorsed to the Agent, for the benefit of the Lenders.
SECTION 7.6 SALES OF INVENTORY. All sales of Inventory will be
made in compliance with all requirements of Applicable Law.
SECTION 7.7 OWNERSHIP AND DEFENSE OF TITLE.
(a) Except for Permitted Liens, the Borrower shall at all times be the
sole owner or lessee of each and every item of Collateral and shall not create
any lien on, or sell, lease, exchange, assign, transfer, pledge, hypothecate,
grant a security interest or security title in or otherwise dispose of, any of
the Collateral or any interest therein, except for sales of Inventory in the
ordinary course of business, for cash or on open account or on terms of payment
ordinarily extended to its customers, and except for dispositions that are
otherwise expressly permitted under this Agreement. The inclusion of "proceeds"
of the Collateral under the Security Interest shall not be deemed a consent by
the Agent or the Lenders to any other sale or other disposition of any part or
all of the Collateral.
(b) The Borrower shall defend its title or leasehold interest in and to,
and the Security Interest in, the Collateral against the claims and demands of
all Persons.
SECTION 7.8 INSURANCE.
(a) The Borrower shall at all times maintain insurance on the Inventory
and Equipment against loss or damage by fire, theft (excluding theft by
employees), burglary, pilferage, loss in transit and such other hazards as the
Agent shall reasonably specify, in amounts not to exceed those obtainable at
commercially reasonable rates and under policies issued by insurers acceptable
to the Agent in the exercise of its reasonable judgment. All premiums on such
insurance shall be paid by the Borrower and copies of the policies delivered to
the Agent.
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The Borrower will not use or permit the Inventory or Equipment to be used in
violation of Applicable Law or in any manner which might render inapplicable any
insurance coverage.
(b) All insurance policies required under SECTION 7.8(a) shall name the
Agent, for the benefit of the Lenders, as an additional insured and shall
contain loss payable clauses in the form submitted to the Borrower by the Agent,
or otherwise in form and substance satisfactory to the Required Lenders, naming
the Agent, for the benefit of the Lenders, as loss payee, as its interests may
appear, and providing that
(i) all proceeds thereunder shall be payable to the Agent, for the
benefit of the Lenders,
(ii) no such insurance shall be affected by any act or neglect of the
insurer or owner of the property described in such policy, and
(iii) such policy and loss payable clauses may be cancelled,
amended or terminated only upon at least ten days' prior written notice
given to the Agent.
(c) Any proceeds of insurance referred to in this SECTION 7.8(a) which are
paid to the Agent, for the account of the Lenders, shall be, at the option of
the Required Lenders in their sole discretion, either (i) applied to replace the
damaged or destroyed property, or (ii) applied to the payment or prepayment of
the Secured Obligations, PROVIDED that in the event that the proceeds from any
single casualty do not exceed $500,000, then, upon the Borrower's written
request to the Agent, provided that no Default or Event of Default shall have
occurred and be continuing, such proceeds shall be disbursed by the Agent to the
Borrower pursuant to such procedures as the Agent shall reasonably establish for
application to the replacement of the damaged or destroyed property.
SECTION 7.9 LOCATION OF OFFICES AND COLLATERAL.
(a) The Borrower will not change the location of its chief executive
office or the place where it keeps its books and records relating to the
Collateral or change its name, its identity or corporate structure without
giving the Agent 60 days' prior written notice thereof.
(b) All Inventory, other than Inventory in transit to any such location,
will at all times be kept by the Borrower at the locations set forth in SCHEDULE
5.1(u) or at other locations as to which the Agent has been given prior notice
and the Borrower shall have taken such actions, including the execution and
filing of Financing Statements, as the Agent may require to perfect and assure
the priority of the Security Interest as required by this Agreement, and shall
not, without the prior written consent of the Agent, be removed therefrom except
pursuant to sales of Inventory permitted under SECTION 7.7(a).
(c) If any Inventory is in the possession or control of any of the
Borrower's agents or processors, the Borrower shall notify such agents or
processors of the Security Interest (and shall promptly provide copies of any
such notice to the Agent and the Lenders) and, upon the occurrence of an Event
of Default, shall instruct them (and cause them to acknowledge such
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instruction) to hold all such Inventory for the account of the account of the
Lenders, subject to the instructions of the Agent.
SECTION 7.10 RECORDS RELATING TO COLLATERAL.
(a) The Borrower will at all times
(i) keep complete and accurate records of Inventory on a basis
consistent with past practices of the Borrower so as to permit comparison
of Inventory records relating to different time periods, itemizing and
describing the kind, type and quantity of Inventory and the Borrower's cost
thereof and a current price list for such Inventory, and
(ii) keep complete and accurate records of all other Collateral on a
basis consistent with past practices of the Borrower.
(b) The Borrower will prepare a physical listing of all Inventory,
wherever located, at least annually.
SECTION 7.11 INSPECTION. The Agent and each Lender (by any of their
officers, employees or agents) shall have the right, to the extent that the
exercise of such right shall be within the control of the Borrower, at any time
or times to
(a) visit the properties of the Borrower and its Subsidiaries, inspect the
Collateral and the other assets of the Borrower and its Subsidiaries and inspect
and make extracts from the books and records of the Borrower and its
Subsidiaries, including but not limited to management letters prepared by
independent accountants, all during customary business hours at such premises;
(b) discuss the Borrower's and its Subsidiaries' business, assets,
liabilities, financial condition, results of operations and business prospects,
insofar as the same are reasonably related to the rights of the Agent or the
Lenders hereunder or under any of the Loan Documents, with the Borrower's and
its Subsidiaries' (i) principal officers, (ii) independent accountants, and
(iii) any other Person (except that any such discussion with any third parties
shall be conducted only in accordance with the Agent's or such Lender's standard
operating procedures relating to the maintenance of the confidentiality of
confidential information of borrowers); and
(c) verify the amount, quantity, value and condition of, or any other
matter relating to, any of the Collateral (other than Receivables) and in this
connection to review, audit and make extracts from all records and files related
to any of the Collateral.
The Borrower will deliver to the Agent, for the benefit of the Lenders, any
instrument necessary for it to obtain records from any service bureau
maintaining records on behalf of the Borrower.
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SECTION 7.12 INFORMATION AND REPORTS.
(a) SCHEDULE OF RECEIVABLES. The Borrower shall deliver to the Agent on
or before the Effective Date and not later than the 15th day of each calendar
month thereafter a Schedule of Receivables which
(i) shall be as of the last Business Day of the immediately
preceding Fiscal Month,
(ii) shall be reconciled to the Borrowing Base Certificate as of such
last Business Day, and
(iii) shall set forth a detailed aged trial balance of all its
then existing Receivables, specifying the names, addresses and balance due
for each Account Debtor obligated on a Receivable so listed.
(b) SCHEDULE OF INVENTORY. The Borrower shall deliver to the Agent on or
before the Effective Date and not later than the 15th day of each calendar month
thereafter a Schedule of Inventory as of the last Business Day of the
immediately preceding Fiscal Month of the Borrower, itemizing and describing the
kind, type and quantity of Inventory of the Borrower, the Borrower's cost
thereof and the location thereof.
(c) SCHEDULE OF EQUIPMENT. The Borrower shall deliver to the Agent on the
Effective Date and thereafter at the request of the Agent (but not more
frequently than semi-annually), a Schedule of Equipment, listing and describing
the type and location of each item of the Equipment of the Borrower having an
original cost greater than $10,000.
(d) BORROWING BASE CERTIFICATE. The Borrower shall deliver to the Agent
not later than Wednesday of each week after the Effective Date, a Borrowing Base
Certificate prepared as of the close of business on the preceding Friday,
PROVIDED, HOWEVER, that so long as Collateral Availability equals or exceeds
$5,000,000 and no Default or Event of Default exists, the Borrowing Base
Certificate shall be prepared as of the last business day of each month and be
delivered on or before the 15th day of the following month.
(e) NOTICE OF DIMINUTION OF VALUE. The Borrower shall give prompt notice
to the Agent of any matter or event which has resulted in, or may result in, the
diminution in excess of $500,000 in the value of any of its Collateral, except
for any such diminution in the value of any Receivables or Inventory in the
ordinary course of business which has been appropriately reserved against, as
reflected in financial statements previously delivered to the Agent and the
Lenders pursuant to ARTICLE 9.
(f) ADDITIONAL INFORMATION. The Agent may in its discretion, during the
existence of a Default or Event of Default, from time to time request that the
Borrower deliver the schedules, certificates described in SECTIONS 7.12(a), (b),
(c) and (d) more or less often and on different schedules than specified in such
Sections and the Borrower will comply with such requests. The
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Borrower will also furnish to the Agent and each Lender such other information
with respect to the Collateral as the Agent or any Lender may from time to time
reasonably request.
SECTION 7.13 POWER OF ATTORNEY. The Borrower hereby appoints the Agent
as its attorney, with power (a) to endorse the name of the Borrower on any
checks, notes, acceptances, money orders, drafts or other forms of payment or
security that may come into the Agent's or any Lender's possession, and, if an
Event of Default has occurred and is continuing, (b) to sign the name of the
Borrower on any invoice or bill of lading relating to any Receivable, Inventory
or other Collateral, on any drafts against customers related to letters of
credit, on schedules and assignments of Receivables furnished to the Agent or
any Lender by the Borrower, on notices of assignment, financing statements and
other public records relating to the perfection or priority of the Security
Interest, verifications of account and notices to or from customers.
SECTION 7.14 ASSIGNMENT OF CLAIMS ACT. Upon the request of the Agent,
during the existence of a Default or Event of Default, the Borrower shall
execute any documents or instruments and shall take such steps or actions
reasonably required by the Agent so that all monies due or to become due under
any contract with the United States of America, the District of Columbia or any
state, county, municipality or other domestic or foreign governmental entity, or
any department, agency or instrumentality thereof, will be assigned to the
Agent, for the benefit of itself and the Lenders, and notice given thereof in
accordance with the requirements of the Assignment of Claims Act of 1940, as
amended, or any other laws, rules or regulations relating to the assignment of
any such contract and monies due to or to become due.
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ARTICLE 8
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that the Borrower will duly and
punctually pay the principal of, and interest on, and all other amounts payable
with respect to, the Loans and all other Secured Obligations in accordance with
the terms of the Loan Documents and that until the Revolving Credit Facility has
been terminated and all the Secured Obligations have been paid in full, unless
the Required Lenders shall otherwise consent in the manner provided for in
Section 14.9, the Borrower will, and will cause each of its Subsidiaries to:
SECTION 8.1 PRESERVATION OF CORPORATE EXISTENCE AND SIMILAR
MATTERS. Preserve and maintain its corporate existence, rights, franchises,
licenses and privileges in the jurisdiction of its incorporation and qualify and
remain qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
SECTION 8.2 COMPLIANCE WITH APPLICABLE LAW. Comply in all material
respects with all Applicable Law relating to the Borrower or such Subsidiary
except to the extent being contested in good faith by appropriate proceedings
and for which reserves in respect of the Borrower's or such Subsidiary's
reasonably anticipated liability have been established in accordance with GAAP.
SECTION 8.3 MAINTENANCE OF PROPERTY. In addition to, and not in
derogation of, the requirements of Section 7.7 and of the Security Documents,
(a) protect and preserve all properties material to its business,
including Propriety Rights and maintain all tangible properties in good repair,
working order and condition in all material respects, subject to ordinary wear
and tear, all tangible properties, and
(b) from time to time make or cause to be made all needed and appropriate
repairs, renewals, replacements and additions to such properties necessary for
the conduct of its business, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
SECTION 8.4 CONDUCT OF BUSINESS. At all times carry on its
business in accordance with sound business practices and engage only in the
businesses in which the Borrower is engaged on the Effective Date and businesses
which are reasonably related or complimentary thereto.
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SECTION 8.5 INSURANCE. Maintain, in addition to the coverage
required by Section 7.8 and the Security Documents, insurance with responsible
insurance companies against such risks and in such amounts as is customarily
maintained by similar businesses or as may be required by Applicable Law, and
from time to time deliver to the Agent or any Lender upon its request a detailed
list of the insurance then in effect, stating the names of the insurance
companies, the amounts and rates of the insurance, the dates of the expiration
thereof and the properties and risks covered thereby.
SECTION 8.6 PAYMENT OF TAXES AND CLAIMS. Pay or discharge when due
(a) all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or upon any properties belonging to it, except
that real property AD VALOREM taxes shall be deemed to have been so paid or
discharged if the same are paid before they become delinquent, and
(b) all lawful claims of materialmen, mechanics, carriers, warehousemen
and landlords for labor, materials, supplies and rentals which, if unpaid, might
become a Lien on any properties of the Borrower;
except that this SECTION 8.6 shall not require the payment or discharge of any
such tax, assessment, charge, levy or claim which is being contested in good
faith by appropriate proceedings and for which reserves in respect of reasonably
anticipated liability have been established in accordance with GAAP.
SECTION 8.7 ACCOUNTING METHODS AND FINANCIAL RECORDS. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP.
SECTION 8.8 USE OF PROCEEDS.
(a) Use the proceeds of the Loan only for working capital and general
business purposes, and
(b) not use any part of such proceeds to purchase or, to carry or reduce
or retire or refinance any credit incurred to purchase or carry, any margin
stock (within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System) or, in any event, for any purpose which would involve a
violation of such Regulation G or U or of Regulation T or X of such Board of
Governors, or for any purpose prohibited by law or by the terms and conditions
of this Agreement.
SECTION 8.9 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL
REQUIREMENTS.
(a) In addition to, and not in derogation of, the requirements of SECTION
8.2 and of the Security Documents, comply with all Environmental Laws and all
Applicable Laws relating to occupational health and safety (except for instances
of noncompliance that would not have a
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Materially Adverse Effect or are being contested in good faith by appropriate
proceedings if reserves in respect of the Borrower's or such Subsidiary's
reasonably anticipated liability therefor have been established in accordance
with GAAP), promptly notify the Agent of its receipt of any notice of a
violation of any such Environmental Laws or other such Applicable Laws and
indemnify and hold the Agent and the Lenders harmless from all loss, cost,
damage, liability, claim and expense incurred by or imposed upon the Agent or
any Lender on account of the Borrower's failure to perform its obligations under
this SECTION 8.9.
(b) Whenever the Borrower gives notice to the Agent pursuant to this
SECTION 8.9 or otherwise with respect to a matter that reasonably could be
expected to result in liability to the Borrower or any Subsidiary in excess of
$1,000,000 in the aggregate, the Borrower shall, at the Agent's request and the
Borrower's expense (i) cause an independent environmental engineer acceptable to
the Agent to conduct an assessment, including tests where necessary, of the site
where the noncompliance or alleged noncompliance with Environmental Laws has
occurred and prepare and deliver to the Agent a report setting forth the results
of such assessment, a proposed plan to bring the Borrower (or such Subsidiary)
into compliance with such Environmental Laws (if such assessment indicates
noncompliance) and an estimate of the costs thereof, and (ii) provide to the
Agent a supplemental report of such engineer whenever the scope of the
noncompliance, or the response thereto or the estimated costs thereof, shall
materially adversely change.
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ARTICLE 9
INFORMATION
Until the Revolving Credit Facility has been terminated and all the Secured
Obligations have been paid in full, unless the Required Lenders shall otherwise
consent in the manner set forth in SECTION 14.9, the Borrower will furnish to
the Agent and to each Lender at its offices then designated for notices pursuant
to SECTION 14.1, the statements, reports, certificates, and other information
provided for in this ARTICLE 9. All written information, reports, statements
and other papers and data furnished to the Agent or any Lender by or at the
request of the Borrower, whether pursuant to this ARTICLE 9 or any other
provision of this Agreement or of any other Loan Document, shall be, at the time
the same is so furnished, complete and correct in all material respects to the
extent necessary to give the Agent and the Lenders true and accurate knowledge
of the subject matter. Specifically, the Borrower will so furnish:
SECTION 9.1 FINANCIAL STATEMENTS.
(a) AUDITED YEAR-END STATEMENTS. As soon as available, but in any event
within 90 days after the end of each Fiscal Year of the Borrower, copies of the
consolidating and consolidated balance sheets of the Borrower and its
Consolidated Subsidiaries as at the end of such Fiscal Year and the related
statements of income, shareholders' equity and cash flows for such Fiscal Year,
in each case setting forth in comparative form the figures for the previous
Fiscal Year of the Borrower (or of Burke), reported on, as to such consolidated
statements, without qualification, by Ernst & Young, LLP or other independent
certified public accountants of nationally recognized standing; and
(b) MONTHLY FINANCIAL STATEMENTS. As soon as available after the end of
each Fiscal Month, but in any event within 30 days after the end of each Fiscal
Month, copies of the unaudited consolidated and consolidating balance sheets of
the Borrower and its Consolidated Subsidiaries as at the end of such Fiscal
Month and the related unaudited consolidated and consolidating statements of
income and cash flows for the Borrower and its Consolidated Subsidiaries for
such Fiscal Month and for the portion of the Fiscal Year through such Fiscal
Month, certified by a Financial Officer of the Borrower as presenting fairly in
all material respects the financial condition and results of operations of the
Borrower (subject to normal year-end audit adjustments) for the applicable
period(s);
all such financial statements to be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of notes and for the effect of normal
year-end audit adjustments) applied consistently throughout the periods
reflected therein; PROVIDED, HOWEVER, that consolidating financial statements
shall not be required with respect to the Borrower and any Consolidated
Subsidiary where such Consolidated Subsidiary does not own at least 10% in value
of the consolidated assets of the Borrower and its Consolidated Subsidiaries or
does not produce at least 10% of the consolidated Net Income of the Borrower and
its Consolidated Subsidiaries.
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(c) ANNUAL BUDGET. As soon as available, but in any event prior to
January 31 of each Fiscal Year, the budget (including the Capital Expenditure
plan) of the Borrower and its Consolidated Subsidiaries for such Fiscal Year.
SECTION 9.2 ACCOUNTANTS' CERTIFICATE. Together with the financial
statements referred to in SECTION 9.1(A), a certificate of such accountants
addressed to the Agent,
(a) stating that in making the examination necessary for the certification
of such financial statements, nothing has come to their attention to lead them
to believe that any Default or Event of Default exists and, in particular, they
have no knowledge of any Default or Event of Default or, if such is not the
case, specifying such Default or Event of Default and its nature, and
(b) having attached the calculations, prepared by the Borrower and
reviewed by such accountants, required to establish whether or not the Borrower
is in compliance with the covenants contained in SECTIONS 10.1, 10.2, 10.5,
10.10 and 10.11, as at the date of such financial statements.
SECTION 9.3 OFFICER'S CERTIFICATE. At the time that the Borrower
furnishes the financial statements pursuant to SECTION 9.1(B) for any Fiscal
Month that is the last Fiscal Month of a Fiscal Quarter, a certificate of the
President of the Borrower or a Financial Officer
(a) setting forth as at the end of such Fiscal Quarter or Fiscal Year, as
the case may be, the calculations required to establish whether or not the
Borrower was in compliance with the requirements of Sections 10.1, 10.2, 10.5,
10.10 and 10.11, as at the end of each respective period,
(b) in the event that there are any Secured Obligations outstanding
hereunder, stating that the information on the schedules to this Agreement is
complete and accurate as of the date of such certificate or, if such is not the
case, attaching to such certificate updated schedules in accordance with the
provisions of SECTION 9.7, and
(c) stating that, based on a reasonably diligent examination, no Default
or Event of Default exists, or, if such is not the case, specifying such Default
or Event of Default and its nature, when it occurred, whether it is continuing
and the steps being taken by the Borrower with respect to such Default or Event
of Default.
SECTION 9.4 COPIES OF OTHER REPORTS.
(a) Promptly upon receipt thereof, copies of all reports, if any,
submitted to the Borrower or its Board of Directors by its independent public
accountants, including, without limitation, any management report.
(b) As soon as practicable, copies of all registration statements and all
regular or periodic reports which the Borrower shall file with the Securities
and Exchange Commission or any successor commission.
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(c) From time to time and as soon as reasonably practicable following each
request, such forecasts, data, certificates, reports, statements, opinions of
counsel, documents or further information regarding the business, assets,
liabilities, financial condition, results of operations or business prospects of
the Borrower or any of its Subsidiaries as the Agent or any Lender may
reasonably request and that the Borrower has or (except in the case of legal
opinions relating to the perfection of the Security Interest in any material
Collateral) without unreasonable expense can obtain; PROVIDED, HOWEVER, that the
Lenders shall, to the extent reasonably practicable, coordinate examinations of
the Borrower's records by their respective internal examiners. The rights of
the Agent and the Lenders under this SECTION 9.4 are in addition to and not in
derogation of their rights under any other provision of this Agreement or of any
other Loan Document.
(d) If requested by the Agent or any Lender, the Borrower will furnish to
the Agent and the Lenders statements in conformity with the requirements of
Federal Reserve Form G-3 or U-1 referred to in Regulation G and U, respectively,
of the Board of Governors of the Federal Reserve System.
SECTION 9.5 NOTICE OF LITIGATION AND OTHER MATTERS. Prompt notice
of:
(a) the commencement, to the extent the Borrower is aware of the same, of
all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating to or affecting the Borrower,
any of its Subsidiaries or any of the Borrower's or any of its Subsidiaries'
properties, assets or businesses, which could reasonably be expected , singly or
in the aggregate, to result in the occurrence of a Default or an Event of
Default, or have a Materially Adverse Effect,
(b) any amendment of the articles of incorporation or by-laws of the
Borrower or any of its Subsidiaries,
(c) any change in the business, assets, liabilities, financial condition,
results of operations or business prospects of the Borrower or any of its
Subsidiaries which has had or could reasonably be expected to have, singly or in
the aggregate, a Materially Adverse Effect and any change in the executive
officers of the Borrower, and
(d) any Default or Event of Default or any event which constitutes or
which with the passage of time or giving of notice or both would constitute a
default or event of default by the Borrower or any of its Subsidiaries under any
material agreement (other than this Agreement) to which the Borrower or any of
its Subsidiaries is a party or by which the Borrower, any of its Subsidiaries or
any of the Borrower's or any of its Subsidiaries' properties may be bound.
SECTION 9.6 ERISA. As soon as possible and in any event within 30
days after the Borrower knows, or has reason to know, that:
(a) any ERISA Event with respect to a Benefit Plan has occurred or will
occur, or
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(b) the aggregate present value of the Unfunded Vested Accrued Benefits
under all Benefit Plans is equal to an amount in excess of $500,000, or
(c) the Borrower or any Subsidiary is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a Multiemployer Benefit Plan
required by reason of the Borrower's or such Subsidiary's complete or partial
withdrawal (as described in Section 4203 or 4205 of ERISA) from such
Multiemployer Plan,
a certificate of the president or a Financial Officer of the Borrower setting
forth the details of such event and the action which is proposed to be taken
with respect thereto, together with any notice or filing which may be required
by the PBGC or other agency of the United States government with respect to such
event.
SECTION 9.7 REVISIONS OR UPDATES TO SCHEDULES. Should any of the
information or disclosures provided on any of the Schedules originally attached
hereto become outdated or incorrect in any material respect at the time any
Secured Obligations are outstanding hereunder, as part of the officer's
certificate required pursuant to SECTION 9.3(B), such revisions or updates to
such Schedule(s) as may be necessary or appropriate to update or correct such
Schedule(s), PROVIDED that no such revisions or updates to any Schedule(s) shall
be deemed to have amended, modified or superseded such Schedule(s) as attached
hereto immediately prior to the submission of such revised or updated
Schedule(s), or to have cured any breach of warranty or representation resulting
from the inaccuracy or incompleteness of any such Schedule(s), unless and until
the Required Lenders in their sole and absolute discretion, shall have accepted
in writing such revisions or updates to such Schedule(s).
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ARTICLE 10
NEGATIVE COVENANTS
Until the Revolving Credit Facility has been terminated and all the Secured
Obligations have been paid in full, unless the Required Lenders shall otherwise
consent in the manner set forth in SECTION 14.9, the Borrower will not directly
or indirectly and, in the case of SECTIONS 10.2 through 10.14, will not permit
its Subsidiaries to:
SECTION 10.1 FINANCIAL RATIOS. Permit:
(a) MINIMUM FIXED CHARGE COVERAGE RATIO. The Fixed Charge Coverage Ratio
of the Borrower and its Consolidated Subsidiaries for the Fiscal Quarter ending
December 31, 1997, the two Fiscal Quarter period ending March 31, 1998, the
three Fiscal Quarter period ending June 30, 1998 and each four Fiscal Quarter
period ending on or after September 30, 1998, to be less than 1.25 to 1.
(b) MAXIMUM FUNDED DEBT TO EBITDA RATIO. The ratio of Funded Debt of the
Borrower and its Consolidated Subsidiaries as of the last day of each Fiscal
Quarter set forth below to EBITDA of the Borrower and its Consolidated
Subsidiaries for the four Fiscal Quarter period ending at the end of each such
Fiscal Quarter to be less than the ratio set forth opposite such Fiscal Quarter
end:
Fiscal Quarter Ending Ratio
--------------------- -----
December 31, 1997 6.75 to 1
March 31, 1998 6.75 to 1
June 30, 1998 6.75 to 1
September 30, 1998 6.75 to 1
December 31, 1998 5.75 to 1
and each Fiscal Quarter
ending thereafter
SECTION 10.2 DEBT. Create, assume, or otherwise become or remain
obligated in respect of, or permit or suffer to exist or to be created, assumed
or incurred or to be outstanding any Debt, except that this Section 10.2 shall
not apply to:
(a) Debt represented by the Secured Obligations,
(b) Debt reflected on SCHEDULE 5.1(j), excluding any such Debt that is to
be paid in full on the Effective Date,
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(c) Debt represented by the Senior Notes and unsecured Guaranties thereof
by any Subsidiaries,
(d) Permitted Purchase Money Debt,
(e) Debt of the Borrower to any Borrowing Subsidiary and Debt of any
Borrowing Subsidiary to the Borrower,
(f) unsecured Debt in an aggregate principal amount not to exceed
$10,000,000 at any time outstanding, and
(g) Hedging Obligations.
SECTION 10.3 GUARANTIES. Become or remain liable with respect to any
Guaranty of any obligation of any other Person, other than as permitted by
SECTION 10.2 and obligations of another Loan Party (other than Debt).
SECTION 10.4 INVESTMENTS. Acquire, after the Agreement Date, any
Business Unit or Investment or, after such date, maintain any Investment other
than Permitted Investments; PROVIDED, HOWEVER, that so long as no Default or
Event of Default exists immediately before or after giving effect to any of the
following, this SECTION 10.4 shall not prohibit (i) any Investment in a Person
that is at the time, or contemporaneously with the making of such Investment
becomes, a Borrowing Subsidiary, provided that any such Investment in connection
with any single Acquisition by the Borrower or any Subsidiary does not exceed
$5,000,000 in the aggregate (including Indebtedness assumed), (ii) any
Acquisition of a Business Unit by the Borrower or a Borrowing Subsidiary for
total consideration (inclusive of assumption of Indebtedness) of up to but not
in excess of $5,000,000; (iii) any Acquisition in exchange for common equity
securities of the Borrower, provided that immediately after such Acquisition any
Subsidiary Acquired becomes a Borrowing Subsidiary, (iv) Investments in Hedging
Obligations, or (v) transactions permitted by SECTION 10.8.
SECTION 10.5 CAPITAL EXPENDITURES. Make or incur any Unfunded Capital
Expenditures in excess of $2,500,000 in the aggregate during any Fiscal Year of
the Borrower:
SECTION 10.6 RESTRICTED DISTRIBUTIONS AND PAYMENTS, ETC.. Declare or
make any Restricted Distribution or Restricted Payment, PROVIDED that so long as
no Default or Event of Default exists immediately before or after giving effect
to any of the following, this SECTION 10.6 shall not prohibit (i) transactions
permitted under SECTION 10.8, (ii) payments in kind and cash dividends with
respect to Preferred Stock as provided on the Effective Date, (iii) the
purchase, redemption or retirement for value of any shares of capital stock or
Subordinated Debt of the Borrower in exchange for, or out of the net cash
proceeds of a substantially concurrent issuance and sale (other than to a
Subsidiary) of, common equity interests, or (iv) the issuance of capital stock
upon the exercise of the Warrants or other options or warrants.
SECTION 10.7 MERGER, CONSOLIDATION AND SALE OF ASSETS. Merge or
consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion
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of its assets to any Person other than sales of Inventory in the ordinary course
of business, EXCEPT that any Subsidiary may be merged or consolidated with or
into the Borrower or any other Loan Party or all or substantially all of the
business or assets of any Subsidiary may be sold, leased, transferred or
otherwise disposed of, in one transaction or a series of transactions, to the
Borrower or any other Loan Party.
SECTION 10.8 TRANSACTIONS WITH AFFILIATES. Effect any transaction with
any Affiliate on a basis less favorable to the Borrower than would be the case
if such transaction had been effected with a Person not an Affiliate, EXCEPT
that the foregoing shall not apply to (i) transactions between the Borrower and
any Loan Party, (ii) transactions (including Permitted Investments) expressly
permitted by SECTION 10.4 or 10.6, (iii) payments to J.F. Lehman & Company of a
closing fee of $1,500,000, payable on the Effective Date and an annual
management fee of $500,000, payable beginning on the first anniversary of the
Effective Date, (iv) loans or advances to officers or employees of the Borrower
and its Subsidiaries in the ordinary course of business not to exceed $250,000
in the aggregate at any one time outstanding, (v) transactions in accordance
with any agreement to which the Borrower or any Subsidiary is a party as in
effect on the Agreement Date as set forth on SCHEDULE 10.8 hereto, as amended
with the consent of the Agent, (vi) the entering into, and making of payments of
regular and customary compensation under, employment agreements entered into in
the ordinary course of business, and (vii) payments of fees and expenses in
connection with the Recapitalization as described on SCHEDULE 10.8.
SECTION 10.9 LIENS. Create, assume or permit or suffer to exist or to be
created or assumed any Lien on any of the Collateral or its other assets, other
than Permitted Liens.
SECTION 10.10 [RESERVED]
SECTION 10.11 BENEFIT PLANS. Permit, or take any action which would
result in, (a) an ERISA Event having a Materially Adverse Effect, or (b) the
aggregate present value of the Unfunded Vested Accrued Benefits under all
Benefit Plans of the Borrower to exceed $500,000.
SECTION 10.12 AMENDMENTS OF OTHER AGREEMENTS. Amend the Senior Notes, the
Senior Note Agreement, or any related document.
SECTION 10.13 MINIMUM AVAILABILITY. Permit Collateral Availability to be
less than $500,000 at any time.
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ARTICLE 11
DEFAULT
SECTION 11.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or nongovernmental body:
(a) DEFAULT IN PAYMENT. The Borrower shall fail to pay any amount of
principal of any Loan or any Note when and as due (whether at maturity, by
reason of acceleration or otherwise).
(b) OTHER PAYMENT DEFAULT. The Borrower shall fail to pay, as and when
due, any amount of interest on any Loan or any Note and such default shall
continue for a period of one business day or the Borrower shall fail to pay, as
and when due, any amount of principal of or interest on, any other Secured
Obligation, and such default shall continue for a period of five days after
written notice thereof has been given to the Borrower by the Agent.
(c) MISREPRESENTATION. Any representation or warranty made or deemed to
be made by the Borrower under this Agreement or any Loan Document, or any
amendment hereto or thereto, shall at any time prove to have been incorrect or
misleading in any material respect when made.
(d) DEFAULT IN PERFORMANCE. The Borrower shall default in the performance
or observance of any term, covenant, condition or agreement to be performed by
the Borrower, contained in
(i) Articles 6, 7, 9 or 10, or Section 8.1 (insofar as it requires
the preservation of the corporate existence of the Borrower), and the Agent
shall have delivered to the Borrower written notice of such default, or
(ii) this Agreement (other than as specifically provided for
otherwise in this SECTION 11.1) and such default shall continue for a
period of 30 days after written notice thereof has been given to the
Borrower by the Agent.
(e) DEBT CROSS-DEFAULT.
(i) The Borrower or any Subsidiary shall fail to pay when due and
payable the principal of or interest on any Debt (other than the Loans)
outstanding in an amount in excess of $5,000,000, or
(ii) the maturity of any Debt of the Borrower or any Subsidiary
outstanding in a principal amount greater than $5,000,000 shall have
(A) been accelerated in accordance with the provisions of any indenture,
contract or instrument providing for the creation of or concerning such
Debt, or (B) been required to be prepaid prior to the stated maturity
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thereof, other than by reason of cash flow recapture provisions, asset
sales provisions or similar provisions requiring prepayments not related to
a default or risk event, or
(iii) any event shall have occurred and be continuing which would
permit any holder or holders of Debt of the Borrower or any Subsidiary
outstanding in a principal amount greater than $5,000,000, any trustee or
agent acting on behalf of such holder or holders or any other Person so to
accelerate such maturity, and the Borrower or the relevant Subsidiary shall
have failed to cure such default prior to the expiration of any applicable
cure or grace period.
(f) [RESERVED].
(g) VOLUNTARY BANKRUPTCY PROCEEDING. The Borrower or any of its
Subsidiaries shall
(i) commence a voluntary case under the federal bankruptcy laws (as
now or hereafter in effect),
(ii) file a petition seeking to take advantage of any other laws,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding up or composition for adjustment of debts,
(iii) consent to or fail to contest in a timely and appropriate
manner any petition filed against it in an involuntary case under such
bankruptcy laws or other laws,
(iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or liquidator of itself or of a substantial
part of its property, domestic or foreign,
(v) admit in writing its inability to pay its debts as they become
due,
(vi) make a general assignment for the benefit of creditors, or
(vii) take any corporate action for the purpose of authorizing any
of the foregoing.
(h) INVOLUNTARY BANKRUPTCY PROCEEDING. A case or other proceeding shall
be commenced against the Borrower or any of its Subsidiaries in any court of
competent jurisdiction seeking
(i) relief under the federal bankruptcy laws (as now or hereafter in
effect) or under any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or adjustment of debts,
(ii) the appointment of a trustee, receiver, custodian, liquidator or
the like of the Borrower, any of its Subsidiaries or of all or any
substantial part of the assets, domestic or foreign, of the Borrower or any
of its Subsidiaries,
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and such case or proceeding shall continue undismissed or unstayed for a period
of 60 consecutive calendar days, or an order granting the relief requested in
such case or proceeding against the Borrower or any of its Subsidiaries
(including, but not limited to, an order for relief under such federal
bankruptcy laws) shall be entered.
(i) LOAN DOCUMENTS. Any event of default or "Event of Default" under any
other Loan Document shall occur or the Borrower shall default in the performance
or observance of any material term, covenant, condition or agreement contained
in, or the payment of any other sum covenanted to be paid by the Borrower under,
any such Loan Document, or any other Loan Document after delivery thereof
hereunder shall for any reason cease to be valid and binding, other than a
nonmaterial provision rendered unenforceable by operation of law, or the
Borrower or other party thereto (other than the Lender) shall so state in
writing, or this Agreement or any other Loan Document, after delivery thereof
hereunder, shall for any reason (other than any action taken independently by
the Lender and except to the extent permitted by the terms thereof) cease to
create a valid, perfected and, except as otherwise expressly permitted herein,
first priority Lien on, or security interest in, any of the Collateral purported
to be covered thereby.
(j) JUDGMENT. A final, unappealable judgment or order for the payment of
money in an amount that exceeds the uncontested insurance available therefor by
$500,000 or more shall be entered against the Borrower by any court and such
judgment or order shall continue undischarged or unstayed for 30 days.
(k) ATTACHMENT. A warrant or writ of attachment or execution or similar
process which exceeds $500,000 in value shall be issued against any property of
the Borrower and such warrant or process shall continue undischarged or unstayed
for 30 days.
(l) ERISA. Any ERISA Event shall occur and the Required Lenders shall
have determined that such occurrence would have a Materially Adverse Effect.
(m) CHANGE OF CONTROL. JFLEI and its Affiliates shall cease to own,
beneficially and of record, at least 50% of the outstanding capital stock of the
Borrower or such ownership shall cease to vest in it voting control of the
Borrower or any other event shall occur or circumstance exist that constitutes a
"Change of Control" as defined in the Senior Note Indenture.
SECTION 11.2 REMEDIES.
(a) AUTOMATIC ACCELERATION AND TERMINATION OF FACILITIES. Upon the
occurrence of an Event of Default specified in SECTION 11.1(g) or (h), (i) the
principal of and the interest on the Loans and any Note at the time outstanding,
and all other amounts owed to the Agent or the Lenders under this Agreement or
any of the other Loan Documents and all other Secured Obligations, shall
thereupon become due and payable without presentment, demand, protest, or other
notice of any kind, all of which are expressly waived, anything in this
Agreement or any of the Loan Documents to the contrary notwithstanding, and
(ii) the Revolving Credit Facility and the right of the Borrower to request
Borrowings and Letters of Credit under this Agreement shall immediately
terminate.
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(b) OTHER REMEDIES. If any Event of Default shall have occurred, and
during the continuance of any Event of Default, the Agent may, and at the
direction of the Required Lenders in their sole and absolute discretion shall,
do any of the following:
(i) declare the principal of and interest on the Loans and any Note
at the time outstanding, and all other amounts owed to the Agent or the
Lenders under this Agreement or any of the other Loan Documents and all
other Secured Obligations, to be forthwith due and payable, whereupon the
same shall immediately become due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly waived,
anything in this Agreement or the Loan Documents to the contrary
notwithstanding;
(ii) terminate the Revolving Credit Facility and any other right of
the Borrower to request borrowings and Letters of Credit hereunder;
(iii) notify, or request the Borrower to notify, in writing or
otherwise, any Account Debtor or obligor with respect to any one or more of
the Receivables to make payment to the Agent, for the benefit of the
Lenders, or any agent or designee of the Agent, at such address as may be
specified by the Agent and if, notwithstanding the giving of any notice,
any Account Debtor or other such obligor shall make payments to the
Borrower, the Borrower shall hold all such payments it receives in trust
for the Agent, for the account of the Lenders, without commingling the same
with other funds or property of, or held by, the Borrower, and shall
deliver the same to the Agent or any such agent or designee of the Agent
immediately upon receipt by the Borrower in the identical form received,
together with any necessary endorsements;
(iv) settle or adjust disputes and claims directly with Account
Debtors and other obligors on Receivables for amounts and on terms which
the Agent considers advisable and in all such cases only the net amounts
received by the Agent, for the account of the Lenders, in payment of such
amounts, after deductions of costs and attorneys' fees, shall constitute
Collateral and the Borrower shall have no further right to make any such
settlements or adjustments or to accept any returns of merchandise;
(v) enter upon any premises in which Inventory or Equipment may be
located and, without resistance or interference by the Borrower, take
physical possession of any or all thereof and maintain such possession on
such premises or move the same or any part thereof to such other place or
places as the Agent shall choose, without being liable to the Borrower on
account of any loss, damage or depreciation that may occur as a result
thereof, so long as the Agent shall act reasonably and in good faith;
(vi) require the Borrower to and the Borrower shall, without charge
to the Agent or any Lender, assemble the Inventory and Equipment and
maintain or deliver it into the possession of the Agent or any agent or
representative of the Agent at such place or places as the Agent may
designate and as are reasonably convenient to both the Agent and the
Borrower;
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(vii) at the expense of the Borrower, cause any of the Inventory
and Equipment to be placed in a public or field warehouse, and the Agent
shall not be liable to the Borrower on account of any loss, damage or
depreciation that may occur as a result thereof, so long as the Agent shall
act reasonably and in good faith;
(viii) without notice, demand or other process, and without payment
of any rent or any other charge, enter any of the Borrower's premises and,
without breach of the peace, until the Agent, on behalf of the Lenders,
completes the enforcement of its rights in the Collateral, take possession
of such premises or place custodians in exclusive control thereof, remain
on such premises and use the same and any of the Borrower's Equipment, for
the purpose of (A) completing any work in process, preparing any Inventory
for disposition and disposing thereof, and (B) collecting any Receivable,
and the Agent for the benefit of the Lenders is hereby granted a license or
sublicense and all other rights as may be necessary, appropriate or
desirable to use the Proprietary Rights in connection with the foregoing,
and the rights of the Borrower under all licenses, sublicenses and
franchise agreements shall inure to the Agent for the benefit of the
Lenders (PROVIDED, HOWEVER, that any use of any federally registered
trademarks as to any goods shall be subject to the control as to the
quality of such goods of the owner of such trademarks and the goodwill of
the business symbolized thereby);
(ix) exercise any and all of its rights under any and all of the
Security Documents;
(x) apply any Collateral consisting of cash to the payment of the
Secured Obligations in any order in which the Agent, on behalf of the
Lenders, may elect or use such cash in connection with the exercise of any
of its other rights hereunder or under any of the Security Documents;
(xi) establish or cause to be established one or more Lockboxes or
other arrangement for the deposit of proceeds of Receivables, and, in such
case, the Borrower shall cause to be forwarded to the Agent at the Agent's
Office, on a daily basis, copies of all checks and other items of payment
and deposit slips related thereto deposited in such Lockboxes, together
with collection reports in form and substance satisfactory to the Agent;
and
(xii) exercise all of the rights and remedies of a secured party
under the Uniform Commercial Code and under any other Applicable Law,
including, without limitation, the right, without notice except as
specified below and with or without taking possession thereof, to sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any location chosen by the Agent, for cash, on credit or for
future delivery, and at such price or prices and upon such other terms as
the Agent may deem commercially reasonable. The Borrower agrees that, to
the extent notice of sale shall be required by law, at least 10 days'
notice to the Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification, but notice given in any other reasonable manner or at any
other
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reasonable time shall constitute reasonable notification. The Agent shall
not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned.
SECTION 11.3 APPLICATION OF PROCEEDS. All proceeds from each sale of, or
other realization upon, all or any part of the Collateral following an Event of
Default shall be applied or paid over as follows:
(a) FIRST: to the payment of all costs and expenses incurred in
connection with such sale or other realization, including reasonable attorneys'
fees,
(b) SECOND: to the payment of the Secured Obligations (with the Borrower
remaining liable for any deficiency) as the Agent may elect,
(c) THIRD: the balance (if any) of such proceeds shall be paid to the
Borrower, subject to any duty imposed by law, or otherwise to whomsoever shall
be entitled thereto.
THE BORROWER SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY
REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON
AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH
SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED
OBLIGATIONS.
SECTION 11.4 POWER OF ATTORNEY. In addition to the authorizations
granted to the Agent under SECTION 7.13 or under any other provision of this
Agreement or of any other Loan Document, during the continuance of an Event of
Default, the Borrower hereby irrevocably designates, makes, constitutes and
appoints the Agent (and all Persons designated by the Agent from time to time)
as the Borrower's true and lawful attorney, and agent in fact, and the Agent, or
any agent of the Agent, may, without notice to the Borrower, and at such time or
times as the Agent or any such agent in its sole discretion may determine, in
the name of the Borrower, the Agent or the Lenders,
(a) demand payment of the Receivables,
(b) enforce payment of the Receivables by legal proceedings or otherwise,
(c) exercise all of the Borrower's rights and remedies with respect to the
collection of Receivables,
(d) settle, adjust, compromise, extend or renew any or all of the
Receivables,
(e) settle, adjust or compromise any legal proceedings brought to collect
the Receivables,
(f) discharge and release the Receivables or any of them,
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(g) prepare, file and sign the name of the Borrower on any proof of claim
in bankruptcy or any similar document against any Account Debtor,
(h) prepare, file and sign the name of the Borrower on any notice of Lien,
assignment or satisfaction of Lien, or similar document in connection with any
of the Collateral,
(i) endorse the name of the Borrower upon any chattel paper, document,
instrument, notice, freight bill, bill of lading or similar document or
agreement relating to the Receivables, the Inventory or any other Collateral,
(j) use the stationery of the Borrower and sign the name of the Borrower
to verifications of the Receivables and on any notice to the Account Debtors,
(k) open the Borrower's mail,
(l) notify the post office authorities to change the address for delivery
of the Borrower's mail to an address designated by the Agent, and
(m) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Receivables,
Inventory or other Collateral to which the Borrower has access.
SECTION 11.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.
(a) RIGHTS CUMULATIVE. The rights and remedies of the Agent and the
Lenders under this Agreement, the Notes and each of the Loan Documents shall be
cumulative and not exclusive of any rights or remedies which it or they would
otherwise have. In exercising such rights and remedies the Agent and the
Lenders may be selective and no failure or delay by the Agent or any Lender in
exercising any right shall operate as a waiver of it, nor shall any single or
partial exercise of any power or right preclude its other or further exercise or
the exercise of any other power or right.
(b) WAIVER OF MARSHALING. The Borrower hereby waives any right to require
any marshaling of assets and any similar right.
(c) LIMITATION OF LIABILITY. Nothing contained in this ARTICLE 11 or
elsewhere in this Agreement or in any of the Loan Documents shall be construed
as requiring or obligating the Agent, any Lender or any agent or designee of the
Agent or any Lender to make any demand, or to make any inquiry as to the nature
or sufficiency of any payment received by it, or to present or file any claim or
notice or take any action, with respect to any Receivable or any other
Collateral or the monies due or to become due thereunder or in connection
therewith, or to take any steps necessary to preserve any rights against prior
parties, and the Agent, the Lenders and their agents or designees shall have no
liability to the Borrower for actions taken pursuant to this ARTICLE 11, any
other provision of this Agreement or any of the Loan Documents so long as the
Agent or such Lender shall act in good faith and in a commercially reasonable
manner.
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(d) APPOINTMENT OF RECEIVER. In any action under this ARTICLE 11, the
Agent shall be entitled during the continuance of an Event of Default, to the
fullest extent permitted by Applicable Law, to the appointment of a receiver,
without notice of any kind whatsoever, to take possession of all or any portion
of the Collateral and to exercise such power as the court shall confer upon such
receiver.
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ARTICLE 12
ASSIGNMENTS
SECTION 12.1 SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agent, all future holders of the Notes, and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
(b) Subject to the prior consent of the Agent and, so long as no Default
or Event of Default has occurred and is continuing, the Borrower (neither of
such consents to be unreasonably withheld or delayed), each Lender may assign to
one or more Eligible Assignees all or a portion of its interests, rights and
obligations under this Agreement (including, without limitation, all or a
portion of the Loans at the time owing to it and the Notes held by it);
PROVIDED, HOWEVER, that (i) each such assignment shall be of a constant, and not
a varying, percentage of all the assigning Lender's rights and obligations under
this Agreement, (ii) the amount of the Commitment of the assigning Lender that
is subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Agent) shall in
no event be less than $5,000,000, (iii) in the case of a partial assignment, the
amount of the Commitment that is retained by the assigning Lender (determined as
of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Agent) shall in no event be less than $5,000,000, (iv) the
parties to each such assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a fee in the amount of
$3,500, (v) such assignment shall not, without the consent of the Borrower,
require the Borrower to file a registration statement with the Securities and
Exchange Commission or apply to or qualify the Loans or the Notes under the blue
sky laws of any state, and (vi) the representation contained in SECTION 12.2
hereof shall be true with respect to any such proposed assignee. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least five Business Days after the execution thereof, (A) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender
hereunder, and (B) the Lender assignor thereunder shall, to the extent of such
assignment, be released from its obligations under this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; (ii) such Lender assignor
makes
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no representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under this Agreement or any other instrument
or document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements referred to in SECTION 5.1(n) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such Lender assignor or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee confirms that it is an
Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof and thereof, together with such powers as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Agent shall maintain a copy of each Assignment and Acceptance
delivered to it and a register for the recordation of the names and addresses of
the Lenders and the Commitment and Proportionate Share of, and principal amount
of the Loans and owing to, each Lender from time to time (the REGISTER). The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, the Agent and the Lenders may treat each person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Eligible Assignee together with any Note or Notes
subject to such assignment, the Agent shall, if such Assignment and Acceptance
has been completed and is in the form of EXHIBIT C, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register,
(iii) give prompt notice thereof to the Lenders and the Borrower, and
(iv) promptly deliver a copy of such Acceptance and Assignment to the Borrower.
Within five Business Days after receipt of notice, the Borrower shall execute
and deliver to the Agent in exchange for the surrendered Note or Notes a new
Note or Notes to the order of such Eligible Assignee in amounts equal to the
Commitment assumed by such Eligible Assignee pursuant to such Assignment and
Acceptance and a new Note or Notes to the order of the assigning Lender in an
amount equal to the Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of the assigned Notes. Each surrendered Note or Notes shall be cancelled and
returned to the Borrower.
(f) Each Lender may sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment hereunder and
the Loans owing to it and the Notes held by it);
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PROVIDED, HOWEVER, that (i) each such participation shall be in an amount not
less than $5,000,000, (ii) such Lender's obligations under this Agreement
(including, without limitation, its Commitment hereunder) shall remain
unchanged, (iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iv) such Lender shall
remain the holder of the Notes held by it for all purposes of this Agreement,
(v) the Borrower, the Agent and the other Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement; PROVIDED, that such Lender may agree with any
participant that such Lender will not, without such participant's consent, agree
to or approve any waivers or amendments which would reduce the principal of or
the interest rate on any Loans, extend the term or increase the amount of the
commitments of such participant, reduce the amount of any fees to which such
participant is entitled, extend any scheduled payment date for principal or
release Collateral securing the Loans (other than Collateral disposed of
pursuant to SECTION 7.7 hereof or otherwise in accordance with the terms of this
Agreement or the Security Documents), and (vi) any such disposition shall not,
without the consent of the Borrower, require any Borrower to file a registration
statement with the Securities and Exchange Commission to apply to qualify the
Loans or the Notes under the blue sky law of any state. The Lender selling a
participation to any bank or other entity that is not an Affiliate of such
Lender shall give prompt notice thereof to the Borrower.
(g) Any Lender may, in connection with any assignment, proposed
assignment, participation or proposed participation pursuant to this SECTION
12.1, disclose to the assignee, participant, proposed assignee or proposed
participant, any information relating to the Borrower furnished to such Lender
by or on behalf of the Borrower, PROVIDED that, prior to any such disclosure,
each such assignee, proposed assignee, participant or proposed participant shall
agree with the Borrower or such Lender (which in the case of an agreement with
only such Lender, the Borrower shall be recognized as a third party beneficiary
thereof) to preserve the confidentiality of any confidential information
relating to the Borrower received from such Lender.
SECTION 12.2 REPRESENTATION OF LENDERS. Each Lender hereby represents
that it will make each Loan hereunder as a commercial loan for its own account
in the ordinary course of its business; PROVIDED, HOWEVER, that subject to
SECTION 12.1 hereof, the disposition of the Notes or other evidence of the
Secured Obligations held by any Lender shall at all times be within its
exclusive control.
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ARTICLE 13
AGENT
SECTION 13.1 APPOINTMENT OF AGENT. Each of the Lenders hereby
irrevocably designates and appoints NationsBank, N.A. as the Agent of such
Lender under this Agreement and the other Loan Documents, and each Lender
irrevocably authorizes the Agent, as the Agent for such Lender, to take such
action on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Agreement and such other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Without limiting the generality of the foregoing, each Lender expressly
authorizes the Agent to determine on behalf of such Lender (i) any reduction or
increase of advance rates applicable to the Borrowing Base, so long as such
advance rates do not at any time exceed the rates set forth in the definition
"BORROWING BASE", (ii) the creation or elimination of any reserves against the
Revolving Credit Facility or the Borrowing Base, and (iii) whether specific
Inventory or Receivables shall be deemed to constitute Eligible Inventory or
Eligible Receivables. Such authorization may be withdrawn by the Required
Lenders by giving the Agent written notice of such withdrawal signed by the
Required Lenders; PROVIDED, HOWEVER, that unless otherwise agreed by the Agent,
such withdrawal of authorization shall not become effective until the 30th
Business Day after receipt of such notice by the Agent. Thereafter, the
Required Lenders shall jointly instruct the Agent in writing regarding such
matters with such frequency as the Required Lenders shall jointly determine.
Notwithstanding any provision to the contrary elsewhere in this Agreement or the
other Loan Documents, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein and therein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or the other Loan Documents or otherwise exist against the Agent.
SECTION 13.2 DELEGATION OF DUTIES. The Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
SECTION 13.3 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
trustees, officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable to any Lender (or any Lender's participants) for
any action lawfully taken or omitted to be taken by it or such Person under or
in connection with this Agreement or the other Loan Documents (except for its or
such Person's own gross negligence or willful misconduct), or (ii) responsible
in any manner to any Lender (or any Lender's participants) for any recitals,
statements, representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or the other Loan Documents or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or the
other Loan Documents or for the existence, value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the other Loan
Documents or any Collateral or
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Lien or other interest therein or for any failure of the Borrower to perform its
obligations hereunder or thereunder. The Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Borrower.
SECTION 13.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with SECTION 12.1. The Agent shall be fully justified
in failing or refusing to take any action under this Agreement and the other
Loan Documents unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate and shall be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the Notes in accordance with a request of the
Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Notes.
SECTION 13.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall promptly give notice thereof to the
Lenders. The Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders; PROVIDED
that unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) continue making Revolving Credit Loans to
the Borrower on behalf of the Lenders in reliance on the provisions of SECTION
3.7 and take such other action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
SECTION 13.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender
expressly acknowledges that neither the Agent nor any of its officers,
directors, counsel, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Agent hereafter
taken, including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial (and other) condition and
creditworthiness of the Borrower and made its own decision to make its
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Loans hereunder and enter into this Agreement. Each Lender also represents that
it will, independently and without reliance upon the Agent or any other Lender,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial (and other) condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder or under the other Loan Documents, the Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial (and other) condition
or creditworthiness of the Borrower which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
SECTION 13.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent
in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitment Percentages, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement or the other Loan Documents, or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; PROVIDED that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct or
resulting solely from transactions or occurrences that occur at a time after
such Lender has assigned all of its interests, rights and obligations under this
Agreement pursuant to SECTION 12.1 or, in the case of a Lender to which an
assignment is made hereunder pursuant to SECTION 12.1, at a time before such
assignment. The agreements in this subsection shall survive the payment of the
Notes, the Secured Obligations and all other amounts payable hereunder and the
termination of this Agreement.
SECTION 13.8 AGENT IN ITS INDIVIDUAL CAPACITY. The institution at the
time acting as the Agent and its Affiliates may make loans to, accept deposits
from and generally engage in any kind of business with the Borrower and the
other Loan Parties and their respective Subsidiaries as if it were not the Agent
hereunder. With respect to its Commitment, the Loans made or renewed by it and
any Note issued to it and any Letter of Credit issued by it, such institution
shall have and may exercise the same rights and powers under this Agreement and
the other Loan Documents and shall be subject to the same obligations and
liabilities as and to the extent set forth herein and in the other Loan
Documents for any other Lender. The terms "Lenders" and "Required Lenders" or
any other term shall, unless the context clearly otherwise indicates, include
such institution in its individual capacity as a Lender or one of the Required
Lenders.
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SECTION 13.9 SUCCESSOR AGENT. The Agent may resign as Agent upon ten
days' notice to the Lenders. If the Agent shall resign as Agent under this
Agreement, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders subject (so long as no Default or Event of
Default has occurred and is continuing) to approval by the Borrower (which
approval shall not be unreasonably withheld), whereupon such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon its appointment, and the
former Agent's rights, powers and duties as Agent shall be terminated, without
any other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Notes. After any retiring
Agent's resignation hereunder as Agent, the provisions of SECTION 13.7 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
SECTION 13.10 NOTICES FROM AGENT TO LENDERS. The Agent shall promptly,
upon receipt thereof, forward to each Lender copies of any written notices,
reports or other information supplied to it by the Borrower (but which the
Borrower is not required to supply directly to the Lenders).
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ARTICLE 14
MISCELLANEOUS
SECTION 14.1 NOTICES.
(a) METHOD OF COMMUNICATION. Except as specifically provided in this
Agreement or in any of the Loan Documents, all notices and the communications
hereunder and thereunder shall be in writing or by telephone, subsequently
confirmed in writing. Notices in writing shall be delivered personally or sent
by certified or registered mail, postage pre-paid, or by overnight courier,
telex or facsimile transmission and shall be deemed received in the case of
personal delivery, when delivered, in the case of mailing, when receipted for,
in the case of overnight delivery, on the next Business Day after delivery to
the courier, and in the case of telex and facsimile transmission, upon
transmittal, PROVIDED that in the case of notices to the Agent under ARTICLE 2,
notice shall be deemed to have been given only when such notice is actually
received by the Agent. A telephonic notice to the Agent, as understood by the
Agent, will be deemed to be the controlling and proper notice in the event of a
discrepancy with or failure to receive a confirming written notice.
(b) ADDRESSES FOR NOTICES. Notices to any party shall be sent to it at
the following addresses, or any other address of which all the other parties are
notified in writing by such first party:
If to the Borrower: Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112-4197
Attn: David Worthington
Facsimile No.: (408) 291-8497
with copies to: J.F. Lehman & Company
450 Park Avenue, 6th Floor
New York, New York 10022
Attn: Keith Oster
Facsimile No.:(212) 634 1155
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attn: Joerg Esdorn, Esq.
Facsimile No.:(212) 351-4035
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If to the Agent: NationsBank, N.A.
600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: Craig Reese
Facsimile No.: 404-607-6437
If to a Lender: At the address of such Lender set forth
on the signature pages hereof.
(c) AGENT'S OFFICE. The Agent hereby designates its office located at 600
Peachtree Street, Atlanta, Georgia 30308, or any subsequent office which shall
have been specified for such purpose by written notice to the Borrower, as the
office to which payments due are to be made and at which Loans will be
disbursed.
SECTION 14.2 EXPENSES. The Borrower agrees to pay or reimburse on demand
all costs and expenses incurred by the Agent (or, as to SUBSECTIONS (d) AND (h)
below, any Lender) including, without limitation, the reasonable fees and
disbursements of counsel, in connection with the following:
(a) the negotiation, preparation, execution, delivery, administration,
enforcement and termination of this Agreement and each of the other Loan
Documents, whenever the same shall be executed and delivered, including, without
limitation
(i) the out-of-pocket costs and expenses incurred in connection with
the administration and interpretation of this Agreement and the other Loan
Documents;
(ii) the costs and expenses of appraisals of the Collateral in
connection with the Effective Date and during the existence of an Event of
Default;
(iii) the costs and expenses of lien and title searches and title
insurance;
(iv) the costs and expenses of environmental reports with respect to
the Real Estate in connection with the Effective Date and during the
existence of an Event of Default;
(v) taxes, fees and other charges for recording the Mortgages,
filing the Financing Statements and continuations and the costs and expenses
of taking other actions to perfect, protect, and continue the Security
Interests;
(b) the preparation, execution and delivery of any waiver, amendment,
supplement or consent by the Agent and the Lenders relating to this Agreement or
any of the Loan Documents;
(c) sums paid or incurred in accordance with SECTION 14.11(b) to pay any
amount or take any action required of the Borrower under the Loan Documents that
the Borrower fails to pay or take;
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(d) inspections and verifications of the Collateral, including, without
limitation, standard per diem fees charged by the Agent or the Lenders, travel,
lodging, and meals for inspections of the Collateral and the Borrower's
operations and books and records by the Agent's agents once each year and
whenever an Event of Default exists;
(e) forwarding loan proceeds, collecting checks and other items of
payment, and establishing and maintaining each Controlled Disbursement Account,
Agency Account and Lockbox;
(f) preserving and protecting the Collateral;
(g) consulting, after the occurrence of a Default, with one or more
Persons, including appraisers, accountants and lawyers, concerning the value of
any Collateral for the Secured Obligations or related to the nature, scope or
value of any right or remedy of the Agent or any Lender hereunder or under any
of the Loan Documents, including any review of factual matters in connection
therewith, which expenses shall include the fees and disbursements of such
Persons; and
(h) obtaining (or seeking to obtain) payment of the Secured Obligations,
enforcing the Security Interests, selling or otherwise realize upon the
Collateral, and otherwise enforcing the provisions of the Loan Documents, or
prosecuting or defending any claim in any way arising out of, related to or
connected with, this Agreement or any of the Loan Documents, which expenses
shall include the reasonable fees and disbursements of counsel and of experts
and other consultants retained by the Agent or any Lender.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrower. The Borrower
hereby authorizes the Agent and the Lenders to debit the Borrower's Loan Account
(by increasing the principal amount of the Revolving Credit Loan) in the amount
of any such costs and expenses owed by the Borrower when due.
SECTION 14.3 STAMP AND OTHER TAXES. The Borrower will pay any and all
stamp, registration, recordation and similar taxes, fees or charges and shall
indemnify the Agent and the Lenders against any and all liabilities with respect
to or resulting from any delay in the payment or omission to pay any such taxes,
fees or charges, which may be payable or determined to be payable in connection
with the execution, delivery, performance or enforcement of this Agreement and
any of the Loan Documents or the perfection of any rights or security interest
thereunder, including, without limitation, the Security Interest.
SECTION 14.4 SETOFF. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, during the
continuance of any Event of Default, each Lender, and each Affiliate of each
Lender are hereby authorized by the Borrower at any time or from time to time,
without notice to the Borrower or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness at any time
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held or owing by any Lender or any Affiliate of any Lender to or for the credit
or the account of the Borrower against and on account of the Secured Obligations
irrespective or whether or not
(a) the Agent or such Lender shall have made any demand under this
Agreement or any of the Loan Documents, or
(b) the Agent or such Lender shall have declared any or all of the Secured
Obligations to be due and payable as permitted by SECTION 11.2 and although such
Secured Obligations shall be contingent or unmatured.
SECTION 14.5 CONSENT TO ADVERTISING AND PUBLICITY With the prior written
consent of the Borrower, which consent shall not be unreasonably withheld, the
Agent, on behalf of the Lenders, may issue and disseminate to the public
information describing the credit accommodation entered into pursuant to this
Agreement, including the name and address of the Borrower, the amount, interest
rate, maturity, collateral for and a general description of the credit
facilities provided hereunder and of the Borrower's business.
SECTION 14.6 REVERSAL OF PAYMENTS The Agent and each Lender shall have
the continuing and exclusive right to apply, reverse and re-apply any and all
payments to any portion of the Secured Obligations in a manner consistent with
the terms of this Agreement. To the extent the Borrower makes a payment or
payments to the Agent, for the account of the Lenders, or any Lender receives
any payment or proceeds of the Collateral for the Borrower's benefit, which
payment(s) or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the Secured Obligations or part thereof intended
to be satisfied shall be revived and continued in full force and effect, as if
such payment or proceeds had not been received by the Agent or such Lender.
SECTION 14.7 ACCOUNTING MATTERS. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrower to determine whether it is in compliance with any covenant contained
herein, shall, unless this Agreement otherwise provides or unless Required
Lenders shall otherwise consent in writing (in response to a request by the
Borrower), be performed in accordance with GAAP.
SECTION 14.8 AMENDMENTS.
(a) Except as set forth in SUBSECTION (b) below, any term, covenant,
agreement or condition of this Agreement or any of the other Loan Documents may
be amended or waived, and any departure therefrom may be consented to by the
Required Lenders, if, but only if, such amendment, waiver or consent is in
writing signed by the Required Lenders and, in the case of an amendment (other
than an amendment described in SECTION 14.9(d)), by the Borrower, PROVIDED that
no such amendment, unless consented to by the Agent, shall alter or affect the
rights or responsibilities of the Agent, and in any such event, the failure to
observe, perform or discharge any such term, covenant, agreement or condition
(whether such amendment is executed or such
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waiver or consent is given before or after such failure) shall not be construed
as a breach of such term, covenant, agreement or condition or as a Default or an
Event of Default. Unless otherwise specified in such waiver or consent, a
waiver or consent given hereunder shall be effective only in the specific
instance and for the specific purpose for which given. In the event that any
such waiver or amendment is requested by the Borrower, the Agent and the Lenders
may require and charge a fee in connection therewith and consideration thereof
in such amount as shall be determined by the Agent and the Required Lenders in
their discretion.
(b) Without the prior unanimous written consent of the Lenders,
(i) no amendment, consent or waiver shall (A) affect the amount or
extend the time of the obligation of any Lender to make Loans or (B) extend
the originally scheduled time or times of payment of the principal of any
Loan or (C) alter the time or times of payment of interest on any Loan or
of any fees payable for the account of the Lenders or (D) alter the amount
of the principal of any Loan or the rate of interest thereon or (E) alter
the amount of any commitment fee or other fee payable hereunder for the
account of the Lenders or (F) permit any subordination of the principal of
or interest on any Loan or (G) permit the subordination of the Security
Interests in any Collateral in excess of $500,000 in the aggregate,
(ii) no Collateral having an aggregate value greater than $500,000 in
the aggregate shall be released by the Agent in any 12-month period other
than as specifically permitted in this Agreement or the Security Documents
nor shall any Collateral be released at a time when the Agent is entitled
to exercise remedies hereunder upon default, nor shall the Borrower or the
Guarantor be released from its liability for the Secured Obligations,
(iii) except to the extent expressly provided in SECTION 13.1, the
definition "Borrowing Base" shall not be amended,
(iv) none of the provisions of this SECTION 14.9, the definitions
"Lenders" or "Required Lenders", or the provisions of ARTICLE 11 shall be
amended, and
(v) neither the Agent nor any Lender shall consent to any amendment
to or waiver of the amortization, deferral or subordination provisions of
any other instrument or agreement evidencing or relating to obligations of
the Borrower that are expressly subordinate to any of the Secured
Obligations if such amendment or waiver would be adverse to the Lenders in
their capacities as Lenders hereunder;
PROVIDED, HOWEVER, that anything herein to the contrary notwithstanding, the
Required Lenders shall have the right to waive any Default or Event of Default
and the consequences hereunder of such Default or Event of Default provided only
that such Default or Event of Default does not arise under SECTION 11.1(g) OR
(h) or out of a breach of or failure to perform or observe any term, covenant or
condition of this Agreement or any other Loan Document (other than the
provisions of ARTICLE 11 of this Agreement) the amendment of which requires the
unanimous consent of the Lenders. The Required Lenders shall have the right,
with respect to any Default or Event of
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Default that may be waived by them, to enter into an agreement with the Borrower
or any other Loan Party providing for the forbearance from the exercise of any
remedies provided hereunder or under the other Loan Documents without thereby
waiving any such Default or Event of Default.
(c) The making of Loans hereunder by the Lenders during the existence of a
Default or Event of Default shall not be deemed to constitute a waiver of such
Default or Event of Default.
(d) Notwithstanding any provision of this Agreement or the other Loan
Documents to the contrary, no consent, written or otherwise, of the Borrower
shall be necessary or required in connection with any amendment to ARTICLE 13 or
SECTION 3.8, and any amendment to such provisions may be effected solely by and
among the Agent and the Lenders, PROVIDED that no such amendment shall impose
any obligation on (or impair any rights of) the Borrower.
SECTION 14.9 ASSIGNMENT. All the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights under this Agreement.
SECTION 14.10 PERFORMANCE OF BORROWER'S DUTIES.
(a) The Borrower's obligations under this Agreement and each of the Loan
Documents shall be performed by the Borrower at its sole cost and expense.
(b) If the Borrower shall fail to do any act or thing which it has
covenanted to do under this Agreement or any of the Loan Documents, the Agent,
on behalf of the Lenders, may (but shall not be obligated to), upon notice to
the Borrower, do the same or cause it to be done either in the name of the Agent
or the Lenders or in the name and on behalf of the Borrower, and the Borrower
hereby irrevocably authorizes the Agent so to act.
SECTION 14.11 INDEMNIFICATION. The Borrower agrees to reimburse the Agent
and the Lenders for all costs and expenses, including reasonable counsel fees
and disbursements, incurred, and to indemnify and hold the Agent and the Lenders
harmless from and against all losses suffered by, the Agent or any Lender in
connection with (a) the exercise by the Agent or any Lender of any right or
remedy granted to it under this Agreement or any of the Loan Documents, (b) any
claim, and the prosecution or defense thereof, arising out of or in any way
connected with this Agreement or any of the Loan Documents (other than any such
claim arising out of disputes among the Lenders and the Agent or asserted by the
Borrower in respect of which the Borrower prevails by a final judgment not
subject to appeal (or in respect of which an appeal is not timely filed)), and
(c) the collection or enforcement of the Secured Obligations or any of them,
other than such costs, expenses and liabilities arising out of the Agent's or
any Lender's gross negligence or willful misconduct.
SECTION 14.12 ALL POWERS COUPLED WITH INTEREST. All powers of attorney
and other authorizations granted to the Agent and the Lenders and any Persons
designated by the Agent or the Lenders pursuant to any provisions of this
Agreement or any of the Loan
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Documents shall be deemed coupled with an interest and shall be irrevocable so
long as any of the Secured Obligations remain unpaid or unsatisfied.
SECTION 14.13 SURVIVAL. Notwithstanding any termination of this
Agreement,
(a) until all Secured Obligations have been irrevocably paid in full or
otherwise satisfied, the Agent, for the benefit of the Lenders, shall retain its
Security Interest and shall retain all rights under this Agreement and each of
the Security Documents with respect to such Collateral as fully as though this
Agreement had not been terminated,
(b) the indemnities to which the Agent and the Lenders are entitled under
the provisions of this ARTICLE 14 and any other provision of this Agreement and
the Loan Documents shall continue in full force and effect and shall protect the
Agent and the Lenders against events arising after such termination as well as
before, and
(c) in connection with the termination of this Agreement and the release
and termination of the Security Interests, the Agent, on behalf of itself as
agent and the Lenders, may require such assurances and indemnities as it shall
reasonably deem necessary or appropriate to protect the Agent and the Lenders
against loss on account of such release and termination, including, without
limitation, with respect to credits previously applied to the Secured
Obligations that may subsequently be reversed or revoked.
SECTION 14.14 TITLES AND CAPTIONS. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 14.15 SEVERABILITY OF PROVISIONS. Any provision of this Agreement
or any Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remainder of such
provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 14.16 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS;
WAIVER OF JURY TRIAL. (a) This Agreement shall be construed in accordance with
and governed by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
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Nothing in this Agreement shall affect any right that the Agent, or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
or the other Loan Documents against the Borrower or its properties in the courts
of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
court referred to in SECTION 14.17(b). Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in SECTION 14.1. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
(e) The Borrower, the Agent and each Lender hereby knowingly,
intentionally and voluntarily waive trial by jury in any action or proceeding of
any kind or nature in any court in which an action may be commenced by or
against the Borrower, the Agent or such Lender arising out of this Agreement,
the Collateral or any assignment thereof or by reason of any other cause or
dispute whatsoever between the Borrower and the Agent or any Lender of any kind
or nature. The Borrower, the Agent and the Lenders hereby agree that the
Federal Court of the Northern District of Georgia or, at the option of the Agent
or any Lender, any court in which the Agent or such Lender shall initiate legal
or equitable proceedings and which has subject matter jurisdiction over the
matter in controversy, shall have nonexclusive jurisdiction to hear and
determine any claims or disputes between the Borrower and the Agent or such
Lender, pertaining directly or indirectly to this Agreement or the Loan
Documents or to any matter arising therefrom. The Borrower expressly submits
and consents in advance to such jurisdiction in any action or proceeding
commenced in such courts, hereby waiving personal service of the summons and
complaint, or other process or papers issued therein and agreeing that service
of such summons and complaint or other process or papers may be made by
registered or certified mail addressed to the borrower at the address of the
borrower set forth in SECTION 4.1. Should the Borrower fail to appear or answer
any summons, complaint, process or papers so served within 30 days after the
mailing thereof, it shall be deemed in default and an order and/or judgment may
be entered against it as demanded or prayed for in such summons, complaint,
process or papers. The nonexclusive choice of forum set forth in this section
shall not be deemed to preclude the enforcement of any judgment obtained in such
forum or the taking of any action under this Agreement to enforce same in any
appropriate jurisdiction.
SECTION 14.17 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
SECTION 14.18 REPRODUCTION OF DOCUMENTS. This Agreement, each of the Loan
Documents and all documents relating thereto, including, without limitation,
(a) consents,
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waivers and modifications that may hereafter be executed, (b) documents received
by the Agent or any Lender, and (c) financial statements, certificates and other
information previously or hereafter furnished to the Agent or any Lender, may be
reproduced by the Agent or such Lender by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar process and such
Person may destroy any original document so produced. Each party hereto
stipulates that, to the extent permitted by Applicable Law, any such
reproduction shall be as admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original shall be in
existence and whether or not such reproduction was made by the Agent or such
Lender in the regular course of business), and any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
SECTION 14.19 PRO-RATA PARTICIPATION.
(a) Each Lender agrees that if, as a result of the exercise of a right of
setoff, banker's lien or counterclaim or other similar right or the receipt of a
secured claim it receives any payment in respect of the Secured Obligations, it
shall promptly notify the Agent thereof (and the Agent shall promptly notify the
other Lenders). If, as a result of such payment, such Lender receives a greater
percentage of the Secured Obligations owed to it under this Agreement than the
percentage received by any other Lender, such Lender shall purchase a
participation (which it shall be deemed to have purchased simultaneously upon
the receipt of such payment) in the Secured Obligations then held by such other
Lenders so that all such recoveries of principal and interest with respect to
all Secured Obligations owed to each Lender shall be pro rata on the basis of
its respective amount of the Secured Obligations owed to all Lenders, PROVIDED
that if all or part of such proportionately greater payment received by such
purchasing Lender is thereafter recovered by or on behalf of the Borrower from
such Lender, such purchase shall be rescinded and the purchase price paid for
such participation shall be returned to such Lender to the extent of such
recovery, but without interest.
(b) Each Lender which receives such a secured claim shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Lenders entitled under this SECTION 14.20 to
share in the benefits of any recovery on such secured claim.
(c) The Borrower expressly consents to the foregoing arrangements and
agrees that any holder of a participation in any Secured Obligation so purchased
or otherwise acquired of which the Borrower has received notice may exercise any
and all rights of banker's lien, set-off or counterclaim with respect to any and
all monies owing by the Borrower to such holder as fully as if such holder were
a holder of such Secured Obligation in the amount of the participation held by
such holder.
SECTION 14.20 CONFIDENTIALITY. The Agent and each Lender agrees (for
itself and its Affiliates, directors, officers, employees and representatives)
to use reasonable precautions to keep confidential, in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by the Borrower or any other Loan Party pursuant to this
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Agreement which is identified by the Borrower or such Loan Party as being
confidential at the time the same is delivered to the Agent or such Lender,
PROVIDED that nothing herein shall limit the disclosure of such information (a)
to the extent required by statute, rule, regulation or judicial process, (b) to
counsel for the Agent or any Lender, (c) to bank examiners, auditors or
accountants or other professional advisors involved in the administration of the
transactions contemplated hereby and by the other Loan Documents, (d) to the
Agent, or any Lender or to any Affiliate of the disclosing party, (e) in
connection with any litigation or dispute to which any one or more of the
Lenders is a party, (f) to any assignee or participant so long as such assignee
or participant (or prospective assignee or participant) agree in writing with
the relevant Lender to be bound, MUTATIS MUTANTS, by the provisions of this
SECTION 14.21, or (g) to the extent such information has been received from any
Person not bound by a duty on confidentiality; PROVIDED FURTHER, that unless
specifically prohibited by Applicable Law, each Lender shall, prior to
disclosure thereof, notify the Borrower of any request for disclosure of any
such non-public information (i) by any governmental agency of representative
thereof (other than any such request in connection with an examination of the
financial condition of such Lender by such governmental agency) or (ii) pursuant
to legal process; and, PROVIDED FINALLY that in no event shall the Agent or any
Lender be obligated or required to return any materials furnished by the
Borrower or any other Loan Party. The obligations of the Agent and each Lender
under this SECTION 14.21 shall supersede and replace the obligations of such
Person under any commitment letter, proposal letter, confidentiality agreement
or other letter or agreement in respect of the transactions contemplated by this
Agreement and signed by such Person and delivered to the Borrower prior to the
Agreement Date.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers in several counterparts all as of the
day and year first written above.
BORROWER:
BURKE INDUSTRIES, INC.
[CORPORATE SEAL]
Attest: By:
--------------------------------
Name:
-------------------------
By: Title:
--------------------------- ------------------------
Name:
--------------------
Title:
-------------------
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AGENT:
NATIONSBANK, N.A.
By:
--------------------------------
Name:
-------------------------
Title:
------------------------
Address: 600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: Craig Reese
Facsimile No.: 404-607-6437
LENDERS:
NATIONSBANK, N.A.
By:
--------------------------------
Name:
-------------------------
Title:
------------------------
Address: 600 Peachtree Street
13 Plaza
Atlanta, Georgia 30308
Attn: Craig Reese
Facsimile No.: 404-607-6437
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EXHIBIT A
FORM OF REVOLVING CREDIT NOTE
$_______________ New York, New York
, 1997
FOR VALUE RECEIVED, the undersigned, BURKE INDUSTRIES, INC., a
California corporation (successor by merger to JFL Merger Co., a California
corporation, the "Borrower"), hereby unconditionally promises to pay to the
order of __________________________________ (the "Lender") at the offices of
NationsBank, N.A., a national banking association, as agent for the Lenders
(together with its successor agents the "Agent") located at 600 Peachtree
Street, N.E., Atlanta, Georgia, 30308, or at such other place within the
United States as shall be designated from time to time by the Agent, on the
Termination Date, the principal amount of __________________________________
($______________), or such lesser principal amount as may then constitute the
aggregate unpaid balance of all Revolving Credit Loans made by the Lender to
the Borrower pursuant to the Loan Agreement (as hereinafter defined), in
lawful money of the United States of America in federal or other immediately
available funds.
The Borrower also unconditionally promises to pay interest on the unpaid
principal amount of this Note outstanding from time to time for each day from
the date of disbursement until such principal amount is paid in full at the
rates per annum and on the dates specified in the Loan Agreement applicable
from time to time in accordance with the provisions thereof. Nothing
contained in this Note or in the Loan Agreement shall be deemed to establish
or require the payment of a rate of interest in excess of the maximum rate
permitted by any Applicable Law. In the event that any rate of interest
required to be paid hereunder exceeds the maximum rate permitted by
Applicable Law, the provisions of the Loan Agreement relating to the payment
of interest under such circumstances shall control.
This Note is one of the Revolving Credit Notes referred to in that
certain Loan and Security Agreement dated as of a date on or about the date
hereof (as amended, modified, supplemented or restated from time to time, the
"Loan Agreement"; terms defined therein being used in this Note as therein
defined) between the Borrower, the financial institutions party thereto from
time to time (the "Lenders") and the Agent, is subject to, and entitled to,
all provisions and benefits of the Loan Documents, is secured by the
Collateral and other property as provided in the Loan Documents, is subject
to optional and mandatory prepayment in whole or in part and is subject to
acceleration prior to maturity upon the occurrence of one or more Events of
Default, all as provided in the Loan Documents.
Presentment for payment, demand, protest and notice of demand, notice of
dishonor, notice of non-payment and all other notices are hereby waived by
the Borrower, except to the extent expressly provided in the Loan Agreement.
No failure to exercise, and no delay in
<PAGE>
exercising, any rights hereunder on the part of the holder hereof shall
operate as a waiver of such rights.
The Borrower hereby agrees to pay on demand all costs and expenses
incurred in collecting the Secured Obligations hereunder or in enforcing or
attempting to enforce any of the Lender's rights hereunder, including, but
not limited to, reasonable attorneys' fees and expenses if collected by or
through an attorney, whether or not suit is filed, all as provided in the
Loan Agreement.
THE PROVISIONS OF SECTION 14.5 OF THE LOAN AGREEMENT ARE HEREBY
EXPRESSLY INCORPORATED BY REFERENCE HEREIN.
THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO THE CHOICE OF LAW RULES OF THE STATE OF NEW YORK, BUT WITH
REFERENCE TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH
SHALL APPLY TO THIS NOTE.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the day
and year first above written.
BURKE INDUSTRIES, INC.
By: _________________________________
Name: ___________________________
Title: __________________________
(CORPORATE SEAL)
Attest:
By: _______________________________
Name: _________________________
2
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[EXECUTION COPY]
GUARANTY
(Subsidiary)
Dated as of August 20, 1997
Each of the undersigned corporations (each a "Guarantor" and,
collectively the "Guarantors"), hereby agrees in favor of NationsBank, N.A.,
as Agent under the Loan Agreement (as hereinafter defined), as follows:
Section 1. CROSS REFERENCES AND DEFINITIONS.
(a) Reference is made to the Loan and Security Agreement, dated as
of August 20, 1997 (the same as it may be amended, modified or supplemented
from time to time being referred to as the "Loan Agreement"), between Burke
Industries, Inc., a California corporation (successor by merger to JFL Merger
Co., the "Borrower"), the "Lenders" parties thereto from time to time, and
the Agent.
(b) For the purposes of this Guaranty:
"AGENT" and "Lender" each have the meaning ascribed to such
terms in the Loan Agreement and "Lender" also means and includes each
subsequent holder of a Note.
"OBLIGOR" means any obligor, maker, endorser. acceptor, surety
or guarantor (other than the Guarantor), from time to time, of any Secured
Obligation.
(c) Unless otherwise defined in this Guaranty, terms used herein
which are defined in the Loan Agreement shall have the same meaning herein as
therein ascribed to them.
Section 2. GUARANTY.
(a) GUARANTY. In consideration of the execution and delivery by
the Lenders of the Loan Agreement and the making of Loans and issuing of
Letters of Credit to the Borrower by the Lenders thereunder, the Guarantor,
as primary obligor and not as surety merely, hereby guarantees absolutely and
unconditionally to the Agent and the Lenders the due and punctual payment,
when and as due (whether upon demand, at maturity, by reason of acceleration
or otherwise), and performance of all Secured Obligations, whether now
existing or hereafter arising (hereinafter referred to as the "Guaranteed
Obligations"), and agrees to pay any and all expenses (including, but not
limited to, reasonable legal fees and disbursements) which may be incurred by
the, Agent or any Lender in enforcing its rights under this Guaranty. The
liability of each Guarantor under this Guaranty is primary, unlimited and
unconditional, and shall be enforceable before, concurrently or after any
claim or demand is made or suit is filed against the Borrower or any other
Obligor and before, concurrently or after any proceeding by the Agent against
any Collateral or other security for the Guaranteed Obligations and shall be
effective
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regardless of the solvency or insolvency of the Borrower or any other Obligor
at any time, the extension or modification of any of the Guarantedd
Obligations by operation of law or the subsequent reorganization, merger or
consolidation of the Borrower or any change in its composition, nature,
ownership, personnel or location, and this Guaranty shall be a continuing
guaranty of any and all notes given in extension or renewal of the Guaranteed
Oligations. Each Guarantor acknowledges, agrees and confirins that this is a
guaranty of payment and not of collection only and that demand for payment
may be made hereunder on any number of occasions in the amount of all or any
portion of the Guaranteed Obligations then due and no single demand shall
exhaust the rights of the Agent or the Lenders hereunder.
(b) PAYMENT BY GUARANTORS. If the Borrower shall fail to pay, when
due and payable, any Guaranteed Obligation, the Guarantors will, without
demand or notice, immediately pay the same to the Agent for the account of
the Lenders. If any Guaranteed Obligation would be subject to acceleration,
but such acceleration is enjoined or stayed, the Guarantors will to the
extent permitted by Applicable Law, purchase such Guaranteed Obligation for a
price equal to the outstanding principal amount thereof, plus such accrued
interest and other amounts as would have been payable had such Guaranteed
Obligation been paid or prepaid at the time of such purchase. All payments
by the Guarantors under this Guaranty shall be made without any setoff,
counterclaim or deduction whatsoever, and in the same currency and funds as
are required to be paid by the Borrower.
(c) WAIVER. Each Guarantor waives without any requirement of any
notice to or further assent by such Guarantor, to the fullest extent
permitted by Applicable Law, (i) diligence, presentment, demand, protest and
notice of any kind whatsoever, (ii) any requirement that the Agent or any
Lender exhaust any right or take any action against any Obligor or other
Person or any of the Collateral or other security for the Guaranteed
Obligations, (iii) the benefit of all principles or provisions of Applicable
Law which are or might be in conflict ,with the terms of this Guaranty, (iv)
notice of acceptance hereof, (v) notice of Default or Event of Default, (vi)
notice of any and all favorable and unfavorable information, financial or
other, about the Borrower, any Obligor or other Person, heretofore, now or
hereafter learned or acquired by the Agent or any Lender, (vii) all other
notice to which such Guarantor or Obligor might otherwise: be entitled,
(viii) all defenses, set-offs and counterclaims of any kind whatsoever (but
not the right to bring an independent action), (ix) notice of the existence
or creation of any Guaranteed Obligations, (x) notice of any alteration,
amendment, increase, extension or exchange of any of the Guaranteed
Obligations, (xi) notice of any amendments, modifications or supplements to
the Loan Agreement or any Loan Document, (xii) notice of any release of
Collateral or other security for the Guaranteed Obligations or any compromise
or settlement with respect thereto, (xiii) all diligence in collection or
protection of or realization upon the Collateral or any of the Guaranteed
Obligatons, and (xiv) the right to require the Agent to proceed against any
Obligor.
(d) CONSENTS. Each Guarantor consents without the requirement of
any notice to or further assent by such Guarantor, to the fullest extent
permitted by Applicable Law, that (i) the time of payment of any Guaranteed
Obligation may be extended, (ii) any provision of the Loan Agreement or any
Loan Document may be amended, waived or modified, (iii) any Obligor
2
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may be released from its obligations or other obligors or guarantors
substituted therefor or added, (iv) any Collateral or other property now or
hereafter securing the Guaranteed Obligations may be released, exchanged,
substituted, compromised or subordinated in whole or in part or any security
may be added, and (v) the Agent may proceed against any Guarantor or any
Obligor without proceeding against any other Obligor.
(e) GUARANTOR BOUND. The Guarantors will remain bound under this
Guaranty notwithstanding any changes, extensions, exchanges, substitutions.
releases, compromises, subordinations, amendments, waivers or modifications
or any other circumstances, whether or not referred to in CLAUSES (C) OR (D)
above, which might otherwise constitute a legal or equitable discharge of a
guaranty.
(f) ABSOLUTE OBLIGATION. The obligations of the Guarantors
hereunder are irrespective of and shall not be dependent upon or affected by
(i) the validity, legality or enforceability of the Loan Agreement, the
Note(s) or any Loan Document, (ii) the existence, value or condition of any
of the Collateral or other security for the Guaranteed Obligations, (iii) the
validity, perfection or priority of the Security Interest in any of the
Collateral or other security, (iv) any action or failure to take action by
the Agent or any Lender under, or with respect to, the Loan Agreement, the
Note(s), any Loan Document, any Guaranteed Obligation, any Obligor or any of
the Collateral or other security, (v) any other dealings among the Agent, the
Lenders, the Borrower or any Obligor, or (vi) any present or future law or
order of any government agency thereof purporting to reduce, amend or
otherwise affect any obligations of the Borrower or the Guarantors.
(g) RECOVERY OF PAYMENTS. In the event that any or all of the
amounts guaranteed by the Guarantors are or were paid by the Borrower or any
other Obligor or are or were paid or reduced by application of the proceeds
of any Collateral, and all or any part of such payment is recovered from the
Agent or any Lender under any applicable bankruptcy or insolvency law or
otherwise, the liability of the Guarantors under this Guaranty shall continue
and remain in full force and effect to the extent permitted by Applicable Law.
(h) WAIVER OF REIMBURSEMENT, SUBROGATION. Each Guarantor hereby
waives, irrevocably and to the fullest extent permitted by Applicable Law,
any and all rights of subrogation, indemnification, reimbursement,
contribution or similar rights which such Guarantor may have against the
Borrower or any Obligor or any Collateral, other security or otherwise until
all Secured Obligations have been paid in full. The provisions of this
SUBSECTION (H) shall survive the termination of this Guaranty.
(i) BINDING NATURE OF CERTAIN ADJUDICATIONS. Upon written notice
of the institution by the Agent or any Lender of any action or proceedings,
legal or otherwise, for the adjudication of any controversy with the
Borrower, the Guarantors will be conclusively bound by the adjudication in
any such action or proceedings and by a judgment. award or decree entered
therein. Each Guarantor waives the right to assert in any action or
proceeding brought by the Agent or any Lender, upon the Loan Agreement, the
Note(s) or any Loan Document, any offsets
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<PAGE>
or counterclaims which such Guarantor may have with respect thereto (other
than (subject to Section 2(g) payment of the Secured Obligations.
(j) VALIDITY AND ENFORCEABILITY OF GUARANTY. The Guarantors will
take all action required so that the guaranty contained herein will at all
times be a binding obligation of the Guarantors enforceable in accordance
with its terms.
Section 3. REPRESENTATIONS AND WARRANTIES. Each Guarantor represents
and warrants to the Agent and the Lenders as follows:
(a) ORGANIZATION, POWER, QUALIFICATION. Such Guarantor is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has the power and authority to own
its properties and to carry on its business as now being and hereafter
proposed to be conducted and is duly qualified and authorized to do business
in each jurisdiction in which the character of its properties or the nature
of its business requires such qualification or authorization.
(b) AUTHORIZATION OF GUARANTY. Such Guarantor has the right and
power and has taken all necessary action to authorize it to guarantee the
Guaranteed Obligations hereunder and to execute, deliver and perform this
Guaranty in accordance with its terms. This Guaranty has been duly executed
and delivered by the duly authorized officers of such Guarantor and is a
legal, valid and binding obligation of such Guarantor enforceable in
accordance with its terms.
(c) COMPLIANCE OF GUARANTY WITH LAWS, ETC. The execution, delivery
and performance of this Guaranty in accordance with its terms and the
guaranty of the Guaranteed Obligations hereunder do not and will not, by the
passage of time, the giving of notice or otherwise, (i) require any
Government Approval or violate any Applicable Law relating to the Guarantor,
(ii) conflict with, result in a breach of or constitute a default under (a)
the certificate of incorporation or by-laws of such Guarantor, (b) any
indenture, agreement or other instrument to which such Guarantor is a party
or by which it or any of its properties may be bound or (c) any Governmental
Approval, or (iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired by
such Guarantor.
(d) FINANCIAL INTEREST. The Guarantor is a Subsidiary of the
Borrower and is engaged in a related and mutually interdependent business
with the Borrower and will derive indirect financial and business advantages
and benefits from the Loans and other financial ACCOMMODATIONS that the
Lenders may make to the Borrower.
Section 4. LITIGATION. THE GUARANTORS, AND THE AGENT AND THE LENDERS
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION
MAY BE COMMENCED BY OR AGAINST ANY GUARANTOR ARISING OUT OF THIS GUARANTY, OR
BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN A GUARANTOR AND
THE AGENT OR ANY LENDER OF ANY KIND OR NATURE.
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<PAGE>
Section 5. TITLES AND CAPTIONS. Titles and captions of Sections and
subsections in this Guaranty are for convenience only, and neither limit nor
amplify the provisions of this Guaranty.
Section 6. SEVERABILITY OF PROVISIONS. Any provision of this
Guaranty which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective only to the extent of such prohibition
or unenforceability without invalidating the remainder of such provision or
the remaining provisions hereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
Section 7. GOVERNING LAW. This Guaranty shall be construed in
accordance with and governed by the law of the State of New York.
(b) Each Guarantor hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or
relating to this Guaranty or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Guaranty shall
affect any right that the Agent, or any Lender may otherwise have to bring
any action or proceeding relating to this Guaranty or the other Loan
Documents against such Guarantor or its properties in the courts of any
jurisdiction.
(c) Each Guarantor hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection
which it may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Guaranty or the other Loan
Documents in any court referred to in Section 7(b). Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10. Nothing in this
Guaranty will affect the right of any party to this Guaranty to serve process
in any other manner permitted by law.
Section 8. COUNTERPARTS. This Guaranty may be executed in any number
of counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns.
Section 9. MISCELLANEOUS. This Guaranty and the other agreements
contemplated by this Guaranty supersede all prior negotiations, agreements
and understandings, and constitute the entire agreement between the parties
with respect to the subject matter thereof. All the provisions of this
Guaranty shall be binding upon each Guarantor and its successors and assigns,
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<PAGE>
and each Lender may assign or transfer any of its rights under this Guaranty
in connection with the transfer of its interests under the Loan Agreement in
accordance with the terms thereof. Any term, covenant, agreement or
condition of this Guaranty may be amended or waived, and any departure
therefrom may be consented to, if, but only if, such amendment, waiver or
consent is in writing and is signed by the Agent and the Required Lenders
and, in the case of any amendment, also by the Guarantors. Unless otherwise
specified in such waiver or consent, a waiver or consent given hereunder
shall be effective only in the instance and for the specific purpose for
which given and no waiver of any condition, or of the breach of any term,
provision, warranty, representation, agreement or covenant contained in this
Guaranty, whether by conduct or otherwise, in any one or more instances shall
be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of the breach of
any other term, provision, warranty, representation, agreement or covenant
contained in this Guaranty. The failure of the Agnet or any Lender at any
time or times to require performance of any provisions of this Guaranty shall
in no manner affect the right to enforce the same. Whenever the contexr so
requires, the singular number shal include the plural and the plural shall
include the singular, and the gender of any pronoun shall include the other
genders.
Section 10. NOTICES. All notices and other communications provided
for hereunder shall be in writing and given in accordance with the provisions
of SECTION 14.1 of the Loan Agreement and such provisions are hereby
incorporated herein by this reference as if fully set forth herein. The
address of each Guarantor for such purposes shall be as set forth on the
signature page hereof, or such other address notice of which is given in
accordance with the provisions hereof and the address of the Lenders shall be
as provided from time to time pursuant to SECTION 14.1 of the Loan Agreement.
Each Guarantor agrees that if any notification of intended disposition of
Collateral or other security for the Guaranteed Obligations or of any other
act by the Agent or any Lender is required by law and a specific time period
is not stated therein, such notification given in accordance with the
provisions of this SECTION 10, at least ten (10) days prior to such
disposition or act shall be deemed reasonable and properly given.
Section 11. LIMITATION ON GUARANTEED OBLIGATIONS. The obligations of
each Guarantor hereunder shall be li mited to an aggregate amount that is
equal to the largest amount that would not render the obligations of such
Guarantor hereunder subject to avoidance under Section 548 of the United
States Bankruptcy Code (Title 11 of the United States Code) or any comparable
provision of Applicable Law.
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<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be
executed by its duly authorized officer(s) as of the day and year first
written above.
BURKE FLOORING PRODUCTS, INC.
[Corporate Seal] By:
Name:
Title:
Attest: Address:
Name:
Title:
BURKE CUSTOM PROCESSING, INC.
[Corporate Seal]
By:
Name:
Title:
Attest: Address:
Name:
Title:
BURKE RUBBER COMPANY, INC.
[Corporate Seal]
By:
Name:
Title:
Attest: Address:
Name:
Title:
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<PAGE>
[EXECUTION COPY]
SECURITY AGREEMENT
(Subsidiary)
THIS SECURITY AGREEMENT, dated as of August 1997, (this "Agreement") is
made by each of the undersigned corporations (each a "Grantor" and,
collectively, the "Grantors"), in favor of NationsBank, N.A., a national
banking association (the "Agent"), in its capacity as agent for the financial
institutions (the "Lenders") parties from time to time to the Loan and
Security Agreement dated as of August ),D, 1997 (the same as it may be
amended, modified, supplemented, extended or refinanced from time to time.
the "Loan Agreement") between Burke Industries, Inc., a California
corporation (successor by merger to JFL Merger Co., the "Borrower"), the
Lenders and the Agent. Unless otherwise defined herein, terms defined in the
Loan Agreement are used in this Agreement as therein defined.
PRELIMINARY STATEMENT. As a condition precedent to the Lenders making
loans and other financial accommodations to the Borrower under the terms of
the Loan Agreement, the obligations of the Borrower under which have been
guaranteed by each Grantor pursuant to a Guaranty, dated as of even date
herewith, (the principal, interest, fees. expenses and other indebtedness,
obligations and liabilities under said Guaranty and this Agreement and all
other indebtedness, obligations and liabilities of such Grantor to the
Lenders, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, being hereinafter referred to
collectively as the "Secured Obligations"), the Agent and the Lenders have
required that Grantor shall have granted the security interest contemplated
by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make loans and other financial accommodations to the Borrower,
each Grantor hereby agrees as follows:
SECTION 1. GRANT OF SECURITY. As security for payment and performance
of the Secured Obligations, such Grantor hereby conveys, mortgages, pledges,
assigns, transfers, sets over, grants and delivers to the Agent on behalf of
the Lenders a continuing security interest in all of such Grantor's right,
title and interest in and to the following property, wherever located,
whether now owned or existing or hereafter acquired or arising (hereinafter
referred to as the "Collateral"):
(a) all machinery, apparatus, equipment, fittings, fixtures and other
tangible personal property (other than Inventory, as hereinafter defined) of
every kind and description, and all parts, accessories and special tools and
all increases and accessions thereto (hereinafter referred to collectively as
the "Equipment");
(b) all inventory of every kind and description, including, but not
limited to, (i) all finished goods and all raw materials, work in process,
and materials used or consumed in the manufacture or production of finished
goods, (ii) all goods in which such Grantor has an interest in mass or a
joint or other interest of any kind, and (iii) all goods which are returned
to or repossessed by such Grantor, and all accessions and products of all of
the foregoing (hereinafter referred to collectively as the "Inventory");
<PAGE>
(c) all rights to the payment of money or other forms of consideration
(including such rights under contracts whether or not at the time earned by
performance), including, without limitation, accounts, contract rights,
chattel paper, instruments, documents, letters of credit,, tax refunds,
general intangibles, insurance proceeds and other obligations of every kind
and description arising out of or in connection with the sale or lease of
goods or the rendering of services or otherwise (hereinafter "Receivables")
and all rights in and to all security agreements. leases and other contracts
securing or otherwise relating to any such Receivables (hereinafter "Related
Contracts"); and
(d) all products and proceeds of any and all of the foregoing and to the
extent not otherwise included, all payments under insurance (whether or not
the Agent on behalf of the Lenders is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing.
Notwithstanding anything herein to the contrary, the Collateral shall not
include (i) any agreement with a third party existing on the date hereof that
prohibits the grant of a Lien on (but not merely the assignment of or of any
interest in) such agreement or any of such Grantor's rights thereunder
without the consent of such party or under which a consent to such grant is
otherwise required, which consent has not been obtained, except to the extent
rights under any such agreement are covered by Section 9-318 of the UCC, and
(ii) any license permit or other Governmental Approval that, under the terms
and conditions of such Governmental Approval or under Applicable Law, cannot
be subjected to a Lien in favor of the Agent without the consent of the
relevant party which consent has not been obtained; PROVIDED, HOWEVER, that
the Collateral shall include all items excluded pursuant to clauses (i) or
(ii) from and after the date on which the requisite consent is obtained.
SECTION 2. GRANTOR REMAINS LIABLE. Anything contained herein to the
contrary notwithstanding, (a) such Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Agent or any Lender of any of the rights hereunder shall not release such
Grantor from any of its duties or obligations under the contracts and
agreements included in the Collateral, and (c) the Agent and the Lenders
shall not have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Agent
and the Lenders be obligated to perform any of the obligations or duties of
such Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.
SECTION 3. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants as follows:
(a) Such Grantor is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction indicated at the
beginning of this Agreement, has the power and authority to own its
properties and to carry on its business as now being and as hereafter
proposed to be conducted and is duly qualified and authorized to do business
in each
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<PAGE>
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization.
(b) Such Grantor has the right and power, and has taken all necessary
action to authorize IT, to execute, deliver and perform this Agreement in
accordance with its terms. This Agreement has been duly executed and
delivered by the duly authorized officers of such Grantor and is a legal,
valid and binding obligation of such Grantor, enforceable in accordance with
its terms.
(c) The execution, delivery and performance of this Agreement in
accordance with its terms does not and will not. by the passage of time, the
giving of notice or otherwise,
(i) require any Government Approval or violate any Applicable Law
relating to such Grantor,
(ii) conflict with, result in a breach of or constitute a default
under the articles of incorporation or by-laws of such Grantor, any
indenture, agreement or other instrument to which such Grantor is a party
or by which it or any of its property may be bound or any Governmental
Approval relating to such Grantor, or
(iii) result in or require the creation or imposition of any Lien
upon or with respect to any property now owned or hereafter acquired by
such Grantor other than the security interest contemplated by this
Agreement.
(d) There is no pending or threatened action or proceeding affecting
such Grantor before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Grantor.
(e) All of the Equipment and Inventory are located at the address(es)
set forth in PART I of EXHIBIT A hereto. Additional locations of the
Equipment and Inventory during the last year are set forth in PART II of
EXHIBIT A hereto.
(f) The address of the chief executive office of such Grantor is set
forth in PART III of EXHIBIT A hereto. The addresses of such chief executive
offices have not been changed within the last five years. The address of the
principal place of business of such Grantor in each state in which Collateral
is located is set forth in PART IV of EXHIBIT A hereto.
(g) The office(s) where each Grantor keeps its records concerning the
Receivables and originals of chattel paper which evidence Receivables is
(are) located at the address(es) set forth in PART IV of EXHIBIT A hereto and
except as otherwise indicated in said PART IV of EXHIBIT A, such office(s)
has (have) been located at such addressees) continuously for the past year.
None of the Receivables is evidenced by a promissory note or other
instrument, not in the possession of the Agent or any Lender.
(h) If the business of such Grantor has been conducted under a different
name or names during the last five years, such name(s) is (are) set forth in
PART V of EXHIBIT A hereto.
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<PAGE>
(i) Each Grantor owns the Collateral free and clear of any lien,
security interest, charge or encumbrance except for the security interest
created by this Agreement and the Permitted Liens. Except as may be set
forth on EXHIBIT B, no effective Financing Statement or other instrument
similar in effect covering all or any part of the Collateral is on file in
any recording office, except such as may have been filed in favor of the
Agent on behalf of the Lenders relating to this Agreement or is related to a
Permitted Lien.
(j) The execution and delivery of this Agreement by such Grantor creates
a valid security interest in the Collateral, which security interest (i) will
be perfected as to all Collateral a security interest in which can be
perfected by filing under the Uniform Commercial Code as in effect in any
United States jurisdiction, upon the filing of the Financing Statements
executed and delivered to the Agent on the Effective Date by such Grantor in
accordance with this Agreement, (ii) has been perfected as to all Collateral
identified by the Agent, a security interest in which may only be perfected
by possession thereof by the secured party or its bailee, by delivery thereof
to the Agent by such Grantor as of the Effective Date, accompanied by stock
powers executed in blank, appropriate endorsements or appropriate instruments
of assignment or transfer, and (iii) will be perfected as to all other
Collateral, upon the Agent's request. Such perfected security interest is
subject to no prior Lien other than Permitted Liens.
(k) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the grant by such Grantor of the security interest granted hereby or.
for the execution, delivery or performance of this Agreement by such Grantor
or (ii) for the exercise by the Agent of its rights and remedies hereunder,
except for filings in connection with the protection of Liens as contemplated
hereby.
SECTION 4. FURTHER ASSURANCES. (a) Each Grantor agrees that from time
to time, at its expense, such Grantor shall promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent or any Lender may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Agent or any Lender to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, each Grantor
shall: (i) mark conspicuously each chattel paper included in the Receivables
and each Related Contract and, at the request of the Agent, each of its
records pertaining to the Collateral, with a legend, in form and substance
satisfactory to the Agent, indicating that such chattel paper, Related
Contract or Collateral is subject to the security interest granted hereby;
(ii) if any Receivable shall be evidenced by a promissory note or other
instrument or chattel paper with a face value in excess of $100,000 deliver
and pledge to the Agent on behalf of the Lenders such note, instrument or
chattel paper duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the Agent;
and (iii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Agent or any Lender may reasonably request,
in order to perfect and preserve the security interests granted or purported
to be granted hereby.
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<PAGE>
(b) Each Grantor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral without the signature of such Grantor where
permitted by law and agrees that a photographic or other reproduction of this
Agreement of this may be used and filed as a financing statement.
(c) The Grantor shall furnish to the Agent from time to time statements
and schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as the Agent or the Lenders
may reasonably request, all in reasonable detail.
SECTION 5. AS TO EQUIPMENT AND INVENTORY. Each Grantor shall:
(a) Except as permitted by the Loan Agreement, keep the Equipment and
Inventory (other than Inventory sold in the ordinary course of business) at
the places therefor specified 'in Section 3(e) or, upon 15 days' prior
written notice to the Agent, at such other places in jurisdictions where all
action required by Section 4 shall have been taken with respect to the
Equipment and Inventory and notify the Agent in writing of any other proposed
change in any facts set forth in. EXHIBIT B not less than 15 days in advance
of such change.
(b) Except as permitted by the Loan Agreement, cause the Equipment to be
maintained and preserved in the same condition, repair and working order as
when new, ordinary wear and tear excepted, and in accordance with any
manufacturer's manual, and shall forthwith, or in the case of any loss or
damage to any of the Equipment as quickly as practicable after the occurrence
thereof and make or cause to be made all repairs, replacements, and other
improvements in connection therewith which are necessary or desirable to such
end. Such Grantor shall promptly furnish to the Agent a statement respecting
any material loss or material damage to any of the Equipment.
(c) Pay promptly when due all property and other taxes, assessments and
governmental charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Equipment and Inventory,
except to the extent the validity thereof is being contested in good faith.
SECTION 6. INSURANCE. (a) Each Grantor shall, at its own expense,
maintain insurance with respect to the Equipment and Inventory in such
amounts not to exceed those obtainable at commercially reasonable rates
acceptable to the Agent in the exercise of its reasonable judgment, against
such risks as is customarily maintained by similar businesses or as may be
required by Applicable Law, and in such form and with such insurers
acceptable to the Agent in the exercise of its reasonable judgment. Each
policy for (i) liability insurance shall provide for all losses to be paid on
behalf of the Agent for the account of the Lenders and such Grantor as their
respective interests may appear and (ii) property damage insurance shall
provide for all losses (except for losses of less than $250,000 per
occurrence) to be paid directly to the Agent for the account of the Lenders.
Each such policy shall in addition (i) name such Grantor and the Agent on
behalf of the Lenders as insured parties thereunder (without any
representation or warranty by or obligation upon the Agent or any Lender) as
their interests may appear, (ii) contain the agreement by the insurer that
any loss thereunder shall be payable to the Agent on behalf of the Lenders
notwithstanding any action, inaction or breach of representation or warranty
by such
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<PAGE>
Grantor, (iii) provide that there shall be no recourse against the Agent or
any Lender for payment of premiums or other amounts with respect thereto, and
(iv) provide that at least 10 days' prior written notice of cancellation or
of lapse shall be given to the Agent by the insurer. Each Grantor shall, if
so requested by the Agent, deliver to the Agent original or duplicate
policies of such insurance and, as often as the Agent or any Lender may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, each Grantor shall, at the request of the Agent or
any Lender, duly execute and deliver instruments of assignment of such
insurance policies to comply with the requirements of Section 4 and cause the
respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by the
Grantor pursuant to this Section 6 may be paid directly to the Person who
shall have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this
Section 6 is not applicable, such Grantor shall make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and any
proceeds of insurance maintained by such Grantor pursuant to this Section 6
shall be paid to such Grantor as reimbursement for the costs of such repairs
or replacements.
(c) Upon (i) the occurrence and during the continuance of any Event of
Default, or (ii) the actual or constructive total loss (in excess of
$1,000,000 per occurrence) of any Equipment and Inventory, all insurance
payments in respect of such Equipment or Inventory shall be paid to and
applied by the Agent as specified in Section 13(b).
SECTION 7. AS TO RECEIVABLES. (a) Each Grantor shall keep its chief
place of business and chief executive office and the office(s) where it keeps
its records concerning the Receivables, and all originals of all chattel
paper which evidence Receivables, at the location(s) therefor specified in
EXHIBIT A or, at such other location(s) upon prior written notice and
evidence satisfactory to the Agent that all actions to maintain perfection
and priority of the Receivables or as otherwise required by Section 4 have
been taken. Each Grantor will hold and preserve such records and chattel
paper and will permit representatives of the Agent and the Lenders at any
time during normal business hours to inspect and make abstracts from such
records and chattel paper.
(b) Except as otherwise provided in this subsection (b), each Grantor
shall continue to collect, at its own expense, all amounts due or to become
due such Grantor under the Receivables. In connection with such collections,
each Grantor may take (and, at the Agent's direction, while an Event of
Default exists, shall take) such action as such Grantor or the Agent may deem
necessary or advisable to enforce collection of the Receivables; PROVIDED,
HOWEVER, that the Agent shall have the right at any time, upon the occurrence
and during the continuation of an Event of Default, to notify the account
debtors or obligors under any Receivables of the assignment of such
Receivables to the Agent on behalf of the Lenders and to direct such account
debtors or obligors to make payment of all amounts due or to become due to
such Grantor thereunder directly to the Agent for the account of the Lenders
and, upon such notification and at the expense of such Grantor, to enforce
collection of any such Receivables, and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as
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<PAGE>
such Grantor might have done. After receipt by the Grantor of the notice
from the Agent referred to in the PROVISO to the preceding sentence, (i) all
amounts and proceeds (including instruments) received by such Grantor in
respect of the Receivables shall be received in trust for the benefit of the
Agent hereunder, shall be segregated from other funds of the Grantor and
shall be forthwith paid over to the Agent for the account of the Lenders in
the same form as so received (with any necessary endorsement) to be held as
cash collateral and either (a) released to such Grantor so long as no Event
of Default shall have occurred and be continuing or (b) if any Event of
Default shall have occurred and be continuing, applied as provided by Section
13(b), and (ii) without the consent of the Agent, such Grantor shall not
adjust, settle or compromise the amount or payment of any Receivable, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
SECTION 8. TRANSFERS AND OTHER LIENS. Each Grantor shall not without
the prior -written consent of the Agent or as permitted by the Loan Agreement:
(a) Sell, assign (by operation of law or otherwise) or otherwise dispose
of any of the Collateral except Inventory in the ordinary course of business
and Equipment no longer used or deemed useful in the business.
(b) Create or suffer to exist any lien, security interest or other
charge or encumbrance Upon or with respect to any of the Collateral to secure
indebtedness of any person or entity, except for the security interest
created by this Agreement and liens, if any, contemplated by the Loan
Agreement.
SECTION 9. AGENT APPOINTED ATTORNEY-IN-FACT. Each Grantor hereby
irrevocably appoints the Agent such Grantor's attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of such
Grantor, the Agent or otherwise, from time to time in the Agent's discretion,
while an Event of Default Exists, to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the fights of the Grantor under
Section 7), including, without limitation:
(i) to obtain and adjust insurance required to be paid to the
Agent for the account of the Lenders pursuant to Section 6,
(ii) to ask demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of an of the Collateral,
(iii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause (i) or
(11) above, and
(iv) to file any claims or take any action or institute any
proceedings which the Agent or any Lender may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the
fights of the Agent and the Lenders with respect to any of the Collateral.
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SECTION 10. AGENT MAY PERFORM. If any Grantor fails to per-form any
agreement contained herein, upon reasonable notice the Agent on behalf of the
Lenders may itself perform., or cause performance of, such agreement, and the
expenses of the Agent incurred in connection therewith shall be payable by
such Grantor under Section 14(b).
SECTION 11. THE AGENT'S DUTIES. The powers conferred on the Agent
hereunder are solely to protect the Lenders' interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. except as
otherwise provided under Applicable Law. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received
by it hereunder, the Agent shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve fights against prior parties or
any other rights pertaining to any Collateral.
SECTION 12. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default hereunder:
(a) The occurrence of an Event of Default as defined in the Loan
Agreement;
(b) The failure of any Grantor to make any payment herewith, as and when
the same shall become due and payable, any of the Secured Obligations;
(c) The failure of any Grantor to perform any of its other agreements or
obligations as specified in this Agreement, in the Guaranty or in any other
agreement now or hereinafter existing between the Grantors, the Agent and the
Lenders and such default shall continue for a period of thirty days after
written notice thereof has been given to such Grantor by Agent; or
(d) If at any time any representation, warranty, statement, certificate,
schedule or report made by any Grantor to the Agent and the Lenders shall
prove to have been false or misleading in any, material respect as of the
time made or furnished.
SECTION 13. REMEDIES. If any Event of Default shall have occurred and
be continuing:
(a) The Agent may, and at the direction of the Required Lenders in their
sole and absolute discretion shall, exercise in respect of the Collateral,
'in addition to other rights and remedies provided for herein or otherwise
available to it under Applicable Law or in equity or otherwise, all the
rights and remedies of a Lender on default under the Uniform Commercial Code
(the "Code") (whether or not the Code applies to the affected Collateral) and
also may do any or all of the following:
(i) Declare any or all of the Secured Obligations then existing to
be immediately due and payable and they shall thereupon become forthwith
due and payable, without notice of any kind to any Grantor and without any
other presentment, demand, protest, or notice of any kind, all of which are
hereby expressly waived.
(ii) Terminate Lenders' obligations, if any, to make further loans
or extensions of credit or other financial accommodations to the Borrower.
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<PAGE>
(iii) In the name of the Agent, of the Lenders or in the name of any
Grantor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for, or make any compromise or settlement deemed desirable with respect to,
any of the Collateral, but the Agent and the Lenders shall be under no
obligation so to do, and the Agent and the Required Lenders may extend the
time of payment, arrange for payment installments, or otherwise modify the
terms of, or release, any of the Collateral without thereby incurring
responsibility to. or discharging or otherwise affecting any liability of,
the Grantors.
(iv) Enter upon the premises, or wherever the Collateral may be.
and take possession thereof, and demand and receive such possession from
any person who has possession thereof and maintain such possession on such
premises or move the same or any part thereof to such other place or places
as the Agent shall choose, without being liable to such Grantor on account
of any loss, damage or depreciation that may occur as a result thereof, so
long as the Agent shall act reasonably and in good faith.
(v) Require any Grantor to, and such Grantor hereby AGREES that it
will at its expense and upon request of the Agent or any Lenders forthwith.
assemble all or part of the Collateral as directed by the Agent or any
Lenders and make it available to the Agent or any Lenders at a place to be
designated by the Agent or any Lenders which is reasonably convenient to
both parties.
(vi) Without notice except as specified below and with or without
taking the possession thereof, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any location chosen by
the Agent, for cash. on credit or for future delivery, and at such price or
prices and upon such other terms as the Agent may deem commercially
reasonable. Each Grantor agrees that, to the extent notice of sale shall
be required by law, at least ten days' notice to such Grantor of the time
and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification, but notice given in any
other reasonable manner or at any other reasonable time shall constitute
reasonable notification. The Agent and the Lenders shall not be obligated
to make any sale of Collateral regardless of notice of sale having been
given. The Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(vii) In any action hereunder, the Agent, on behalf of the Lenders,
shall be entitled to the appointment of a receiver, to take possession of
all or any portion of the Collateral and to exercise such power as the
court shall confer upon the receiver.
(viii) Apply, without notice, any cash or cash items constituting
Collateral in the Agent's or any Lender's possession to payment of any of
the Secured Obligations.
The undersigned waives. to the extent permitted by Applicable Law, all
rights it has to prior notice and hearing under the Constitution of the
United States and the Uniform Commercial
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<PAGE>
Code and constitution of the State of New York, and under any other
applicable statute or constitution.
(b) All cash proceeds received by the Agent or any Lender in respect of
any sale of, collection from, or other realization upon all or any part of
the Collateral shall be applied (after payment of any amounts payable to the
Agent and the Lenders pursuant to Section 14) in whole or in part by the
Agent against, all or any part of the Secured Obligations in such order as
the Agent shall elect. Any surplus of such cash or cash proceeds held by the
Agent or any Lender and remaining after payment in full of all the Secured
Obligations shall be paid over to the Grantor or to whomsoever may be
lawfully entitled to receive such surplus. Each Grantor shall remain liable
for any deficiency.
SECTION 14. INDEMNITY AND EXPENSES. (a) Each Grantor agrees to
indemnify the Agent and the Lenders from and against any and all claims,
losses and liabilities growing out of or resulting from this Agreement
(including, without limitation. enforcement of this Agreement), except
claims, losses or liabilities resulting from the Agent's or any Lender's
gross negligence or willful misconduct.
(b) Each Grantor will upon demand pay to the Agent and the Lenders the
amount of any and all reasonable expenses, including the reasonable fees and
disbursements of its counsel and of any experts and agents, which the Agent
or the Lenders may incur in connection with (i) subject to the limitations
set forth in Section 14.2 of the Loan Agreement, the perfection of any
security interest granted hereunder, (ii) the administration of this
Agreement, (iii) the custody, presentation, use or operation of, or the sale
of, collection from, or other realization upon. any of the Collateral, (iv)
the exercise or enforcement of any of the rights of the Agent or the Lenders
hereunder, or (v) the failure by the Grantor to perform or observe any of the
provisions hereof
SECTION 15. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by any Grantor herefrom, shall
in any event be effective unless the same shall be in writing and signed by
the Agent and the Required Lenders. and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
SECTION 16. NOTICES. All notices and other communications provided for
hereunder shall be in writing and given in accordance with the provisions of
SECTION 14.1 of the Loan Agreement and such provisions are hereby
incorporated herein by this reference as if fully set forth herein. The
address of each Grantor for such purposes shall be as set forth on the
signature page hereof, or such other address notice of which is given in
accordance with the provisions hereof and the address of the Lenders shall be
as provided from time to time pursuant to SECTION 14.1 of the Loan Agreement.
Each Grantor agrees that if any notification of intended disposition of
Collateral or other security for the Secured Obligations or of any other act
by the Agent or any Lender is required by law and a specific time period is
not stated therein, such notification given in accordance with the provisions
of this SECTION 16, at least ten (10) days prior to such disposition or act
shall be deemed reasonable and properly given.
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<PAGE>
SECTION 17. CONTINUING SECURITY INTEREST, TRANSFER OF OBLIGATIONS. This
Agreement shall create a continuing security interest in the Collateral and
shall (i) remain in full force and effect until payment in full of the
Secured Obligations, (ii) be binding upon each Grantor, its successors and
assigns, and (iii) inure to the benefit of the Agent and the Lenders and
their successors, transferees and assigns. Without limiting the generality
of the foregoing clause (iii), each Lender may assign or otherwise transfer
any of its rights under this Agreement in connection with a transfer of its
interests under the Loan Agreement in accordance with the terms thereof Upon
the payment in full of the Secured Obligations, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantors. Upon any such termination, the Agent and the Lenders will, at such
Grantor's expense, execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination.
SECTION 18. GOVERNING LAW; TERMS. (a) This Agreement shall be construed
in accordance with and governed by the law of the State of New York.
(b) Each Grantor hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, arid each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and deter-mined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Agent, or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or the other Loan
Documents against such Grantor or its properties in the courts of any
jurisdiction.
(c) Each Grantor hereby irrevocably and unconditionally waives. to the
fullest extent it may legally arid effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any court referred to in SECTION 18(B). Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in SECTION 16. Nothing in this
Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 19. LITIGATION. EACH GRANTOR, THE AGENT AND EACH LENDER HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE
COMMENCED BY OR AGAINST SUCH GRANTOR,
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THE AGENT OR SUCH LENDER ARISING OUT OF THIS AGREEMENT, THE COLLATERAL OR ANY
ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER
BETWEEN ANY GRANTOR AND THE AGENT OR ANY LENDER. OF ANY KIND OR NATURE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officer(s) as of
the date first above written.
BURKE FLOORING PRODUCTS, INC.
By: _____________________________
Name: _______________________
Title: ______________________
Address: 2250 South Tenth Street
San Jose, California 95112
BURKE CUSTOM PROCESSING, INC.
By: _____________________________
Name: _______________________
Title: ______________________
Address: 2250 South Tenth Street
San Jose, California 95112
BURKE RUBBER COMPANY, INC.
By: _____________________________
Name: _______________________
Title: ______________________
Address: 2250 South Tenth Street
San Jose, California 95112
NATIONSBANK, N.A., as Agent
By: _____________________________
Name: _______________________
Title: ______________________
Address: ____________________
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NATIONSBANK, N.A., as Lender
By: _____________________________
Name: _______________________
Title: ______________________
Address: ____________________
13
<PAGE>
[EXECUTION COPY]
EXHIBIT A
SUBSIDIARY SECURITY AGREEMENT
PART I -- PRESENT LOCATION OF EQUIPMENT AND INVENTORY
None.
PART II -- LOCATION OF EQUIPMENT AND INVENTORY DURING PAST YEAR
None.
PART III -- CHIEF EXECUTIVE OFFICE OF GRANTOR
2250 South Tenth Street
San Jose, California 95112-4197
PART IV -- ADDRESS OF PRINCIPAL PLACE OF BUSINESS OF GRANTOR WHERE COLLATERAL IS
LOCATED
2250 South Tenth Street
San Jose, California 95112-4197
PART V -- NAMES USED DURING THE LAST FIVE YEARS
Burke Industries, Inc.
Burke Flooring Products, Inc.
Burke Rubber Company
Burke Industries Silicone Products Group
Burke Industries Haskon Division
Burke Custom Processing
Burke Rubber Company Supervisors Club
Burke Construction Company
<PAGE>
EXHIBIT B
LIENS
1. Lien and financing statement granted by Burke Custom Processing, Inc.
relating to Electronic; Security and Detection Devices and Equipment in
favor of Ace Security.
2
<PAGE>
EXHIBIT 10.5
[EXECUTION COPY]
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of August __ 1997, made by BURKE
INDUSTRIES, INC., a California corporation (the "Pledgor"), in favor of
NationsBank, N.A., a national banking association with its principal office
located in Atlanta, Georgia (the "Agent"), in its capacity as agent for the
financial institutions (the "Lenders") party from time to time to the Loan and
Security Agreement dated as of August __, 1997 (the same as it may be amended,
modified, supplemented, extended or refinanced from time to time, being the
"Loan Agreement"), between the Pledgor, the Lender and the Agent.
PRELIMINARY STATEMENT
Pursuant to the Loan Agreement, the Lenders have made or have
agreed to make certain financial accommodations to the Pledgor in the form of
revolving credit loans under a $15,000,000 revolving credit facility, on the
terms and conditions more particularly set forth in the Loan Agreement.
Terms defined in the Loan Agreement, unless otherwise defined herein, are
used herein as therein defined.
The Pledgor's obligations under the Loan Agreement are secured
by substantially all of the Pledgor's assets. The Pledgor is the owner of
all of the issued and outstanding capital stock of the companies listed on
ANNEX A attached hereto ("Pledged Shares"). The Lenders and the Agent have
required as a condition to entering into the Loan Agreement and extending the
credit and financial accommodations described therein that the Pledgor enter
into this Pledge Agreement.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and in order
to induce the Lenders to make Loans to the Pledgor under the Loan Agreement,
the Pledgor hereby agrees as follows:
Section 1. PLEDGE. The Pledgor hereby mortgages, pledges and
assigns to the Agent, for its benefit and the benefit of the Lenders, and
grants to the Agent, for its benefit and the benefit of the Lenders, a
security interest in the following (the "Pledged Collateral"):
(a) the Pledged Shares and the certificates representing
the Pledged Shares and all dividends, cash, instruments and
other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or
all of the Pledged Shares;
(b) Any additional shares of any class of stock of any
issuer of the Pledged Shares from time to time acquired by the
Pledgor in any manner and the certificates
<PAGE>
representing such additional shares and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all of such shares; and
(c) all proceeds of the foregoing.
Section 2. SECURITY FOR OBLIGATIONS. This Pledge Agreement
secures the payment and performance of all of the Secured Obligations now or
hereafter existing.
Section 3. DELIVERY OF PLEDGED COLLATERAL. All certificates
representing or evidencing the Pledged Collateral shall be delivered to and
held by or on behalf of the Agent, for the benefit of the Lenders, pursuant
hereto and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Agent. The Agent shall have
the right, at any time in its discretion and without notice to the Pledgor,
when an Event of Default exists, to transfer to or to register in the name of
the Agent or any of its nominees, for the benefit of the Lenders, any or all
of the Pledged Collateral, subject only to the revocable rights specified in
SECTION 6(A). The Agent shall have the right at any time when an Event of
Default exists to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations. The Pledgor acknowledges that all certificates or
instruments deposited by the Pledgor or transferred to or registered in the
name of the Agent in accordance with this SECTION 3 are deposited,
transferred or registered to secure the payment and performance of the
Secured Obligations.
Section 4. REPRESENTATIONS AND WARRANTIES. The Pledgor
represents and warrants as follows:
(a) The execution, delivery and performance of this
Pledge Agreement in accordance with its terms and the grant
of the security interest hereunder are within the Pledgor's
corporate power and have been duly authorized by all necessary
corporate action on the part of the Pledgor. This Agreement has
been duly executed and delivered by an authorized officer of the
Pledgor and is a legal, valid and binding obligation of the
Pledgor enforceable against the Pledgor in accordance with its
terms.
(b) The execution, delivery and performance of this
Agreement in accordance with its terms and the grant of the
security interest hereunder do not and will not, by the passage
of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
Applicable Law relating to the Pledgor, the violation of
which reasonably could be expected to have a Materially
Adverse Effect,
(ii) conflict with, result in a breach of or constitute
a default under the Pledgor's articles of incorporation or
bylaws,
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(iii) conflict with, result in a breach of or constitute
a default under any indenture, agreement or other instrument
to which the Pledgor is a party or by which it or any of its
properties may be bound or any Governmental Approval, if the
effect thereof, singly or in the aggregate, reasonably could
be expected to have a Materially Adverse Effect, or
(iv) result in or require the creation or imposition of
any Lien upon or with respect to any property now owned or
hereafter acquired by the Pledgor, other than the security
interest granted hereunder in favor of the Agent, for the
benefit of itself as Agent and the Lenders.
(c) No authorization, approval, or other action by, and no
notice to or filing with, any governmental authority or
regulatory body is required either (i) for the pledge by the
Pledgor of the Pledged Collateral pursuant to this Agreement or
for the execution, delivery or performance of this Agreement by
the Pledgor, or (ii) for the exercise by the Agent of the
voting or other rights provided for in this Agreement or the
remedies in respect of the Pledged Collateral pursuant to this
Agreement, other than the filing of financing statements for the
purpose of giving public notice of the security interest granted
hereby.
(d) The Pledged Shares are not subject to any restriction
prohibiting or limiting, in any material respect, the transfer
thereof either by the Pledgor in connection herewith or by the
Agent in connection with the exercise of its remedies hereunder,
other than under applicable securities laws.
(e) The Pledged Shares have been duly authorized and
validly issued and are fully paid and non-assessable and
represent 100% of the issued and outstanding shares of each of
the Pledgor's Subsidiaries.
(f) The Pledgor is the legal and beneficial owner of the
Pledged Collateral free and clear of any lien, security interest,
option or other charge or encumbrance, except for the security
interest created by this Agreement.
(g) The pledge of the Pledged Shares pursuant to this
Pledge Agreement creates a valid security interest in the Pledged
Collateral, securing the payment of the Secured Obligations, and
all deliveries, filings or other actions necessary to perfect and
protect such security interest in the Pledged Shares have been
taken or will be taken simultaneously with the execution and
delivery of this Agreement.
(h) None of the Pledged Collateral is evidenced by any
instrument not delivered to the Agent in accordance with the
terms hereof.
(i) The principal place of business and chief executive
office of the Pledgor is located at 2250 South Tenth Street,
San Jose, California 95112.
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Section 5. FURTHER ASSURANCES. The Pledgor agrees that at any time, and
from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Agent may request in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Agent to exercise and enforce its rights and
remedies hereunder with respect to any Pledged Collateral.
Section 6. VOTING RIGHTS, DIVIDENDS; ETC.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged
Collateral or any part thereof for any purpose not inconsistent with
the terms of this Agreement or the Loan Agreement; PROVIDED, HOWEVER,
that the Pledgor shall not exercise or shall refrain from exercising
any such right if, in the Agent's reasonable judgment, such action
would have a Materially Adverse Effect on the Agent's or any Lenders'
rights in the Pledged Collateral.
(ii) The Pledgor shall be entitled to receive and retain any
and all dividends paid in respect of the Pledged Collateral; PROVIDED,
HOWEVER, that any and all
(A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of, or
in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable
in cash in respect of any Pledged Collateral in connection with a
partial or total liquidation or dissolution or in connection with
a reduction of capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in
respect of principal of, or in redemption of, or in exchange for,
any Pledged Collateral,
shall be Pledged Collateral and shall be forthwith delivered to the
Agent to hold, for the benefit of itself as Agent and the Lenders, as
Pledged Collateral and shall, if received by the Pledgor, be received
in trust for the Agent, be segregated from the other property or funds
of the Pledgor and be forthwith delivered to the Agent, for the
benefit of itself as Agent and the Lenders, as Pledged Collateral in
the same form as so received (with any necessary endorsement).
(iii) The Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor
4
<PAGE>
may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is entitled to exercise
pursuant to CLAUSE (I) above and to receive the dividends or interest
payments which it is authorized to receive and retain pursuant to
CLAUSE (II) above.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) upon the Agent's election evidenced by a written notice
to the Pledgor, all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be entitled to
exercise pursuant to SECTION 6(A)(I) and to receive the dividends and
interest payments which it would otherwise be authorized to receive
and retain pursuant to SECTION 6(A)(II) shall cease, and all such
rights shall thereupon become vested in the Agent, for the benefit of
itself as Agent and the Lenders, who shall thereupon have the sole
right to exercise such voting and other consensual rights and to
receive and hold as Pledged Collateral such dividends and interest
payments; and
(ii) all dividends and interest payments which are received by
the Pledgor contrary to the provisions of CLAUSE (I) of this
SECTION 6(B) shall be received in trust for the Agent, for the benefit
of itself as Agent and the Lenders, shall be segregated from other
funds of the Pledgor and shall be forthwith paid over to the Agent,
for the benefit of itself as Agent and the Lenders, as Pledged
Collateral in the same form as so received (with any necessary
endorsement).
Section 7. TRANSFERS AND OTHER LIENS.
(a) The Pledgor agrees that it will not (i) sell or otherwise dispose of,
or grant any option with respect to, any of the Pledged Collateral, or
(ii) create or permit to exist any lien, security interest, or other charge or
encumbrance upon or with respect to any of the Pledged Collateral, except for
the security interest granted to the Agent under this Agreement and Permitted
Liens.
(b) The Pledgor agrees that it (i) will cause the issuers of the Pledged
Shares not to issue any stock or other securities in addition to or in
substitution for the Pledged Shares issued by such issuers, except to the
Pledgor, and (ii) will pledge hereunder, immediately upon the Pledgor's
acquisition (directly or indirectly) thereof, any and all additional shares of
stock or other securities of each issuer of the Pledged Shares, subject to the
limitations set forth herein.
Section 8. AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby appoints
the Agent as the Pledgor's attorney-in-fact, with full authority in the place
and stead of the Pledgor and in the name of the Pledgor or otherwise, from time
to time in the Agent's discretion to take any action and to execute any
instrument which the Agent may deem necessary or advisable to accomplish the
purposes of this Pledge Agreement, including, without limitation, subject to the
provisions of SECTION 6, to receive, endorse and collect all instruments made
payable to the Pledgor representing any dividend, interest payment or other
distribution that constitutes Pledged
5
<PAGE>
Collateral or that are payable to the Agent pursuant to the terms hereof and
to give full discharge for the same.
Section 9. AGENT MAY PERFORM. If the Pledgor fails to perform any
agreement contained herein, the Agent may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Agent incurred in
connection therewith shall be payable by the Pledgor under SECTION 13.
Section 10. REASONABLE CARE. The Agent and the Lenders shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in the Agent's possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Agent accords its own property
of the same type or, if the Agent appoints an agent to hold the Pledged
Collateral on its behalf or on behalf of the Lenders, such agent agrees to be
bound by a similar standard of care, it being understood that neither the Agent,
any Lender nor any such agent shall have any responsibility for (i) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Pledged Collateral, whether or not the
Agent, any Lender or any such agent has or is deemed to have knowledge of such
matters, or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Pledged Collateral.
Section 11. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default hereunder:
(a) the occurrence of any "Event of Default" under the Loan
Agreement; or
(b) if, at any time, any representation, warranty, certificate,
schedule or report made or delivered by the Pledgor to the Agent and the
Lenders hereunder shall prove to have been false or misleading in any
material respect as of the time made or furnished.
Section 12. REMEDIES UPON DEFAULT. If any Event of Default shall have
occurred and be continuing:
(a) The Agent may, and at the direction of the Lenders in their sole
and absolute discretion shall, exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
upon default under the Uniform Commercial Code, and the Agent may also, and
at the direction of the Lenders in their sole and absolute discretion
shall, upon notice specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange,
broker's board or at any of the Agent's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such
other terms as the Agent may deem commercially reasonable. The Pledgor
agrees that, to the extent notice of sale shall be required by law, at
least five days' written notice to the Pledgor of the time and place of any
public sale or the time after which any private sale may be made shall
constitute reasonable notification. The Agent shall not be obligated to
make any sale of Pledged Collateral regardless of notice of sale having
been given. The Agent may adjourn any public or private sale from time to
time
6
<PAGE>
by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was
so adjourned. The Agent shall have the right to bid for and purchase any
of the Pledged Collateral at any such public sale and shall not be deemed
thereby to have retained the Pledged Collateral in satisfaction of the
Secured Obligations.
(b) Any cash held by the Agent as Pledged Collateral and all cash
proceeds received by the Agent in respect of any sale of, or other
realization upon all or any part of the Pledged Collateral may, in the
discretion of the Agent, be held by the Agent as collateral for, and/or
then or at any time thereafter applied (after payment of any amounts
payable to the Agent pursuant to SECTION 13) in whole or in part by the
Agent against, all or any part of the Secured Obligations in such order as
the Agent shall elect. Any surplus of such cash proceeds held by the Agent
and remaining after payment in full of all the Secured Obligations shall be
paid over to the Pledgor or to whomsoever may be lawfully entitled to
receive such surplus. The Pledgor shall remain liable for any deficiency.
(c) The Pledgor acknowledges that compliance with applicable
securities laws may very strictly limit the Agent's conduct in the
disposition of all or any part of the Pledged Collateral in accordance with
this SECTION 12, and may also limit the extent to which or the manner in
which any subsequent transferee of any Pledged Collateral may dispose of
the same. Pledgor acknowledges and agrees that the Agent shall be entitled
to place all or any part of the Pledged Collateral for private placement by
an investment banking firm, that any such investment banking firm may
purchase all or any part of the Pledged Collateral for its own account and
that the Agent shall be entitled to place all or any part of the Pledged
Collateral privately with a purchaser or purchasers who will represent and
agree that they are purchasing the Pledged Collateral for their own account
for investment and not with a view to the distribution or sale thereof in
violation of applicable securities laws, notwithstanding the existence of a
public or private market upon which the quotations or sales prices may
exceed substantially the price at which the Agent sells the Pledged
Collateral.
Section 13. EXPENSES. The Pledgor will upon demand pay to the Agent and
each Lender the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel actually incurred and of any experts
and agents, which the Agent or such Lender may incur in connection with (a) the
sale of, collection from, or other realization upon, any of the Pledged
Collateral, (b) the exercise or enforcement of any of the rights of the Agent or
any Lender hereunder, or (c) the failure by the Pledgor to perform or observe
any of the provisions hereof. The Lenders shall to the extent reasonably
practicable coordinate their activities in the administration of this Pledge
Agreement through the Agent to avoid unnecessary duplication of costs and
expenses that the Pledgor is required to pay under this SECTION 13, provided
that neither the Lenders nor the Agent shall be under any obligation to
coordinate such activities during the continuation of an Event of Default.
7
<PAGE>
Section 14. SECURITY INTEREST ABSOLUTE. All rights of the Agent and
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Loan Agreement or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Loan
Agreement or the Notes or extension of the maturity date of any of the
Notes;
(c) any exchange, release or nonperfection of any other collateral
for all or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Pledgor in respect of the Secured
Obligations or this Pledge Agreement or otherwise.
Section 15. RELEASE OF SECURITY INTERESTS. Upon the payment and
performance in full of the Secured Obligations and the termination of each of
the Lenders' Commitments under the Loan Agreement, the Agent shall release its
security interests hereunder in the Pledged Collateral, and the Pledgor shall be
entitled to the return, upon its request and at its expense, of such of the
Pledged Collateral as shall not have been sold or otherwise applied pursuant to
the terms hereof and the Agent shall, at the Pledgor's request and expense,
execute and deliver such other releases, confirmations and acknowledgments as
may reasonably be requested to evidence such release.
Section 16. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement nor consent to any departure by the Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the Agent,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
Section 17. LITIGATION. THE PLEDGOR, THE AGENT AND EACH LENDER HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE
COMMENCED BY OR AGAINST THE PLEDGOR, THE AGENT OR SUCH LENDER ARISING OUT OF
THIS AGREEMENT OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN THE
PLEDGOR AND THE AGENT OR ANY LENDER OF ANY KIND OR NATURE.
Section 18. NOTICES. All notices and other communications provided for
hereunder shall be in writing and given in accordance with the provisions of
Section 14.1 of the Loan Agreement and such provisions are hereby incorporated
herein by this reference as if fully set forth herein.
8
<PAGE>
Section 19. CONTINUING SECURITY INTEREST This Agreement shall create a
continuing security interest in the Pledged Collateral and shall (a) remain in
full force and effect until the release thereof as provided in SECTION 15,
(b) be binding upon the Pledgor, its successors and assigns, and (c) inure to
the benefit of the Agent and the Lenders and their respective successors and
assigns, provided that any assignment of the Agent's or any Lenders' rights
hereunder that is made other than during the continuance of an Event of Default
shall be made only in connection with an assignment of all or a portion of the
Loans and the Commitments that is permitted under the Loan Agreement.
Section 20. GOVERNING LAW; TERMS.
(a) This Agreement shall be construed in accordance with and governed by
the law of the State of New York.
(b) The Pledgor hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of the Supreme Court of the
State of New York sitting in New York County and of the United States District
Court of the Southern District of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Agent, or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
or the other Loan Documents against the Pledgor or its properties in the courts
of any jurisdiction.
(c) The Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
court referred to in SECTION 20(B). Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in SECTION 18. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
IN WITNESS WHEREOF, the Pledgor and the Agent have caused this Agreement to
be duly executed and delivered under seal by their respective officers thereunto
duly authorized as of the date first above written.
9
<PAGE>
PLEDGOR:
BURKE INDUSTRIES, INC.
[CORPORATE SEAL]
By: ________________________________
Name:
Attest: Title:
By: ______________________________
Name:
Title:
Agent:
NATIONSBANK, N.A.
By: ________________________________
Name:
Title:
10
<PAGE>
ANNEX A
Pledged Shares
COMPANY AUTHORIZED SHARES ISSUED SHARES CERTIFICATE NO.
Burke Flooring 7500 100 1
Products, Inc.
Burke Custom 7500 100 1
Processing, Inc.
Burke Rubber 7500 100 1
Company, Inc.
11
<PAGE>
IRREVOCABLE STOCK TRANSFER POWER
FOR VALUE RECEIVED, BURKE INDUSTRIES INC., a California corporation, hereby
sells, assigns, and transfers unto _____________________________100 shares of
_____ par value, Common Stock in BURKE CUSTOM PROCESSING, INC., a California
corporation (the "Company"), represented by Certificate No. ______ herewith, and
hereby irrevocably constitutes and appoints _______________________________
attorney to transfer the said stock on the books of said Company, with full
power of substitution in the premises.
Dated:
BURKE INDUSTRIES, INC.
Attest: By: _____________________________
Name:
Title:
________________________________
Name:
Title:
<PAGE>
IRREVOCABLE STOCK TRANSFER POWER
FOR VALUE RECEIVED, BURKE INDUSTRIES INC., a California corporation, hereby
sells, assigns, and transfers unto _____________________________100 shares of
_____ par value, Common Stock in BURKE FLOORING PRODUCTS, INC., a California
corporation (the "Company"), represented by Certificate No. ______ herewith, and
hereby irrevocably constitutes and appoints _______________________________
attorney to transfer the said stock on the books of said Company, with full
power of substitution in the premises.
Dated:
BURKE INDUSTRIES, INC.
Attest: By: ________________________________
Name:
Title:
__________________________________
Name:
Title:
<PAGE>
IRREVOCABLE STOCK TRANSFER POWER
FOR VALUE RECEIVED, BURKE INDUSTRIES INC., a California corporation, hereby
sells, assigns, and transfers unto _____________________________100 shares of
_____ par value, Common Stock in BURKE RUBBER COMPANY, INC., a California
corporation (the "Company"), represented by Certificate No. ______ herewith, and
hereby irrevocably constitutes and appoints _______________________________
attorney to transfer the said stock on the books of said Company, with full
power of substitution in the premises.
Dated:
BURKE INDUSTRIES, INC.
Attest: By: ______________________________
Name:
Title:
__________________________________
Name:
Title:
<PAGE>
INVESTMENT AGREEMENT
BY AND AMONG
BURKE INDUSTRIES, INC.,
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED,
MASSMUTUAL HIGH YIELD PARTNERS LLC,
PARIBAS NORTH AMERICA, INC.
AND
JACKSON NATIONAL LIFE INSURANCE COMPANY
DATED AS OF AUGUST 20, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS......................................................2
Section 1.01. Definitions.................................................2
ARTICLE II AUTHORIZATION, SALE AND PURCHASE OF THE.
SECURITIES.......................................................6
Section 2.01. Authorization; Agreement to Sell and Purchase...............6
Section 2.02. Closing.....................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES...................................7
Section 3.01. Representations and Warranties of the Company...............7
Section 3.02. Representations and Warranties of Purchasers...............10
ARTICLE IV ADDITIONAL AGREEMENTS OF THE PARTIES............................10
Section 4.01. Taking of Necessary Action.................................10
Section 4.02. Conduct of Business; Line of Business......................11
Section 4.03. Inspection of Property.....................................11
Section 4.04. Use of Proceeds............................................12
Section 4.05. Transfer of Securities.....................................12
Section 4.06. Further Assurances.........................................13
Section 4.07. Allocation of Purchase Price...............................14
Section 4.08. Information Rights.........................................14
ARTICLE V CONDITIONS......................................................15
Section 5.01. Conditions of Purchase.....................................15
Section 5.02. Conditions of Sale.........................................16
ARTICLE VI TERM............................................................17
Section 6.01. Termination................................................17
Section 6.02. Effect of Termination......................................17
ARTICLE VII MISCELLANEOUS...................................................17
Section 7.01. Survival of Representations and Warranties.................17
Section 7.02. Notices....................................................18
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Section 7.03. Entire Agreement; Amendment................................19
Section 7.04. Counterparts...............................................20
Section 7.05. Governing Law..............................................20
Section 7.06. Public Announcements.......................................20
Section 7.07. Fees and Expenses..........................................20
Section 7.08. Successors and Assigns.....................................20
Section 7.09. Arbitration................................................21
Section 7.10. Specific Performance.......................................21
Section 7.11. Captions...................................................21
Section 7.12. Mutual Waiver of Jury Trial................................22
ii
<PAGE>
ANNEX AND EXHIBITS
ANNEX I Number of Shares of Series A Preferred Stock and Warrants; Purchase
Price
EXHIBIT A Form of Amended and Restated Articles of Incorporation
EXHIBIT B Form of Registration Rights Agreement
EXHIBIT C Form of Shareholders Agreement
EXHIBIT D Form of Warrant
EXHIBIT E Matters to be Covered in Opinion of Company Counsel
EXHIBIT F Form of Restated By-Laws
iii
<PAGE>
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of August 20, 1997 (this "AGREEMENT"),
by and among BURKE INDUSTRIES, INC., a California corporation (the "COMPANY"),
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY ("MMLIC"), MASSMUTUAL CORPORATE
VALUE PARTNERS LIMITED ("MMCVP"), MASSMUTUAL HIGH YIELD PARTNERS LLC ("MMHYP")
and JACKSON NATIONAL LIFE INSURANCE COMPANY ("JACKSON NATIONAL" and, together
with MMLIC, MMCVP and MMHYP, the "SERIES A PURCHASERS") and PARIBAS NORTH
AMERICA, INC. ("PARIBAS," or the "SERIES B PURCHASER" and, together with the
Series A Purchasers, the "PURCHASERS"). Capitalized terms not otherwise defined
where used shall have the meanings ascribed thereto in Article I.
WHEREAS, the Board of Directors of the Company has determined to
effect a recapitalization of the Company pursuant to which, among other things,
(i) J.F. Lehman Equity Investors I, L.P. ("JFLEI") will make a capital
contribution in the amount of $20.0 million to JFL Merger Co. ("MERGERCO") and
(ii) MergerCo will merge with and into the Company, with the Company surviving
such merger (the "Merger"), pursuant to which, among other things, (A) each
share of common stock, without par value, of the Company issued and outstanding
immediately prior to the Merger, other than certain shares held by certain
shareholders and members of management, will be converted into the right to
receive approximately $9.16 per share in cash and (B) each outstanding and
vested option and each outstanding warrant to purchase a share of Common Stock
of the Company will be converted into the right to receive cash in the amount of
approximately $9.16 per share less the exercise price for such option, (iii) as
provided herein, substantially simultaneously with the consummation of the
Merger, Burke will issue the Series A Preferred Stock, the Series B Preferred
Stock and the Warrants in exchange for aggregate consideration of $18.0 million,
(iv) the Company will issue $110.0 million in aggregate principal amount of 10%
Senior Notes due 2007, and (v) the Company will enter into a credit agreement
(the "CREDIT AGREEMENT") providing for revolving credit and letter of credit
facilities of up to an aggregate principal amount of $15.0 million (all such
transactions shall be collectively referred to herein as the
"RECAPITALIZATION");
WHEREAS, as a part of and a condition to the Recapitalization,
Purchasers have agreed, severally and not jointly, to purchase, and the Company
has agreed to sell, subject to the terms and conditions of this Agreement, (i)
shares of its Series A Preferred Stock to the Series A Purchasers, (ii) shares
of its Series B Preferred Stock to the Series B Purchaser and (ii) Warrants to
purchase its Common Stock; and
WHEREAS, the Company and Purchasers desire to set forth certain
agreements herein.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained and intending to be
legally bound hereby, the parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
set forth below:
"AFFILIATE" shall mean, with respect to any Person, any other Person
which directly or indirectly controls or is controlled by or is under
common control with such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to
(i) direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership
interests, by contract or otherwise) or (ii) vote 10% or more of the
securities having ordinary voting power for the election of directors (or
Persons performing similar duties) of such Person. For purposes hereof,
"Affiliates" of the Company shall include all holders of Common Stock and
securities exercisable for or convertible into Common Stock party to the
Shareholders Agreement.
"AMENDED AND RESTATED ARTICLES OF INCORPORATION" shall mean the
Amended and Restated Articles of Incorporation, setting forth the rights,
preferences, privileges and restrictions of the Series A Preferred Stock
and the Series B Preferred Stock, which are attached hereto as EXHIBIT A.
"ANCILLARY DOCUMENTS" shall mean the Amended and Restated Articles of
Incorporation, the Registration Rights Agreement and the Warrants.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday or a
day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
"CLOSING" and "CLOSING DATE" shall have the meanings set forth in
Section 2.02(a).
"COMMON STOCK" shall mean the Company's common stock, without par
value.
"COMPANY SUBSIDIARY" shall mean any Subsidiary of the Company.
"CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision
of any note, bond or security issued by such Person, or of any mortgage,
indenture, deed of trust, lease, license, franchise, contract, agreement,
instrument or undertaking to which such Person is a party or by which it or
any of its property is subject.
"DEBT OFFERING MEMORANDUM" shall mean the final, dated August 14,
1997, of the offering memorandum with respect to the offering by MergerCo
and the issuance by the
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<PAGE>
Company of the Senior Notes, which final offering memorandum was delivered
to Purchasers prior to the date of this Agreement.
"ELIGIBLE TRANSFEREE" shall mean, in the case of the Series A
Preferred Stock, any other Series A Purchaser, and, in the case of the
Series B Preferred Stock, any other Purchaser and, in the case of either
the Series A Preferred Stock or the Series B Preferred Stock, any partner
of any Purchaser, any Person who controls or is under common control with
any Purchaser, any successor to any Purchaser or any such other Person and
any "qualified institutional buyer" as defined in Rule 144A promulgated
under the Securities Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL ENTITY" shall mean any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government and any self-regulating organization, securities
exchange or securities trading system.
"INITIAL PERCENTAGE" shall mean 20% of the Common Stock on the Closing
Date, calculated on a fully diluted basis after giving effect to (i) the
conversion and exercise of all outstanding warrants, options and other
securities of the Company convertible or exercisable for Common Stock
(whether or not such securities are then currently exercisable) and (ii)
the issuance and exercise of the Warrants.
"INITIAL PURCHASERS" shall mean Massachusetts Mutual Life Insurance
Company, MassMutual Corporate Value Partners Limited, MassMutual High Yield
Partners LLC, Jackson National Life Insurance Company and Paribas North
America, Inc.
"JFLEI" shall mean J.F. Lehman Equity Investors I, L.P., a Delaware
limited partnership and the sole shareholder of MergerCo.
"LEHMAN" shall mean J.F. Lehman & Company, a Delaware corporation.
"LEHMAN AGREEMENT" shall mean the management agreement to be entered
by and among the Company and Lehman on the Closing Date.
"LIEN" shall mean any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or security agreement of any kind or
nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement or any financing lease having substantially
the same effect as any of the foregoing).
3
<PAGE>
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (i)
the assets, properties, business, financial condition, results of
operations or prospects of the Company and the Company Subsidiaries taken
as a whole, (ii) the ability of the Company or any Company Subsidiary to
perform its obligations under this Agreement or the Ancillary Documents or
(iii) the validity or enforceability of this Agreement or any of the
Ancillary Documents or the rights or remedies of any Purchaser hereunder
and thereunder.
"MERGER" shall mean the merger of MergerCo with and into the Company
on the Closing Date, with the Company as the surviving entity.
"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger, dated
as of August 13, 1997, by and among JFLEI, MergerCo, the Company and all of
the shareholders of the Company, pursuant to which, among other things,
MergerCo has merged with and into the Company, with the Company as the
surviving entity.
"MERGERCO" shall mean JFL Merger Co., a California corporation and a
wholly owned subsidiary of JFLEI.
"PERMITS" shall have the meaning set forth in Section 3.01(h).
"PERSON" shall mean an individual, corporation, limited liability
company, unincorporated association, partnership, group (as defined in
Section 13(d)(3) of the Exchange Act), trust, joint stock company, joint
venture, business trust or unincorporated organization, any Governmental
Entity or any other entity of whatever nature.
"PREFERRED STOCK" shall mean the authorized preferred stock of the
Company, without par value.
"PRO RATA SHARE" with respect to each Purchaser, shall mean a fraction
the numerator of which is the aggregate purchase price payable by such
Purchaser pursuant to this Agreement and the denominator of which is $18.0
million.
"RECAPITALIZATION" shall have the meaning set forth in the Recitals.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Warrantholders
Registration Rights Agreement to be entered into by and among the Company
and the Purchasers at the Closing, which shall be in the form attached
hereto as EXHIBIT B.
"RELATED DOCUMENTS" shall mean the collective reference to the Merger
Agreement, the Debt Offering Memorandum, the Indenture with respect to the
Senior Notes, the Senior Notes, the Credit Agreement and the Lehman
Agreement.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate of
incorporation and by-laws or other organizational documents of such Person,
and any law, statute, order, treaty, rule, regulation or guideline, or
judgment, decree,
4
<PAGE>
determination or order of any arbitrator, court or other Governmental
Entity, applicable to or binding upon such Person or any of its property.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECURITIES" shall mean the collective reference to the Series A
Preferred Stock, the Series B Preferred Stock and the Warrants.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SENIOR NOTES" shall mean the 10% Senior Notes Due 2007 of the Company
to be offered pursuant to the Debt Offering Memorandum.
"SERIES A PREFERRED STOCK" shall mean the Series A 11.5% Cumulative
Redeemable Preferred Stock of the Company, without par value, stated
liquidation value of $1,000 per share and having the designations, relative
rights, preferences and limitations set forth in the Amended and Restated
Articles of Incorporation.
"SERIES B PREFERRED STOCK" shall mean the Series B 11.5% Cumulative
Redeemable Preferred Stock of the Company without par value, stated
liquidation value of $1,000 per share and having the designations, relative
rights, preferences and limitations set forth in the Amended and Restated
Articles of Incorporation.
"SHAREHOLDERS AGREEMENT" shall mean the Shareholders Agreement dated
as of the Closing Date, to be executed and delivered by the Company, JFLEI,
the Purchasers in their capacity as holders of Warrant Shares upon exercise
of the Warrants and by the other shareholders of the Company named therein,
which shall be in the form of EXHIBIT C hereto.
"SUBSIDIARY" shall mean, as to any Person, a corporation, partnership
or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
"WARRANT" shall mean a warrant, in the form of EXHIBIT D, issued by
the Company to acquire upon exercise one share of Common Stock (as adjusted
from time to time pursuant to the terms thereof) and any warrant issued
upon transfer, division or combination thereof or in substitution therefor.
"WARRANT SHARES" shall mean shares of Common Stock issued upon
exercise of Warrants.
5
<PAGE>
ARTICLE II
AUTHORIZATION, SALE AND PURCHASE OF THE SECURITIES
SECTION 2.01. AUTHORIZATION; AGREEMENT TO SELL AND PURCHASE.
(a) Upon and subject to the terms and conditions set forth in this
Agreement, the Company has authorized the issuance and sale to Purchasers of (i)
18,000 shares of Series A Preferred Stock to the Series A Purchasers, (ii) 2,000
shares of Series B Preferred Stock to the Series B Purchaser and (iii) Warrants
exercisable for a number of Warrant Shares equal to the Initial Percentage
(which Warrant Shares shall be subject to adjustment from time to time pursuant
to the terms of the Warrants).
(b) Upon and subject to the terms and conditions of this Agreement,
and in reliance upon the representations and warranties hereinafter set forth,
the Company agrees to issue, sell and deliver to Purchasers at the Closing
provided for in Section 2.02 hereof, and each Purchaser severally and not
jointly agrees to purchase from the Company, the number of shares of Series A
Preferred Stock or Series B Preferred Stock, as the case may be, set forth on
ANNEX I hereto along with the Warrants as shall be exercisable for a number of
Warrant Shares equal to the Purchaser's Pro Rata Share of the Initial Percentage
(which Warrant Shares shall be subject to adjustment from time to time pursuant
to the terms of the Warrants) (which such number of Warrants is set forth on
ANNEX I hereto), for an aggregate purchase price with respect to each such
Purchaser as is set forth on ANNEX I hereto.
SECTION 2.02. CLOSING.
(a) Subject to the satisfaction or waiver of the conditions set forth
in this Agreement, the purchase and sale of the Securities pursuant to Section
2.01 (the "CLOSING") shall take place at the offices of Gibson, Dunn & Crutcher
LLP, 200 Park Avenue, 48th Floor, New York, New York, on the first day on which
the conditions in Sections 5.01 and 5.02 are satisfied or waived by Purchasers
or the Company, as the case may be (the "CLOSING DATE"), or at such other time
and place as may be mutually agreed upon by Purchasers and the Company.
(b) At the Closing: (i) the Company shall deliver to each Purchaser,
against payment of the purchase price therefor, (A) certificates for the Series
A Preferred Stock or the Series B Preferred Stock as the case may be, to be sold
in accordance with the provisions of Section 2.01, registered in the name of
such Purchaser or its nominee and in such denominations as such Purchaser shall
specify not less than three Business Days prior to the Closing Date and (B)
certificates evidencing the Warrants to be sold in accordance with the
provisions of Section 2.01, registered in the name of such Purchaser or its
nominee; (ii) each Purchaser, in full payment for such Securities, against
delivery of the stock certificates and Warrants referred to above shall deliver
to the Company on the Closing Date immediately available funds, by wire transfer
to such account as the Company shall specify at least three Business Days prior
to the Closing Date, in the amount of the purchase price to be paid hereunder by
such Purchaser pursuant to Section 2.01; and (iii) each party shall take or
cause to be taken such other actions,
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and shall execute and deliver such other instruments or documents, as shall be
required under Article V hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) ORGANIZATION AND GOOD STANDING OF THE COMPANY. Each of MergerCo
and the Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its businesses as they are now being conducted. Each of MergerCo and
the Company is duly licensed or qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each other
jurisdiction in which its ownership or leasing of properties, or the conduct of
its businesses requires such licensing or qualification and good standing,
except where the failure to be so licensed or qualified and in good standing in
any such jurisdiction would not have a Material Adverse Effect. Each of
MergerCo and the Company has, prior to the date hereof, delivered to Purchasers
a true and complete copy of their respective articles of incorporation and
by-laws in each case as in effect on the date of this Agreement.
(b) AUTHORIZATION; NO CONFLICTS. The Company has full corporate
power and authority to enter into this Agreement and the Ancillary Documents and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and each Ancillary Document and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been, and on or prior to the Closing Date each Ancillary Document
will be, duly and validly executed and delivered by the Company. This Agreement
constitutes, and upon its execution and delivery on or prior to the Closing Date
each Ancillary Document will constitute, a valid and legally binding obligation
of the Company enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors generally and by
general equitable principles. The execution, delivery and performance of this
Agreement and the Ancillary Documents, the consummation of the transactions by
the Company contemplated hereby and thereby and the compliance by the Company
with the provisions hereof and thereof will not conflict with, violate or result
in a breach of any provision of, require a consent, approval or notice under, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of or accelerate
the performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien upon any of the properties or
assets of the Company under, (i) the articles of incorporation or by-laws of the
Company, (ii) any Contractual Obligation of the Company or (iii) assuming that
the filings, consents and approvals specified in Schedule 3.01(c) have been
obtained, any Requirement of Law applicable to the Company.
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(c) CONSENTS. No consent, approval, order or authorization of,
registration, declaration or filing with, or notice to, any Governmental Entity
is required in connection with the execution, delivery and performance of this
Agreement and the Ancillary Documents by the Company, the consummation by the
Company of the transactions contemplated hereby and thereby or the performance
by the Company of its obligations hereunder and thereunder, except for (i) such
filings as may be required under the blue sky laws of the various states and
(ii) such consents, approvals, orders, authorizations, registrations,
declarations, filings and notices as may be required in connection with the
exercise of the rights set forth in the Registration Rights Agreement.
(d) CAPITALIZATION.
(i) Giving effect to the Recapitalization and immediately
thereafter, (A) the authorized capital stock of the Company will consist of
20,000,000 shares of Common Stock and 50,000 shares of Preferred Stock, (B)
3,857,000 shares of Common Stock will be issued and outstanding, no shares
of Common Stock will be held in treasury, 964,000 shares of Common Stock
will be reserved for issuance upon exercise of outstanding warrants
(including the Warrants issuable to the Purchasers) and 482,100 shares of
Common Stock will be reserved for issuance upon exercise of outstanding
stock options, (C) 30,000 shares of Preferred Stock will be designated
Series A Preferred Stock, of which 16,000 will be issued and outstanding
upon consummation of the Recapitalization and (D) 5,000 shares of Preferred
Stock will be designated Series B Preferred Stock, of which 2,000 will be
issued and outstanding upon consummation of the Recapitalization.
(ii) All of the issued and outstanding shares of the Company's
capital stock have been duly and validly authorized and issued and are
fully paid and nonassessable. Upon delivery of and payment for the shares
of Series A Preferred Stock or Series B Preferred Stock, as the case may
be, on the Closing Date as provided herein, such shares of Series A
Preferred Stock or Series B Preferred Stock, as the case may be, will be
duly and validly authorized and issued, fully paid and nonassessable, and
each Purchaser will acquire good title thereto, free and clear of all Liens
(other than any Lien created by such Purchaser). The Warrant Shares have
been reserved for issuance and, when issued upon exercise of the Warrants,
will be duly and validly authorized and issued, fully paid and
nonassessable and the owner of such Warrant Shares will acquire good title
thereto, free and clear of all Liens (other than any Lien created by such
Warrant owner).
No class of capital stock of the Company and no holder of capital stock (or
rights to acquire capital stock) of the Company is entitled to preemptive
rights, other than as set forth in the Shareholders Agreement. There are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, shares of any capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue
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additional shares of its capital stock or options, warrants or rights to
purchase or acquire any shares of its capital stock.
(e) DISCLOSURE. This Agreement, the certificates and disclosure
statements delivered by or on behalf of the Company or the Company Subsidiaries,
and all other written materials delivered by the Company to Purchasers prior to
the date of this Agreement in connection with the transactions contemplated
hereby (including, without limitation, the Merger Agreement and the Debt
Offering Memorandum, taken as a whole and taking into account any written
revisions or corrections to such written materials delivered to Purchasers prior
to the date of this Agreement and including any statements, representations or
warranties incorporated herein by reference pursuant to Section 3.01(g)), do not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, as of the
respective dates of such written materials, not misleading. There is no fact
peculiar to the Company or any of its Subsidiaries which the Company has not
disclosed to each Purchaser in writing which materially affects adversely or, so
far as the Company can now reasonably foresee, will materially affect adversely
the properties, business, or condition (financial or otherwise) of the Company
and its Subsidiaries taken as a whole or the ability of the Company to perform
this Agreement, the Related Documents or its obligations in respect of the
shares of Preferred Stock and the Warrants.
(f) OFFERING OF SECURITIES. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including without
limitation any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Series A Preferred Stock, the Series B Preferred Stock or the Warrants under the
Securities Act and the rules and regulations of the SEC thereunder) which might
subject the offering, issuance or sale of any of the Series A Preferred Stock,
the Series B Preferred Stock or Warrants to the registration requirements of the
Securities Act. The offer, sale and issuance of the Series A Preferred Stock,
the Series B Preferred Stock and Warrants by the Company under this Agreement
will not violate the Securities Act, the Exchange Act or any applicable state
securities or "blue sky" laws.
(g) INCORPORATION BY REFERENCE OF REPRESENTATIONS AND WARRANTIES IN
PURCHASE AGREEMENT. The representations and warranties made by MergerCo in
respect of the Company and the Company Subsidiaries and their business,
properties, capitalization, financial condition and operations in the Purchase
Agreement dated as of August 14, 1997 related to the Senior Notes and in the
Credit Agreement are incorporated herein as if made by the Company to the
Purchasers and as if set forth fully herein.
(h) OFFERING OF SHARES. Neither the Company nor any person acting on
its behalf has offered the Series A Preferred Stock, the Series B Preferred
Stock, the Warrants or any similar securities of the Company for sale to,
solicited any offers to buy the Preferred Stock, the Warrants or any similar
securities of the Company from or otherwise approached or negotiated with
respect to the Company with any Person other than the Purchasers and not more
than 35 other institutional investors. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the
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Company under circumstances which would require the integration of such offering
with the offering of the Preferred Stock and the Warrants under the Securities
Act and the rules and regulations of the Commission thereunder) which might
subject the offering, issuance or sale of the Preferred Stock and the Warrants
to the registration requirements of Section 5 of the Securities Act.
SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF PURCHASERS.
Each Purchaser, severally and not jointly, represents and
warrants to, and agrees with, the Company as follows:
(a) SECURITIES ACT. Such Purchaser (i) is acquiring the
Securities solely for the purpose of investment and not with a view to, or for
resale in connection with, any distribution thereof in violation of the
Securities Act; (ii) has had the opportunity to ask questions of the officers
and directors of, and has had access to information concerning, the Company and
the terms of the Securities and Warrant Shares; (iii) is an "accredited
investor" as defined in Rule 501(a) under the Securities Act; (iv) has such
knowledge, sophistication and experience in business and financial matters so as
to be capable of evaluating the merits and risks of the investment in the
Securities; (v) has so evaluated the merits and risks of such investment; (vi)
is able to bear the economic risk of such investment; and (vii) is able to
afford a complete loss of such investment.
(b) BROKERS AND FINDERS. None of the Purchasers nor any of
their officers, directors, employees or agents has utilized any broker, finder,
placement agent or financial advisor or incurred any liability for any fees or
commissions in respect thereof in connection with any of the transactions
contemplated hereby or by the Ancillary Documents. Such Purchaser agrees to
indemnify the Company and to hold it harmless from and against any and all
claims, liabilities or obligations with respect to any fees or other amounts
payable as a result of any act or statement made by such Purchaser or any of its
Affiliates.
(c) LEGAL INVESTMENT. Each of the Purchasers represents and
warrants to the Company that its purchase of the Series A Preferred Stock and
Warrants hereunder is a legal investment for such Purchaser and such investment
is not a prohibited investment for such Purchaser under any insurance or other
regulations applicable to such Purchaser or its business.
ARTICLE IV
ADDITIONAL AGREEMENTS OF THE PARTIES
SECTION 4.01. TAKING OF NECESSARY ACTION.
(a) Each of the parties hereto agrees to use all reasonable
efforts promptly to take or cause to be taken all actions and promptly to do or
cause to be done all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement and the Ancillary Documents. Without limiting the
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foregoing, the Company and Purchasers will, and the Company shall cause the
Company Subsidiaries to, each use all reasonable efforts to make all filings and
obtain all consents of Governmental Entities which may be necessary or, in the
opinion of such Purchaser or the Company, as the case may be, advisable for the
consummation of the transactions contemplated by this Agreement and the
Ancillary Documents.
(b) The Company shall provide to the Purchasers copies of all
applications and filings in advance of filing with the applicable Governmental
Entity and shall consult with the other parties regarding the contents thereof.
SECTION 4.02. CONDUCT OF BUSINESS; LINE OF BUSINESS.
(a) Except as required to (i) perform its obligations under this
Agreement and the Ancillary Documents and (ii) effect the transactions described
in the Debt Offering Memorandum, from the date hereof to the Closing Date, the
Company shall, and shall cause each of the Company Subsidiaries to conduct its
operations in accordance with its ordinary course of business and consistent
with past practice and use its best efforts to preserve intact the business
organizations of the Company and the Company Subsidiaries, to keep available the
services of their respective officers and key employees and to preserve the good
will of those having business relationships with the Company and Company
Subsidiaries.
(b) After the consummation of the Recapitalization, the Company
will continue to engage principally in the business now conducted by it or a
business or businesses similar thereto or reasonably compatible therewith.
SECTION 4.03. INSPECTION OF PROPERTY.
(a) The Company will keep, and will cause each Subsidiary to
keep, proper books of record and account in which full and correct entries will
be made of all dealings or transactions of or in relation to the business and
affairs of the Company or such Subsidiary, in accordance with GAAP consistently
maintained. For so long as any Purchaser or their respective Eligible
Transferees owns any shares of Series A Preferred Stock, Warrants or Warrant
Shares, the Company shall permit a representative of Purchaser or such Eligible
Transferee to visit any of its properties and inspect its corporate books and
financial records (but excluding any such books, records, agreements and files
which are protected by attorney-client privilege or which the Company is
prohibited from disclosing to Purchasers or such Eligible Transferees pursuant
to any nondisclosure agreements to which the Company or any Company Subsidiary
is a party; PROVIDED that, to the extent permitted under any such nondisclosure
agreement, the Company shall disclose any information subject to such
nondisclosure agreement upon execution and delivery by such Purchaser or
Eligible Transferee of a confidentiality agreement for the benefit of the
parties to such nondisclosure agreement and PROVIDED, FURTHER, that no such
nondisclosure agreement shall be effective with respect to financial records to
the Company), and will discuss its accounts, affairs and finances with a
representative of Purchaser or such Eligible Transferee during reasonable
business hours, at such times as Purchaser or such Eligible Transferee may
reasonably request. In addition, the Company will provide from time to time
such information
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regarding results of operations, financial condition, business or prospects of
the Company and the Company Subsidiaries as such Purchaser or Eligible
Transferee may reasonably request.
(b) No investigation by or on behalf of any Purchaser pursuant
to this Section or otherwise shall affect any representation or warranty of the
Company herein or the conditions to the obligations of the parties hereunder.
SECTION 4.04. USE OF PROCEEDS.
The proceeds of the sale of the Securities shall be used by the
Company to effect the Recapitalization.
SECTION 4.05. TRANSFER OF SECURITIES.
(a) Each Purchaser acknowledges and agrees that as of the date
hereof neither the Securities nor the Warrant Shares have been or will be
registered under the Securities Act or the securities laws of any state and that
they may be sold or otherwise disposed of only in one or more transactions
registered under the Securities Act and, where applicable, such laws, or as to
which an exemption from the registration requirements of the Securities Act and,
where applicable, such laws, is available. Each Purchaser acknowledges that,
except as provided in the Registration Rights Agreement with respect to the
Warrant Shares, such Purchaser has no right to require the Company to register
the Securities or Warrant Shares. Each Purchaser agrees not to sell, transfer,
pledge or hypothecate any Securities or Warrant Shares except pursuant to (i) an
effective registration statement for such Securities or Warrant Shares under the
Securities Act or (ii) a transaction that is exempt from the registration
requirements of the Securities Act; PROVIDED that the transferee of such
Purchaser acknowledges and agrees to abide by the provisions of this Section
4.06 and, in the case of the transfer of any Warrants or Warrant Shares, the
applicable provisions of the Shareholders Agreement. Except in the case of a
transfer pursuant to Rule 144A under the Securities Act, the Holder may be
required, upon reasonable request of the Company, to provide the Company with an
opinion of counsel to such Purchaser (which opinion may be given by in-house
counsel and otherwise to be in form and substance reasonably satisfactory to the
Company) to the effect that such transfer is exempt from the registration
requirements of the Securities Act. Notwithstanding the foregoing, the
Securities and Warrant Shares may be transferred to any Eligible Transferee of
such Purchaser without any registration or opinion, subject to the foregoing
restrictions on future sale, transfer, pledge or hypothecation by such Eligible
Transferee. The Company shall cooperate with Purchasers and their transferees
in supplying such information as may be necessary for such Purchasers or
transferees to complete and file any information reporting forms currently or
hereafter required by the SEC as a condition to the availability of an exemption
from the registration requirements of the Securities Act for the sale of
restricted securities.
(b) Each Purchaser further acknowledges and agrees that each
certificate for the Securities and Warrant Shares shall bear the following
legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
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AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY
IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT AND SUCH LAWS, OR
IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THIS CERTIFICATE IS
ISSUED PURSUANT TO AND SUBJECT TO THE PROVISIONS OF AN INVESTMENT
AGREEMENT, DATED AUGUST 20, 1997 (AS AMENDED, SUPPLEMENTED OR
OTHERWISE MODIFIED, THE "INVESTMENT AGREEMENT"), BETWEEN THE COMPANY
AND THE PURCHASERS REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE
WITH THE COMPANY."
In addition, each Purchaser further acknowledges that the Warrants and the
Warrant Shares shall bear the following additional legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
A SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 20, 1997 (THE
"AGREEMENT"), WHICH CONTAINS PROVISIONS REGARDING (I) CERTAIN
RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES, (II) CERTAIN
RIGHTS OF FIRST OFFER, TAG-ALONG RIGHTS AND DRAG-ALONG RIGHTS
APPLICABLE TO THIS SECURITY AND (III) CERTAIN OTHER MATTERS. A
COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE COMPANY. ANY TRANSFER OF THE SECURITIES
EVIDENCED BY THIS CERTIFICATE IN VIOLATION OF THE AGREEMENT IS
NULL AND VOID."
Any holder of Securities or Warrant Shares may request the Company to remove any
legend described herein from the certificates evidencing such Securities or
Warrant Shares by submitting to the Company such certificates, together with an
opinion of counsel, if requested, reasonably satisfactory to the Company to the
effect that such legend is no longer required under the Securities Act.
SECTION 4.06. FURTHER ASSURANCES.
Each party shall execute and deliver such additional instruments and other
documents and shall take such further actions as may be necessary or appropriate
to effectuate, carry out and comply with all of the terms of this Agreement and
the transactions contemplated hereby, including, without limitation, making
application as soon as practicable for all consents and approvals required in
connection with the transactions contemplated hereby and diligently pursuing the
receipt of such consents and approvals in good faith.
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SECTION 4.07. ALLOCATION OF PURCHASE PRICE.
The parties agree that for tax purposes, a reasonable allocation
of the total purchase price is to allocate $1,955,555.56 to the purchase price
of the Series B Preferred Stock, $15,644,444.44 to the purchase price of the
Series A Preferred Stock, and $400,000 to the purchase price of the Warrant.
The parties agree that all tax returns filed by the Company and Purchasers shall
be prepared in a manner consistent with such allocation.
SECTION 4.08. INFORMATION RIGHTS.
(a) The Company covenants that during the period commencing on
the Closing Date and for so long as an Initial Purchaser or its Eligible
Transferee holds $1 million in stated liquidation value of Series A Preferred
Stock or Series B Preferred Stock, the Company will deliver to such Initial
Purchaser, at its address set forth in the records of the Company:
(i) as soon as practicable and in any event within 45 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year, consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its subsidiaries for
the period from the beginning of such quarterly period and from the
beginning of the then current fiscal year to the end of such quarterly
period, and a consolidated balance sheet of the Company and the Company
Subsidiaries as of the end of such quarterly period, setting forth in each
case in comparative form figures for the corresponding period or date in
the preceding fiscal year; and
(ii) as soon as practicable and in any event within 90 days
after the end of each fiscal year, a consolidated balance sheet of the
Company and the Company Subsidiaries as of the end of such fiscal year and
the related consolidated statements of income, changes in shareholders'
equity and cash flows for such fiscal year, setting forth in each case in
comparative form the corresponding figures from the preceding fiscal year,
together with the audit report of the independent public accountants of
recognized standing selected by the Company.
(c) In addition, the Company covenants that for such period as a
Purchaser is entitled to receive the reports set forth in Section 4.08(a) above,
the Company shall provide such holder with (i) monthly unaudited financial
statements of the Company and the Company Subsidiaries not later than 30 days
after the last day of each fiscal quarter and (ii) such other information
relating to the Company's operations as such Purchaser may reasonably request
from time to time.
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ARTICLE V
CONDITIONS
SECTION 5.01. CONDITIONS OF PURCHASE.
The respective obligations of each Purchaser to purchase the
Securities to be purchased by it at the Closing is subject to the satisfaction
or waiver of each of the following conditions on or prior to the Closing Date:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The
representations and warranties of the Company contained in or incorporated by
reference in this Agreement and the Ancillary Documents shall be true and
correct in all material respects on and as of the date of this Agreement or the
date of such Ancillary Documents, as the case may be, and on and as of the
Closing Date, with the same effect as though made on and as of such date, except
to the extent any such representation and warranty is made as of a specified
date, in which case such representation and warranty shall be true and correct
in all material respects on and as of such specified date, and the Company shall
have performed in all material respects all obligations, agreements,
undertakings, covenants and conditions of this Agreement and the Ancillary
Documents to be performed at or prior to the Closing Date.
(b) NO INJUNCTION. There shall not be in effect any order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby.
(c) REGULATORY APPROVALS. All permits, consents,
authorizations, orders and approvals of, and filings and registrations required
under any Federal or state law, rule or regulation for or in connection with the
execution and delivery of this Agreement and the Ancillary Documents and the
consummation by the parties hereto of the transactions contemplated on such
parties' part hereby and thereby shall have been obtained or made and all
statutory waiting periods thereunder in respect thereof shall have expired.
(d) ISSUANCE OF SENIOR NOTES; RECAPITALIZATION. Prior to or
simultaneously with the issuance of the Securities, (i) the Recapitalization
shall have been effected on terms and pursuant to such agreements as are
reasonably satisfactory in all respects to Purchasers, the Senior Notes shall
have been issued on terms and pursuant to such agreements and documents as shall
be reasonably satisfactory to Purchasers in all respects and (ii) each of the
Related Documents shall have been executed and delivered by each of the parties
thereto and shall be reasonably satisfactory to Purchasers in all respects.
(e) OPINION OF COUNSEL. Each Purchaser shall have received at
the Closing from Gibson, Dunn & Crutcher LLP, counsel to the Company, a
favorable written opinion dated as of the Closing Date which shall address each
of the matters set forth in EXHIBIT E and which shall otherwise be in form and
substance satisfactory to Purchasers.
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(f) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement shall have been duly executed and delivered by the Company.
(g) SHAREHOLDERS AGREEMENT. The Shareholders Agreement shall
have been duly executed and delivered by the Company and each Shareholder party
thereto.
(h) AMENDED AND RESTATED ARTICLES OF INCORPORATION. The
Articles of Incorporation of the Company shall have been amended and restated as
set forth in EXHIBIT A hereto.
(i) AMENDMENT OF BY-LAWS. The By-Laws of the Company shall have
been amended and restated as set forth in EXHIBIT F hereto.
SECTION 5.02. CONDITIONS OF SALE.
The obligation of the Company to sell the Securities to be sold
at the Closing is subject to satisfaction or waiver of each of the following
conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The
representations and warranties of Purchasers contained in this Agreement shall
be true and correct in all material respects on and as of the date of this
Agreement and on and as of the Closing Date with the same effect as though made
on and as of such date, except to the extent any such representation and
warranty is made as of a specified date, in which case such representation and
warranty shall be true and correct in all material respects on and as of such
specified date, and Purchasers shall have performed in all material respects all
obligations, agreements, undertakings, covenants and conditions required by them
to be performed at or prior to the Closing.
(b) NO INJUNCTION. There shall not be in effect any order,
decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby.
(c) REGULATORY CONSENTS. All permits, consents, authorizations,
orders and approvals of, and filings and registrations required under Federal or
state law, rule or regulation for or in connection with the execution and
delivery of this Agreement and the Ancillary Documents and the consummation by
the parties hereto of the transactions contemplated on such parties' part hereby
and thereby shall have been obtained or made and all statutory waiting periods
thereunder in respect thereof shall have expired.
(d) ISSUANCE OF SENIOR NOTES; RECAPITALIZATION. Prior to or
simultaneously with the issuance of the Securities, each of the following shall
have occurred: (i) the Senior Notes shall have been issued by the Company, (ii)
the Credit Agreement shall have been executed and delivered by the parties
thereto and (iii) the Recapitalization shall have been effected.
(e) REGISTRATION RIGHTS AGREEMENT. The Registration Rights
Agreement shall have been duly executed and delivered by Purchasers.
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(f) SHAREHOLDERS AGREEMENT. The Shareholders Agreement shall
have been duly executed and delivered by Purchasers in their capacity as holders
of Warrant Shares upon exercise of the Warrants.
ARTICLE VI
TERM
SECTION 6.01. TERMINATION.
This Agreement may be terminated on or any time prior to the
Closing:
(a) by the mutual written consent of Purchasers and the Company;
or
(b) by either the Company or Purchasers if the Closing shall
have not have occurred on or prior to August 31, 1997, unless the failure
of such occurrence shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe its agreements set forth
herein required to be performed or observed by such party on or before the
Closing; or
(c) by the Company or Purchasers pursuant to notice if any
Governmental Entity of competent jurisdiction shall have denied any
approval under any of the laws, rules or regulations necessary for the
consummation of the transactions contemplated hereby by a final and
unappealable order.
SECTION 6.02. EFFECT OF TERMINATION.
In the event of the termination of this Agreement as provided in
Section 6.01, this Agreement shall forthwith become void, except for the
obligations set forth in this Section and in 7.06 and 7.07 and there shall be no
liability or obligation on the part of the parties hereto except as otherwise
provided in this Agreement. The termination of this Agreement under Section
6.01(b) shall not relieve any party of any liability for breach of this
Agreement prior to the date of termination.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties made herein shall survive the
execution and delivery of this Agreement and the issuance and delivery of the
Series A Preferred Stock, the Series B Preferred Stock and the Warrants.
17
<PAGE>
SECTION 7.02. NOTICES.
All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given, if delivered personally, by
telecopier or sent by overnight courier as follows:
(a) if to the Purchasers and their counsel:
(i) if to MMLIC, MMCVP, and/or MMHYP, to:
Massachusetts Mutual Life Insurance
1295 State Street
Springfield, Massachusetts 01111
Attention: Richard E. Spencer
Wallace G. Rodger
Phone: (413) 744-6223
Fax: (413) 744-6127
AND, IF TO MMCVP, WITH A COPY TO:
c/o Bank of America Trust and Banking Corporation
(Cayman) Limited
P.O. Box 1092
George Town
Grand Cayman
Cayman Islands, B.W.I.
Attention: Michael Carney
(ii) if to Jackson National, to:
c/o PPM America, Inc.
225 West Wacker Drive, Suite 1200
Chicago, Illinois 60606
Attention: Private Placement Group
Phone: (312) 634-2500
Fax: (312) 634-0054
(iii) if to Paribas, to:
c/o Paribas Principal
Partners
787 Seventh Avenue
New York, New York 10019
Attention: Stephen Eisenstein
Phone: (212) 841-2127
Fax: (212) 841-2502
18
<PAGE>
IN EACH CASE, WITH A COURTESY COPY TO:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street,
Suite 2700
Chicago, Illinois 60601
Attention: Brian O'Neil, Esq.
Phone: (312) 845-5404
Fax: (312) 782-8416
(b) if to the Company, to:
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Attention: Rocco C. Genovese
Phone: (408) 297-3500
Fax: (408) 995-5163
with a copy to:
J.F. Lehman Equity Investors I, L.P.
c/o J.F. Lehman & Company
450 Park Avenue, Sixth Floor
New York, New York 10022
Attention: Mr. Donald Glickman
Phone: (212) 634-1160
Fax: (212) 634-1155
AND WITH A COURTESY COPY TO:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Phone: (213) 229-7000
Fax: (213) 229-7520
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
SECTION 7.03. ENTIRE AGREEMENT; AMENDMENT.
This Agreement, the Ancillary Documents and the documents
described herein and therein or attached or delivered pursuant hereto or thereto
set forth the entire agreement between the parties hereto with respect to the
transactions contemplated by this Agreement. Any provision of this Agreement may
be amended or modified in whole or in part at any time by an
19
<PAGE>
agreement in writing between the parties hereto executed in the same manner as
this Agreement. No failure on the part of any party to exercise, and no delay in
exercising, any right shall operate as a waiver thereof nor shall any single or
partial exercise by any party of any right preclude any other or future exercise
thereof or the exercise of any other right. No investigation by Purchasers of
the Company or any Company Subsidiary prior to or after the date hereof shall
stop or prevent Purchasers from exercising any right hereunder or be deemed to
be a waiver of any such right.
SECTION 7.04. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to constitute an original, but all of which together
shall constitute one and the same document.
SECTION 7.05. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED IN THAT STATE.
SECTION 7.06. PUBLIC ANNOUNCEMENTS.
Each of the parties hereto agrees to hold in strict confidence
and not to disclose to others the status of any discussions or relations among
the parties with respect to the subject matter of this Agreement until such time
as the parties mutually agree to publicly disclose such information or are
obligated by any legal or regulatory agency requirement to disclose such
information; PROVIDED that a description of this transaction mutually
satisfactory to the Company and the Purchasers may be included in the Debt
Offering Memorandum.
SECTION 7.07. FEES AND EXPENSES.
The Company or an Affiliate of the Company shall be responsible
for the costs and expenses incurred by the Purchasers, the Company and its
Affiliates in connection with this Agreement and the Ancillary Documents and the
transactions contemplated hereby, including the reasonable fees and expenses of
their counsel, Schwartz, Cooper, Greenberger & Krauss, and their respective
financial advisors and accountants.
SECTION 7.08. SUCCESSORS AND ASSIGNS.
Subject to applicable law, any Purchaser may assign its rights
under this Agreement in whole or in part, but no such assignment shall relieve
such Purchaser of its obligations hereunder. The Company may not assign any of
its rights or delegate any of its duties under this Agreement without the prior
written consent of Purchasers. Any purported assignment in violation of this
Section shall be void.
20
<PAGE>
SECTION 7.09. ARBITRATION.
Any controversy, dispute or claim arising out of, in connection
with or in relation to the interpretation, performance or breach of this
Agreement shall be determined, at the request of any party, by arbitration in a
city mutually agreeable to the parties to such controversy, dispute or claim,
or, failing such agreement, in New York, New York, before and in accordance with
the then-existing Rules for Commercial Arbitration of the American Arbitration
Association, and any judgment or award rendered by the arbitrator will be final,
binding and unappealable and judgment may be entered by any state or Federal
court having jurisdiction thereof. The pre-trial discovery procedures of the
Federal Rules of Civil Procedure shall apply to any arbitration under this
Section 7.09. Any controversy concerning whether a dispute is an arbitrable
dispute or as to the interpretation or enforceability of this Section 7.09 shall
be determined by the arbitrator. The arbitrator shall be a retired or former
United States District Judge or other person acceptable to each of the parties,
provided such individual has substantial professional experience with regard to
corporate or partnership legal matters. The parties intend that this agreement
to arbitrate be valid, enforceable and irrevocable.
SECTION 7.10. SPECIFIC PERFORMANCE.
The Company acknowledges that the rights granted to Purchasers in
this Agreement are of a special, unique and extraordinary character, and that
any breach of this Agreement by the Company could not be compensated for by
damages. Accordingly, if the Company breaches its obligations under this
Agreement, Purchasers shall be entitled, in addition to any other remedies that
they may have, to enforcement of this Agreement by a decree of specific
performance requiring the Company to fulfill its obligations under this
Agreement.
SECTION 7.11. CAPTIONS.
The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
21
<PAGE>
SECTION 7.12. MUTUAL WAIVER OF JURY TRIAL.
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER
THIS AGREEMENT.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto or by their respective duly authorized representatives, all as of the
date first above written.
BURKE INDUSTRIES, INC.
By:
---------------------------------------------------
Name: Keith Oster
Title: Assistant Vice President
22
<PAGE>
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By:
---------------------------------------------------
Name:
Title:
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By: Massachusetts Mutual Life Insurance Company
Its: Investment Advisor
By:
---------------------------------------------------
Name:
Title:
MASSMUTUAL HIGH YIELD PARTNERS LLC
By: HYP Management, Inc., as Manager
By:
---------------------------------------------------
Name:
Title:
23
<PAGE>
JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM America, Inc.
Its: Agent
By:
---------------------------------------------------
Name:
Title:
PARIBAS NORTH AMERICA, INC.
By:
---------------------------------------------------
Name:
Title:
24
<PAGE>
ANNEX I
SERIES; NUMBER OF SHARES OF PREFERRED STOCK;
NUMBER OF WARRANTS AND PURCHASE PRICE
-----------------------------------------------
<TABLE>
<CAPTION>
SERIES OF NUMBER NUMBER PURCHASE
PURCHASER PREFERRED OF SHARES OF WARRANTS PRICE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts Mutual Life Insurance
Company A 3,808 203,939.56 $3,808,000
MassMutual Corporate Value
Partners Limited A 1,904 101,969.78 $1,904,000
MassMutual High Yield Partners LLC A 2,288 122,535.11 $2,288,000
Jackson National Life Insurance Company A 8,000 428,444.44 $8,000,000
Paribas North America, Inc. B 2,000 107,111.11 $2,000,000
---------- --------- ---------- ----------
</TABLE>
A-1
<PAGE>
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT, dated as of August 20, 1997, among Burke
Industries, Inc., a California corporation (the "Company"), J.F. Lehman Equity
Investors I, L.P. ("JFLEI"), Massachusetts Mutual Life Insurance Company
("MMLIC"), MassMutual Corporate Value Partners Limited ("MMCVP") and MassMutual
High Yield Partners LLC ("MMHYP" and, together with MMLIC and MMCVP,
"MassMutual"), Jackson National Life Insurance Company ("Jackson National"),
Paribas North America, Inc. ("Paribas" and, together with MassMutual and Jackson
National, in their capacity as holders of the Warrants or the Warrant Shares
(each, as defined below), the "Warrantholders"), and each of the persons whose
names are listed on SCHEDULE A hereto (the "Continuing Shareholders"). JFLEI,
the Warrantholders and the Continuing Shareholders are hereinafter sometimes
referred to collectively as the "Shareholders" and individually as a
"Shareholder."
R E C I T A L S
WHEREAS, as of the date hereof, the Shareholders, other than the
Warrantholders, own all of the issued and outstanding shares of the Company's
Common Stock, without par value (the "Common Stock");
WHEREAS, the Shareholders desire to enter into this Agreement setting forth
rights and obligations with respect to all shares of Common Stock owned and
hereafter acquired by them.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CORPORATE GOVERNANCE.
(a) ARTICLES OF INCORPORATION; BY-LAWS. The Amended and Restated
Articles of Incorporation and the Amended and Restated By-Laws of the Company,
each as in effect on the date hereof, are attached hereto as EXHIBIT A and
EXHIBIT B, respectively.
(b) COMPOSITION AND ELECTION OF BOARD OF DIRECTORS.
(i) The Board of Directors of the Company shall initially
consist of nine (9) members (collectively, the "Directors" and, individually, a
"Director") , who shall be Rocco C. Genovese, Reed C. Wolthausen, John F.
Lehman, Donald Glickman, George Sawyer, Keith Oster, Dr. Oliver C. Boileau, Jr.,
Thomas G. Pownall and Bruce D. Gorchow. So long as, together with its Related
Transferees, Jackson National holds in the aggregate Warrants and shares
obtained upon exercise of the Warrants representing at least seventy-five
percent (75%) of the Warrants initially issued to Jackson National, Jackson
National shall have the right to designate one Director. So long as, together
with its Related Transferees, MassMutual holds in
<PAGE>
the aggregate Warrants and shares obtained upon exercise of the Warrants
representing at least seventy-five percent (75%) of the Warrants initially
issued to MassMutual, MassMutual shall have the right to designate one Director
(and, if MassMutual elects to exercise such right, the number of Directors of
the Company shall be increased to ten (10)). Subject to the rights of the
holder of the Series A Preferred Stock to elect Directors upon the occurrence of
certain events, JFLEI shall be entitled to designate all Directors of the
Company not designated by Jackson National and, if MassMutual elects to exercise
its right to designate one Director, by MassMutual.
(ii) Each Shareholder agrees to vote all shares of Common Stock
now or hereafter owned by it, to cause each of its Related Transferees to vote
all shares of Common Stock now or hereafter owned by it and otherwise to use its
reasonable best efforts, to:
(A) elect as Directors the persons designated by JFLEI, by
Jackson National and, if MassMutual elects to exercise its right to
designate one Director, by MassMutual, in accordance with Section
1(b)(i);
(B) remove, with or without cause, (x) any Director
designated by JFLEI in accordance with Section 1(b)(i), if requested
by JFLEI, (y) any Director designated by Jackson National in
accordance with Section 1(b)(i), if requested by Jackson National and
(z) if MassMutual elects to exercise its right to designate one
Director, any Director designated by MassMutual in accordance with
Section 1(b)(i), if requested by MassMutual; and
(C) cause any vacancy on the Board of Directors of the
Company created by the death, resignation, incapacity or removal of
(x) any Director designated by JFLEI in accordance with Section
1(b)(i), to be filled by a replacement Director designated by JFLEI,
(y) any Director designated by Jackson National in accordance with
Section 1(b)(i), to be filled by a replacement Director designated by
Jackson National and (z) if MassMutual elects to exercise its right to
designate one Director, any Director designated by MassMutual in
accordance with Section 1(b)(i), to be filled by a replacement
Director designated by MassMutual.
(c) INFORMATION RIGHTS OF SHAREHOLDERS.
(i) Until such time as the Company shall have become subject to
the reporting requirements of Section 13 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Company shall (A) provide each Shareholder
with quarterly financial statements and reports of and any other regularly
prepared monthly financial data related to the Company's and its subsidiaries'
performance, (B) use reasonable efforts to deliver all other financial
information distributed by the Company to any Shareholder (in its capacity as
such) to each other Shareholder and (C) cause members of senior management of
the Company to be available to each Shareholder from time to time to review the
Company's performance.
2
<PAGE>
(ii) (A) So long as, together with its Related Transferees,
MassMutual holds in the aggregate Warrants and shares obtained upon exercise of
the Warrants representing at least seventy-five percent (75%) of the Warrants
initially issued to MassMutual, MassMutual shall have the right to designate two
representatives (less the number of Directors MassMutual, in its capacity as a
Warrantholder or in its capacity as a holder of the Series A 11.5% Cumulative
Redeemable Preferred Stock of the Company, has designated or elected) to attend
all meetings of the Board of Directors of the Company and all committees thereof
as non-voting observers.
(B) So long as, together with its Related Transferees,
Jackson National holds in the aggregate Warrants and shares obtained upon
exercise of the Warrants representing at least seventy-five percent (75%) of the
Warrants initially issued to Jackson National, Jackson National shall have the
right to designate two representatives (less the number of Directors Jackson
National, in its capacity as a Warrantholder or in its capacity as a holder of
the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company, has
designated or elected) to attend all meetings of the Board of Directors of the
Company and all committees thereof as non-voting observers.
(C) So long as, together with its Related Transferees,
Paribas holds in the aggregate Warrants and shares obtained upon exercise of the
Warrants representing at least seventy-five percent (75%) of the Warrants
initially issued to Paribas, Paribas shall have the right to designate one
representative to attend all meetings of the Board of Directors of the Company
and all committees thereof as a non-voting observer.
The Company shall deliver to MassMutual, Jackson National and Paribas,
concurrently with the delivery to the directors of the Company, all notices of
meetings of the Board of Directors of the Company or committees thereof, and
copies of all written reports and other material given to the Board of Directors
or committees thereof in connection with such meetings (whether or not their
observers attend) or actions by consent in lieu thereof. Notwithstanding any
provision of this Agreement to the contrary, the rights of MassMutual, Jackson
National and Paribas pursuant to this Section 1(e)(ii) may not be assigned
without the consent of the Company, other than to a Related Transferee.
2. RESTRICTIONS ON TRANSFER OF SECURITIES.
(a) GENERAL. No Shareholder shall, directly or indirectly, transfer
or otherwise dispose of any shares of Common Stock or Warrants owned by such
Shareholder, or any interest therein, except pursuant to a Permitted Transfer
described in Section 2(b), unless such transfer or disposition is made in
accordance with the applicable provisions of Sections 3, 4 and 5 of this
Agreement. Any attempt by a Shareholder to effect a transfer or disposition in
violation of this Agreement shall be void and ineffective for all purposes. The
words "transfer" and "dispose" mean the making of any sale, exchange,
assignment, gift, security interest, pledge or other encumbrance, or any
contract therefor, any voting trust or other agreement or arrangement with
respect to the transfer or voting rights or any other beneficial interests, the
creation of any other claim thereto or any other transfer or disposition
whatsoever, whether voluntary or involuntary,
3
<PAGE>
affecting the right, title, interest or possession in or to the Common Stock or
Warrants; PROVIDED, HOWEVER, that in the case of MassMutual, Jackson National
and Paribas, neither a pledge of the Warrants, the shares obtained upon exercise
of the Warrants or any shares obtained pursuant to Section 3 in connection with
a financing transaction nor foreclosure of such pledge shall constitute a
transfer or disposition prohibited by this Section 2 if the person acquiring
such Warrants or shares pursuant to such foreclosure executes an instrument
acknowledging that it shall thereafter be bound by the terms of this Agreement.
(b) PERMITTED TRANSFERS. None of the restrictions contained in this
Agreement with respect to transfers of Common Stock or Warrants (other than
those set forth in this Section 2(b) and Section 2(c)) shall apply:
(i) to any transfer (including any gift) by any Shareholder who
is an individual to:
(A) such Shareholder's spouse or children (collectively,
"relatives");
(B) a trust of which there are no beneficiaries other than
one or more of such Shareholder and the relatives of such Shareholder;
(C) a partnership of which there are no partners other than
one or more of such Shareholder and the relatives of such Shareholder;
(D) a corporation of which there are no Shareholders other
than one or more of such Shareholder and the relatives of such
Shareholder;
(E) a legal representative or guardian of such Shareholder
or a relative of such Shareholder if such Shareholder or relative
becomes mentally incompetent; or
(F) any Person by will or by the laws of descent;
(ii) to any transfer by any Shareholder that is not an individual
to any Affiliate thereof, as such term is defined in Rule 12b-2 of the
Exchange Act, or (other than JFLEI or an Affiliate of JFLEI) to any
Qualified Institutional Buyer, as such term is defined in Rule 144A of the
Securities Act of 1933, as amended (the "Securities Act");
(iii) to any transfer by any Shareholder that is a
partnership (other than JFLEI or an Affiliate of JFLEI) to the general
and/or limited partners of such Partnership as of the date hereof; PROVIDED
that such transfer is made PRO RATA according to the economic interests of
such partners thereof as determined under the governing instructions of
such partnership;
(iv) to any transfer by a Selling Shareholder (as hereinafter
defined) made in accordance with the applicable provisions of Section 3
and, unless such transfer
4
<PAGE>
is to an Offeree Shareholder (as hereinafter defined), the applicable
provisions of Section 4;
(v) to any transfer by a Tag-Along Shareholder (as hereinafter
defined) pursuant to the Tag-Along Right (as hereinafter defined); and
(vi) to any transfer by a Drag-Along Shareholder (as hereinafter
defined) made pursuant to the Drag-Along Right (as hereinafter defined);
and
(vii) to any transfer by a Shareholder for cash in a bona
fide public offering (a "Registered Offering") pursuant to an effective
registration statement under the Securities Act of 1933.
Transfers made pursuant to this Section 2(b) are referred to herein as
"Permitted Transfers" and transferees taking under a Permitted Transfer are
referred to herein as "Permitted Transferees." Transferees taking under a
Permitted Transfer described in Sections 2(b)(i) through (iii) are referred to
herein as "Related Transferees."
(c) REGISTRATION OF TRANSFER BY COMPANY. No transfer of Common Stock
or Warrants by any Shareholder (other than transfers pursuant to a Registered
Offering) shall be effective (and the Company shall not transfer on its books
any such shares) unless (i) the certificates representing such Common Stock or
Warrants issued to the Permitted Transferee shall bear any legends required by
Section 10, (ii) the Permitted Transferee (if not already a party hereto) shall
have executed and delivered to the Company, as a condition precedent to such
transfer, an instrument or instruments in form and substance reasonably
satisfactory to the Company confirming that the Permitted Transferee agrees to
be bound by the terms of this Agreement to the same extent as its transferor.
In addition, no transfer of Common Stock or Warrants shall be made by any
Shareholder unless such transfer is effected in connection with a Registered
Offering or is exempt from registration under the Securities Act and the
Company, should it so request, has received a written legal opinion (which may
be rendered by in-house legal counsel of any Shareholder that is not an
individual) satisfactory to its counsel that the proposed transfer is exempt
from such registration.
(d) LEGEND. In the event that any shares of Common Stock or Warrants
become free of the rights and restrictions imposed by this Agreement, the
Shareholders holding such securities shall be entitled to receive, promptly upon
presentment to the Company of the certificate or certificates evidencing the
same, a new certificate or certificates not bearing the restrictive legend
provided for in the second paragraph of Section 10. In the event that any
shares of Common Stock or Warrants are (i) transferred in connection with a
Registered Offering, or (ii) transferred pursuant to an exemption from
registration under the Securities Act and the Company has received a written
legal opinion (which may be rendered by in-house legal counsel of any
Shareholder that is not an individual) satisfactory to its counsel (A) as to the
availability of and the compliance with such exemption and (B) that such shares
need not bear the restrictive legend set forth in the first paragraph of Section
9 hereof, the Company shall issue a new certificate or certificates representing
such securities not bearing such legend.
5
<PAGE>
3. RIGHT OF FIRST OFFER.
(a) FIRST OFFER NOTICE. If a Shareholder (the "Selling Shareholder")
desires to transfer any shares of Common Stock or Warrants other than (i) to a
Related Transferee, (ii) as a Tag-Along Shareholder (as hereinafter defined) or
(iii) as a Drag-Along Shareholder, such Selling Shareholder shall, prior to
soliciting a BONA fide written offer from an independent third-party (the
"Third-Party Offer"), deliver a written notice (the "First Offer Notice")
offering to sell the Common Stock or Warrants proposed to be sold ("Offered
Securities") to the remaining Shareholders (the "Offeree Shareholders") or to
the Company. The First Offer Notice shall state (i) that the Selling
Shareholder desires to sell the Offered Securities and (ii) the purchase price
per share and other material terms on which and the material conditions subject
to which the Offered Securities are offered.
(b) EXERCISE OF RIGHT OF FIRST OFFER.
(i) Upon receipt of the First Offer Notice, each Offeree
Shareholder shall have the option (the "Shareholders' Right of First Offer"),
which shall be exercisable by written notice (the "Notice of Election")
delivered to the Selling Shareholder within ten (10) days after the date of the
First Offer Notice (the "Shareholders' First Offer Option Period"), to purchase
from the Selling Shareholder, at the price and upon the terms specified in the
First Offer Notice, a number of shares of Common Stock and a number of Warrants
up to the sum of (A) the number of shares of Common Stock and Warrants included
in the Offered Securities multiplied by a fraction, the numerator of which is
the number of shares of Common Stock and shares of Common Stock issuable upon
exercise of Warrants ("Common Stock Equivalents") owned by such Offeree
Shareholder and the denominator of which is the number of shares of Common Stock
and Common Stock Equivalents held by all Offeree Shareholders and (B) the number
of shares of Common Stock and Warrants that, under the formula in clause (A),
all Offeree Shareholders could have elected to purchase but did not so elect,
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock and Common Stock Equivalents owned by such Offeree Shareholder and
the denominator of which is the total number of shares of Common Stock and
Common Stock Equivalents owned by the Offeree Shareholders (including such
Offeree Shareholder) that exercised the option provided herein. Each Offeree
Shareholder who desires to exercise its option to purchase Offered Securities
shall state in its Notice of Election the number of shares of Common Stock and
Warrants that such Offeree Shareholder proposes to purchase determined in
accordance with clause (b)(i)(A) plus an amount of additional shares and
Warrants, if any, that such Offeree Shareholder would be willing to purchase
from the Selling Shareholder in the event that one or more Offeree Shareholders
(other than such Offeree Shareholder) elect not to exercise their Shareholders'
Right of First Offer, in whole or in part. If any Offeree Shareholder shall
fail to deliver the Notice of Election within the Shareholders' First Offer
Option Period, such failure shall be deemed an election not to purchase any
Offered Securities subject to the Shareholders' Right of First Offer and such
Shareholders' Right of First Offer shall thereupon expire with respect to the
Offered Securities only.
6
<PAGE>
(ii) If the number of shares with respect to which the
Shareholders' Right of First Offer has been exercised is less than the number of
Offered Securities, the Company shall have the option (the "Company's Right of
First Offer"), which shall be exercisable by written notice delivered to the
Selling Shareholder within five (5) days after the expiration of the
Shareholders' First Offer Option Period (the "Company's First Offer Option
Period"), to purchase any or all of the Offered Securities not purchased by the
Offeree Shareholders at the price and upon the terms specified in the First
Offer Notice. If the Company shall fail to deliver a notice (the "Company
Notice") of its election to exercise the Company's Right of First Offer within
the Company First Offer Option Period, such failure shall be deemed an election
not to purchase any Offered Securities subject to the Company's Right of First
Offer and the Company's Right of First Offer shall thereupon expire with respect
to the Offered Securities only.
(iii) The Shareholders' Right of First Offer and the
Company's Right of First Offer shall be exercisable only if the Offeree
Shareholders and/or the Company, in the aggregate, elect to purchase all, and
not less than all, of the Offered Securities. Each Notice of Election and
Company Notice shall recite that such Notice of Election or Company Notice, as
the case may be, constitutes a binding obligation of the Offeree Shareholder or
the Company, as the case may be, submitting same to purchase, upon the same
terms and subject to the same conditions as the Third-Party Offer, up to the
number of shares set forth in the Notice of Election or the Company Notice, as
the case may be.
(iv) The closing of the purchase of the Offered Securities
subscribed to by the Offeree Shareholders and the Company pursuant to this
Section 3 shall be held at the principal office of the Company at 10:00 a.m.,
local time not later than the thirtieth (30th) day after the Company First Offer
Option Period shall have expired.
(c) SALE TO THIRD-PARTY PURCHASER.
(i) If the First Offer Notice shall have been duly delivered,
and the Offeree Shareholders and the Company together shall not have exercised
the Shareholders' Right of First Offer and the Company's Right of First Offer to
purchase all of the Offered Securities, the Selling Shareholder may solicit
Third-Party Offers to purchase all (but not less than all) of the Offered
Securities and, so long as any sale of the Offered Securities made pursuant to a
Third-Party Offer that is (A) upon such terms, including price, and subject to
such conditions as are, in the aggregate, no less favorable to the Selling
Shareholder than those set forth in the First Offer Notice; PROVIDED, HOWEVER,
that the price may be not less than 90% of the price set forth in the First
Offer Notice (B) BONA FIDE,(C) consummated within one hundred eighty (180) days
from the expiration date of the Company First Offer Option Period, (D) if
applicable, subject to any Tag-Along Right and (E) in accordance with clause
(ii) below, such transfer may be consummated without further restriction under
this Section 3 and shall be a Permitted Transfer under this Agreement.
(ii) All Offered Securities transferred by the Selling
Shareholder in accordance with clause (i) above shall remain, and the
third-party purchaser shall agree to take
7
<PAGE>
and hold such Offered Securities, subject to all of the obligations and
restrictions imposed upon the Selling Shareholder by this Agreement. No
transfer of Offered Securities to which the preceding sentence applies shall be
effective unless and until the third-party purchaser shall have executed and
delivered to the Company an appropriate instrument to the foregoing effect.
4. TAG-ALONG RIGHTS.
(a) THE RIGHT. If JFLEI and/or any of its Affiliates
(collectively,the "JFLEI Group") proposes to transfer any shares of Common
Stock owned by it on the date hereof to a Prospective Purchaser other than in
a Permitted Transfer (a "Tag-Along Sale"), then each of the remaining
Shareholders shall have the right to participate in any such sale of Common
Stock by the JFLEI Group in accordance with the procedures set forth below;
PROVIDED that such right may not be exercised with respect to any shares
acquired by any such remaining Shareholder pursuant to the exercise of a Right
of First Offer within One Hundred Eighty (180) days prior to the proposed date
of consummation of the Tag-Along Sale; PROVIDED FURTHER, HOWEVER, that such
participation shall be on the same terms and subject to the same conditions as
those on which JFLEI proposes to transfer its shares; and PROVIDED STILL
FURTHER, HOWEVER, that, in addition to receiving their ratable portion of any
consideration paid in respect of the Common Stock or Warrants, the Shareholders
shall be entitled to receive a ratable portion of any consideration to be paid
other than in respect of the Common Stock or Warrants, to the extent that such
consideration exceeds (i) the fair market value of any tangible property
transferred by the JFLEI Group in exchange for such consideration or (ii) an
amount that is customary and reasonable for any intangible property rights or
transferred or granted in exchange for such consideration.
(b) ELECTION TO PARTICIPATE. Shareholders shall have the
right (the "Tag-Along Right") for thirty (30) days from receipt of the First
Refusal Notice described in Section 3(a) (the "Tag-Along Option Period") to
elect to participate in the Tag-Along Sale. Any remaining Shareholder electing
to participate in the Tag-Along Sale (a "Tag-Along Shareholder") shall give
JFLEI, all other Shareholders and Company written notice thereof (the "Election
Notice") within the Tag-Along Option Period. The Election Notice shall specify
the number of shares of Common Stock that such Tag-Along Shareholder desires to
sell to the Prospective Purchaser, which amount shall be equal to or less than
the total number of shares of Common Stock held by such Shareholder multiplied
by a fraction, the numerator of which is the total number of shares of Common
Stock proposed to be sold by the JFLEI Group and the denominator of which is the
total number of shares of Common Stock then owned by the JFLEI Group. The
failure of any remaining Shareholder to submit an Election Notice within the
Tag-Along Option Period shall constitute an election by such remaining
Shareholder not to participate in such Tag-Along Sale, PROVIDED such Tag-Along
Sale is consummated within forty-five (45) days of the expiration of the
Tag-Along Option Period. By delivering an Election Notice to JFLEI within the
Tag-Along Option Period, a Tag-Along Shareholder shall have the right to sell to
the Prospective Purchaser that number of shares of Common Stock specified in the
Election Notice; PROVIDED, HOWEVER, that, to the extent the Prospective
Purchaser is unwilling or unable to purchase all of the shares proposed to be
sold by the JFLEI Group and the Tag-Along Shareholders, the number of shares to
be sold by each of the JFLEI Group and each of the Tag-Along Shareholders shall
be ratably reduced so that the number of shares to be sold by the JFLEI Group
and each of the Tag-Along
8
<PAGE>
Shareholders equals the number of shares that the Prospective Purchaser is
willing or able to purchase. The only representations, warranties or
indemnities that a Tag-Along Shareholder shall be required to give in connection
with a Tag-Along Sale shall be as to due authority and execution, validity and
marketability of title and the absence of liens or other encumbrances with
respect to such Tag-Along Shareholder's shares of Common Stock.
5. DRAG-ALONG RIGHTS.
(a) THE RIGHT. If one or more Shareholders holding, in the
aggregate, a majority of the issued and outstanding Common Stock (the "Majority
Shareholders") propose to sell all the Common Stock owned by such Majority
Shareholders (whether owned by such Shareholders on the date hereof or hereafter
acquired in a manner consistent with this Agreement) to a Prospective Purchaser,
other than a Related Transferee, then such Majority Shareholders shall have the
right (the "Drag-Along Right") to compel the remaining Shareholders (the
"Drag-Along Shareholders") to sell all of the shares of Common Stock and
Warrants owned by them to the Prospective Purchaser for such consideration per
share (reduced by the exercise price of the Warrants, in the case of the
Warrants), and on the same terms and subject to the same conditions, as the
Majority Shareholders are able to obtain. The Majority Shareholders shall
exercise the Drag-Along Right by giving written notice (the "Drag-Along Notice")
to the Company and the Drag-Along Shareholders stating (i) that they propose to
effect such transaction, (ii) the name and address of the Prospective Purchaser,
(iii) the proposed purchase price per share and other terms and conditions of
the proposed sale (including any consideration proposed to be paid other than in
respect of the Common Stock or Warrants) and (iv) that all the Shareholders
shall be obligated to sell their shares of Common Stock and Warrants upon the
same terms and subject to the same conditions; PROVIDED, HOWEVER, that, in
addition to receiving their ratable portion of any consideration paid in respect
of the Common Stock or Warrants, the Shareholders shall be entitled to receive a
ratable portion of any consideration paid other than in respect of the Common
Stock or Warrants, to the extent that such consideration exceeds (i) the fair
market value of any tangible property transferred by the Majority Shareholders
in exchange for such consideration or (ii) an amount that is customary and
reasonable for any intangible property or rights transferred or granted in
exchange for such consideration.
(b) PROCEDURE. Not later than twenty (20) days following
the date of receipt of the Drag-Along Notice, each of the other Shareholders
shall deliver to the Majority Shareholders certificates representing all shares
of Common Stock held by a Drag-Along Shareholder, accompanied by duly executed
stock powers, and all Warrants held by such Drag-Along Shareholder with duly
executed assignments thereof. If any Drag-Along Shareholder fails to deliver
such certificates and Warrants to the Majority Shareholders, the Company shall
cause the books and records of the Company to show that the shares represented
by such certificates and Warrants of such Drag-Along Shareholder are bound by
the provisions of this Section 5 and are transferable only to the Prospective
Purchaser or a Related Transferee of such Prospective Purchaser upon surrender
for transfer by the holder thereof. Upon the consummation of the sale of the
Common Stock of the Majority Shareholders and the Drag-Along Shareholders
pursuant to this Section 5, the Majority Shareholders shall give notice thereof
to the Drag-Along
9
<PAGE>
Shareholders and shall remit to each of the Drag-Along Shareholders the total
sales price received for the shares of Common Stock of such Drag-Along
Shareholder sold pursuant hereto. Notwithstanding anything herein to the
contrary, no Shareholder shall be obligated to receive as consideration for any
Drag-Along Sale any property or securities the holding of which by such
Shareholder would be prohibited by any law, rule or regulation of any
governmental entity or insurance industry regulatory body.
6. SUBSCRIPTION OFFER WITH RESPECT TO PRIMARY ISSUANCES.
(a) SUBSCRIPTION OFFER. The Company shall not issue (a
"Primary Issuance") equity securities, or securities convertible into equity
securities, of the Company to any person (a "Primary Purchaser") unless the
Company has offered to issue to each of the other Shareholders, on a pro rata
basis, an opportunity to purchase such securities on the same terms, including
price, and subject to the same conditions as those applicable to the Primary
Purchaser. Notwithstanding the foregoing, this Section 6 shall not apply to the
issuance of options, warrants or rights to subscribe for shares of Common Stock
to officers, directors, employees, consultants or agents of the Company pursuant
to the termsof any stock option plan or arrangement approved by the Board of
Directors, or the issuance of shares of its Common Stock upon the exercise of
any such stock options, warrants or rights; PROVIDED, HOWEVER, that the
aggregate number of shares of Common Stock that may be issued under such stock
option plan or arrangement without application of this Section 6 to such
issuance shall not exceed, in the aggregate, 482,000 shares (appropriately
adjusted for stock splits, dividends and/or combinations).
(b) PROCEDURE. Not less than ten (10) days prior to the
date described in clause (i) of this paragraph, the Company shall make to each
Shareholder an offer (the "Subscription Offer") to purchase any securities that
are the subject of a Primary Issuance, which offer specify (i) the date on which
the Company and the Primary Purchaser intend to consummate the Primary Issuance,
(ii) the material rights, preferences, privileges and restrictions granted to or
imposed upon the securities, including, if applicable, the certificate of
determination or indenture governing such securities, (iii) the principal terms
of and conditions applicable to the Primary Issuance, including, without
limitation, the price at which such securities are being offered to the Primary
Purchaser and (iv) the number of securities proposed to be issued to the Primary
Purchaser pursuant to the Primary Issuance multiplied by a fraction, the
numerator of which is the number of shares of Common Stock held by such
Shareholder and the denominator of which is the total number of shares of Common
Stock outstanding, on a fully diluted basis. Each Shareholder electing to
participate in the Primary Issuance (a "Subscribing Shareholder") shall give the
Primary Purchaser, the Company and each other Shareholder written notice (the
"Subscription Notice") of such election not less than five (5) days after
receipt of the Subscription Offer (the "Subscription Period"). The Subscription
Notice shall specify the number of securities with respect to which such
Shareholder desires to subscribe, which amount shall be equal to or less than
the total number of securities set forth in the Subscription Offer. The failure
of any Shareholder to submit a Subscription Notice within the Subscription
Period shall constitute an election by such Shareholder not to accept such
Subscription Offer, PROVIDED
10
<PAGE>
that the Primary Issuance is consummated not later than the date described in
clause (i) of this paragraph.
7. REGISTRATION RIGHTS. Each of the Shareholders shall have
the rights, if any, with respect to registration of the shares of Common Stock
held by them as are set forth in the Shareholders Registration Rights Agreement,
the form of which is attached hereto as EXHIBIT C.
8. MERGER. The Company shall not enter into any merger or
consolidation (a "Merger") unless the terms of such Merger provide that all
shares of Common Stock shall be treated equally within the meaning on Section
1101 of the California General Corporation Law.
9. CERTAIN CLOSING CONDITIONS. At the closing of any transfer
or disposition of Common Stock or Warrants pursuant to this Agreement, in
addition to any other conditions specifically set out herein concerning such
transfer or disposition, the transferor shall (i) deliver the certificates
representing the Common Stock and the Warrants that are the subject of the
transfer, duly endorsed for transfer and bearing any necessary tax stamps; (ii)
by delivering such certificates and Warrants, be deemed to have represented and
warranted that the transferor has valid and marketable title to the Common Stock
represented by such certificates and the Warrants free of all encumbrances and
(iii) deliver such certificates of authority, tax releases, consents to transfer
and evidences of title as may reasonably be required by the transferee. The
transferor shall be responsible for the payment of all transfer taxes unless
otherwise specified.
10. LEGENDS. Each stock certificate representing shares of
Common Stock and each Warrant certificate now held or hereafter acquired by any
Shareholder shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY BE
OFFERED, PLEDGED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF
THE ACT AND SUCH LAWS, OR IF AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF AUGUST 20,
1997 (THE "AGREEMENT"), WHICH CONTAINS PROVISIONS REGARDING
(I) CERTAIN RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES,
(II) CERTAIN RIGHTS OF FIRST OFFER, TAG-ALONG RIGHTS AND
DRAG-ALONG RIGHTS APPLICABLE TO THIS SECURITY AND (III)
CERTAIN OTHER MATTERS. A COPY OF SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE
11
<PAGE>
COMPANY. ANY TRANSFER OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE IN VIOLATION OF THE AGREEMENT IS NULL AND VOID."
11. TERMINATION.
(a) TERMINATION AS TO SHAREHOLDER. This Agreement shall
terminate with respect to any Shareholder at such time as the Shareholder ceases
to hold any shares of Common Stock or Warrants; PROVIDED, HOWEVER, that the
provisions of this Agreement shall continue in effect for the purpose of
enforcing against such Shareholder all obligations and undertakings that shall
have theretofore become operative; PROVIDED, FURTHER, HOWEVER, that the
provisions of this Agreement shall be binding upon any transferee of any
Shareholder, whether such transfer was pursuant to a Permitted Transfer (other
than a Registered Offering)or otherwise. Notwithstanding the foregoing, the
benefits of this Agreement shall inure only to a Permitted Transferee of a
Shareholder.
(b) TERMINATION AS TO SHARES. This Agreement shall
terminate with respect to any particular shares of Common Stock or Warrants when
such shares or Warrants shall have been sold in a Registered Offering or
distributed to the public pursuant to Rule 144 under the Securities Act.
(c) TERMINATION OF AGREEMENT. This Agreement shall
terminate upon the earliest to occur of (i) the Agreement having been
terminated as to all Shareholders and all transferees of all Shareholders
pursuant to paragraph (a) hereof; (ii) the Agreement having been terminated as
to all shares of Common Stock and Warrants pursuant to paragraph (b) hereof;
(iii) the sale of shares of Common Stock at an aggregate offering price of at
least $25,000,000 in a Registered Offering and (iv) the tenth anniversary of
this Agreement.
12. MISCELLANEOUS PROVISIONS.
(a) FURTHER ACTION. Each party hereto agrees to execute
and deliver any instrument and take any action that may reasonably be requested
by any other party for the purpose of effectuating the provisions of this
Agreement.
(b) INCORPORATION OF SCHEDULE AND EXHIBITS. The schedule
and exhibits attached hereto are incorporated into this Agreement and shall be
deemed a part hereof as if set forth herein in full. References herein to "this
Agreement" and the words "herein," "hereof" and words of similar import refer to
this Agreement (including its schedules and exhibits) as an entirety. In the
event of any conflict between the provisions of this Agreement and any such
schedule or exhibit, the provisions of this Agreement shall control.
(c) ASSIGNMENT. Except as otherwise provided in this
Section 12(c)or in Sections 2, 3, 4 and 5 hereof, no right under this Agreement
shall be assignable and any attempted assignment, in violation of this provision
shall be void. The Company shall have the right to assign its rights and
obligations hereunder to any successor entity (including any entity acquiring
substantially all of the assets of the Company), whereupon references herein
tO the
12
<PAGE>
Company shall be deemed to be to such successor. Except as expressly otherwise
provided herein, this Agreement, and the rights and obligations of the parties
hereunder, shall be binding upon and inure to the benefit of any and all
transferees of the Common Stock or Warrants subject hereto, in each case with
the same force and effect as if such transferees were named herein as parties
hereto.
(d) ENFORCEMENT. The parties recognize that irreparable
damage will result in the event that this Agreement shall not be specifically
performed. Should any dispute arise concerning the disposition of any Common
Stock or Warrants hereunder, the parties hereto agree that an injunction may be
issued restraining such disposition pending determination of such controversy
and that no bond or other security may be required in connection therewith.
Should any dispute arise concerning the right or obligation of the Shareholders
or the Company to purchase or sell any of the Common Stock or Warrants subject
hereto, such right or obligation shall be enforceable by a decree of specific
performance. Such remedies shall, however, not be exclusive and shall be in
addition to any other remedy which the parties may have.
(e) NOTICES. Any notice or other communication required
or which may be given hereunder shall be in writing by hand delivery, registered
or certified first class mail, telecopier or air courier guaranteeing
overnight delivery:
(i) if to the Company, to:
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Attention: Rocco C. Genovese
Fax: (408) 995-5163
(ii) if to JFLEI, to:
C/O J.F. Lehman & Company
450 Park Avenue
Sixth Floor
New York, New York 10022
Attention: Donald Glickman
Fax: (212) 634-1155
IN EITHER CASE, WITH A COURTESY COPY TO:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Fax: (213) 229-7520
13
<PAGE>
(iii) if to MMLIC, MMCVP or MMHYP, to:
Massachusetts Mutual Life Insurance
1295 State Street
Springfield, Massachusetts 01111
Attention: Richard E. Spencer
Wallace G. Rodger
Fax: (413) 744-6127
AND, IF TO MMCVP, WITH A COPY TO:
c/o Bank of America Trust and Banking Corporation
(Cayman) Limited
P.O. Box 1092
George Town
Grand Cayman
Cayman Islands, B.W.I.
Attention: Michael Carney
(iv) if to Jackson National, to:
c/o PPM America, Inc.
225 West Wacker Drive
Suite 1200
Chicago, Illinois 60606
Attention: Private Placement Group
Fax: (312) 634-0054
(v) if to Paribas, to:
c/o Paribas Principal Partners
787 Seventh Avenue
New York, New York 10019
Attention: Stephen Eisenstein
Fax: (212) 841-2502
14
<PAGE>
IN THE CASE OF ANY WARRANTHOLDER OR PREFERRED STOCKHOLDER,
WITH A COURTESY COPY TO:
Schwartz, Cooper, Greenberger & Krauss
180 North LaSalle Street
Suite 2700
Chicago, Illinois 60601
Attention: Brian O'Neil, Esq.
Fax: (312) 782-8416
(iv) if to any other Shareholder, to his or its address set
forth on SCHEDULE A attached hereto,
WITH A COURTESY COPY TO:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304-1018
Attention: William D. Sherman, Esq.
Fax: (415) 494-0792
or at such other address, notice of which is given in accordance with the
provisions of this Section 11(e). All such notices shall be deemed to have been
duly given when delivered by hand, if personally delivered; five (5) business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
(g) APPLICABLE LAW. This Agreement shall be governed by, and
construed and enforced in accordance with and subject to, the laws of California
applicable to agreements made and to be performed entirely within such State,
without giving effect to the conflicts-of-law principles thereof.
(h) ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement sets
forth the entire understanding of the parties with respect to the subject matter
hereof. The failure of any party to seek redress for the violation of or to
insist upon the strict performance of any term of this Agreement shall not
constitute a waiver of such term and such party shall be entitled to enforce
such term without regard to such forbearance. This Agreement may be amended,
each party hereto may take any action herein prohibited or omit to take action
herein required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived, only by the
written consent or written waiver of Shareholders holding (i) 66K% of all shares
of Common Stock, on a fully diluted basis and (ii) 66K% of the shares of Common
Stock, on a fully diluted basis, adversely affected by any such amendment,
action, omission or waiver; provided, however, that any amendment, action,
omission or waiver adversely affecting any rights of the Shareholders under
Sections 3 or 6 shall require the written consent or written waiver of
Shareholders holding 90% of the shares of Common Stock, on a fully diluted
basis, adversely affected by any such amendment, action, omission or waiver;
15
<PAGE>
PROVIDED that such Shareholder shall be given five (5) days advance notice of
any such proposed amendment, action, omission or waiver; and PROVIDED, FURTHER,
that such consent or waiver shall be effective only in the specific instance and
for the specific purpose for which given.
IN WITNESS WHEREOF, the undersigned have executed this Shareholders
Agreement as of the date first set forth above.
BURKE INDUSTRIES, INC.
By:
-------------------------------
Name: Donald Glickman
Title: Assistant Vice President
J.F. LEHMAN EQUITY INVESTORS I, L.P.,
a Delaware limited partnership
By: JFL INVESTORS L.L.C.
Its: General Partner
By: A Managing Member
By:
Name: Donald Glickman
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By:
---------------------------------
Name:
Title:
16
<PAGE>
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By: Massachusetts Mutual Life Insurance
Company
Its: Investment Advisor
By:
---------------------------------
Name:
Title:
MASSMUTUAL HIGH YIELD PARTNERS LLC
By: HYP Management, Inc., as Manager
By:
Name:
Title:
17
<PAGE>
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc.
Its: Agent
By:
----------------------------
Name:
Title:
PARIBAS NORTH AMERICA, INC.
By:
---------------------------------
Name:
Title:
18
<PAGE>
--------------------------------------
Timothy E. Howard
--------------------------------------
Daniel P. Flamen
--------------------------------------
Rocco C. Genovese
------------------------------------
Reed C. Wolthausen
------------------------------------
Robert F. Pitman
------------------------------------
David E. Worthington
------------------------------------
Anne G. Howe
------------------------------------
Robert G. Engle
------------------------------------
Craig A. Carnes
------------------------------------
Robert P. Harrison
------------------------------------
Hisham Alameddine
------------------------------------
Ronald A. Stieben
19
<PAGE>
SCHEDULE A
----------
1
<PAGE>
EXHIBIT 10.9
WARRANTHOLDERS REGISTRATION RIGHTS AGREEMENT
WARRANTHOLDERS REGISTRATION RIGHTS AGREEMENT, dated as of August 20,
1997 (this "Agreement"), by and among BURKE INDUSTRIES, INC., a California
corporation ("Company"), MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
("MMLIC"), MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED ("MMCVP"), MASSMUTUAL
HIGH YIELD PARTNERS LLC ("MMHYP"), PARIBAS NORTH AMERICA, INC. ("Paribas")
and JACKSON NATIONAL LIFE INSURANCE COMPANY ("Jackson National," and together
with MMLIC, MMCVP, MMHYP and Paribas, the "Holders"). WHEREAS, the Board of
Directors of Burke has effected a recapitalization of Burke pursuant to
which, among other things, JFL Merger Co., a wholly owned subsidiary of J.F.
Lehman Equity Investors I, L.P. ("MergerCo") has merged with and into Burke,
with Burke surviving such merger (the "Merger"), pursuant to which Burke
assumed the liabilities and obligations of MergerCo;
WHEREAS, substantially simultaneously with the Merger, MMLIC, MMCVP,
MMHYP and Jackson National have purchased an aggregate of 16,000 shares of
the Series A 11.5% Cumulative Redeemable Preferred Stock (the "Series A
Preferred Stock") of the Company and Paribas has purchased 2,000 Shares of
Series B 11.5% Cumulative Redeemable Preferred Stock ("Series B Preferred
Stock" and, together with the Series A Preferred Stock, the "Preferred
Stock") and warrants (the "Warrants") to purchase an aggregate of 964,000
shares of the common stock of the Company; and
WHEREAS, to induce the Holders to purchase the Preferred Stock and
Warrants, Burke agreed to provide the registration rights set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, the following terms
shall have the following meanings below:
"COMMON STOCK" shall mean the common stock of the Company, no par
value, upon consummation of the Merger.
"OTHER HOLDERS" shall mean Persons who are holders of record of
equity securities of the Company who have valid contractual registration
rights under the Shareholders Registration Rights Agreement entered into
among certain shareholders of the Company and the Company.
"PERSON" shall mean an individual, corporation, unincorporated
association, partnership, group (as defined in Section 13(d)(3) of the
Securities Exchange Act of
<PAGE>
1934), trust, joint stock company, joint venture, business trust or
unincorporated organization, any governmental entity or any other entity of
whatever nature.
"REGISTRABLE SHARES" shall mean any shares of Common Stock which may
be (i) issued upon exercise of the Warrants or (ii) issued or distributed in
respect of the Common Stock referred to in clause (i) above by way of stock
dividend or stock split or other distribution, recapitalization or
reclassification. As to any particular Registrable Share, such Registrable
Share shall cease to be a Registrable Share when (i) it shall have been sold,
transferred or otherwise disposed of or exchanged pursuant to a registration
statement under the Securities Act or (ii) it shall have been distributed to
the public pursuant to Rule 144 (or any successor provision) under the
Securities Act.
2. INCIDENTAL REGISTRATIONS.
(a) RIGHT TO INCLUDE REGISTRABLE SHARES. After the completion of
the initial public offering by the Company of its Common Stock, each time the
Company shall determine to file a registration statement under the Securities
Act in connection with the proposed offer and sale for cash of Common Stock
(other than debt securities which are convertible into Common Stock and other
than registration statements on Form S-4 or S-8) either by it or by any
holders of its outstanding equity securities, the Company shall give prompt
written notice of its determination to each Holder and of such Holder's
rights under this Section 2, at least 20 days prior to the anticipated filing
date of such registration statement. Upon the written request of each Holder
made within 15 days after the receipt of any such notice from the Company,
(which request shall specify the Registrable Shares intended to be disposed
of by such Holder), the Company shall use its best efforts to effect the
registration under the Securities Act of all Registrable Shares which the
Company has been so requested to register by the Holders thereof, to the
extent required to permit the disposition of the Registrable Shares so to be
registered; PROVIDED, HOWEVER, that (i) if, at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to proceed with
the proposed registration of the securities to be sold by it, the Company
may, at its election, give written notice of such determination to each
Holder of Registrable Shares and thereupon shall be relieved of its
obligation to register any Registrable Shares in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith) and (ii) if such registration involves an underwritten
offering, all Holders of Registrable Shares requesting to be included in the
Company's registration must sell their Registrable Shares to the underwriters
on the same terms and conditions as apply to the Company, with such
differences, including any with respect to indemnification, as may be
customary or appropriate in combined primary and secondary offerings
(provided that no Holder shall be required to provide indemnification which
is more expansive than the indemnification provided in Section 9(b) hereof
and provided, further, that the representations and warranties provided by
any Holder shall be limited to such matters as the authority of such Holder
to sell its Registrable Shares, its title thereto and the absence of liens
thereon). If a registration requested pursuant to this Section 2(a) involves
an underwritten public offering, any Holder of Registrable Shares requesting
to be included in such registration may elect in writing prior to the
effective
2
<PAGE>
date of the registration statement filed in connection with such
registration, not to register such securities in connection with such
registration. No registration effected under this Section 2 shall relieve
the Company of its obligations to effect one registration upon request under
Section 4 hereof.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration
pursuant to this Section 2 involves an underwritten offering and the managing
underwriter in good faith advises the Company in writing that, in its
opinion, the number of securities which the Company, the Holders and any
other Persons intend to include in such registration exceeds the largest
number of securities which can be sold in such offering without having an
adverse effect on such offering (including the price at which such securities
can be sold), then the Company shall include in such registration: (i) FIRST,
100% of the securities the Company proposes to sell for its own account; and
(ii) SECOND, such number of Registrable Shares which the Holders have
requested to be included in such registration and such number of securities
which Other Holders have requested to be included in such registration which,
in the opinion of such managing underwriter, can be sold without having the
adverse effect referred to above, such number of Registrable Shares and
securities of Other Holders to be included on a pro rata basis among all
requesting Holders and Other Holders on the basis of the relative number of
shares of Common Stock beneficially owned (as such term is used in Rule 13d-3
of the Exchange Act) by such Holders and Other Holders, PROVIDED that if the
number of Registrable Shares requested to be included in such registration by
the Holders pursuant to Section 2(a) hereof and permitted to be included in
such registration by the Holders pursuant to this Section 2(b) exceeds the
number which the Company has been advised can be sold in such offering
without having the adverse effect referred to above, the number of such
Registrable Shares to be included in such registration by the Holders shall
be allocated pro rata among such Holders on the basis of the relative number
of Registrable Shares each such Holder has requested to be included in such
registration; and (iii) THIRD, to the extent that the number of securities
which are to be included in such registration pursuant to clauses (i) and
(ii), in the aggregate, is less than the number of securities which the
Company has been advised can be sold in such offering without having the
adverse effect referred to above, such number of other securities requested
to be included in the offering for the account of any other Persons which, in
the opinion of such managing underwriter, can be sold without having the
adverse effect referred to above, such number to be allocated pro rata among
all holders of such other securities on the basis of the relative number of
such other securities each other person has requested to be included in such
registration.
3. HOLDBACK AGREEMENTS. If any registration of Registrable Shares
shall be effected in connection with an underwritten public offering, the
Holders agree not to effect any public sale or distribution without the
consent of the managing underwriter (except in connection with such public
offering), of any equity securities of the Company, or of any security
convertible into or exchangeable or exercisable for any equity security of
the Company (in each case, other than as part of such underwritten public
offering), during the 180-day period (or such lesser period as the managing
underwriter may permit) beginning on the effective date of such registration,
if, and to the extent, the managing underwriter of any such offering
determines such action is necessary or desirable to effect such offering and
if and to the extent that each director
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and executive officer of the Company so agrees; PROVIDED, HOWEVER, that each
Holder has received the written notice required by Section 2(a) hereof.
4. REGISTRATION ON DEMAND.
(a) DEMAND BY HOLDERS. At any time on or after the later of (i)
August 20, 2000 and (ii) the one hundred and eighty-first (181st) day
after completion of the initial public offering by the Company of its
Common Stock, upon the written request by Holders of at least 66 2/3% of
all Registrable Shares, that the Company effect the registration under
the Securities Act of all or part of the Registrable Shares of such
requesting party, and specifying the amount and intended method of
disposition thereof, the Company shall promptly give notice of such
requested registration to all other Holders and, as expeditiously as
possible, use its best efforts to effect the registration under the
Securities Act of: (i) the Registrable Shares which the Company has
been so requested to register; and (ii) all other Registrable Shares
which the Company has been requested to register by any other Holder by
written request received by the Company within 15 days after the giving
of such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Shares); PROVIDED,
HOWEVER, that the Company shall not be required to effect such
registration unless the Registrable Shares requested to be so registered
have an aggregate proposed offering price of not less than $5,000,000;
and PROVIDED, FURTHER, HOWEVER, that the Company shall not be required
to effect more than one registration pursuant to this Section 4(a)
unless (X) all of the Registrable Shares that the Holders initial
requesting registration pursuant to this Section 4(a) requested to be
registered are not included in such registration statement or (Y) the
Company is eligible to file on Form S-3, in which case the Holders shall
be entitled to request an unlimited number of registrations pursuant to
this Section 4(a) except that the Company shall not be required to
effect such registration pursuant to this clause (Y) unless the
Registrable Shares requested to be so registered have an aggregate
proposed offering price of not less than $5,000,000 and no other
registration statement on Form S-3 has been filed by the Company and
been declared effective within the previous twelve months. Promptly
after the expiration of the 15-day period referred to in clause (ii)
above, the Company shall notify all Holders to be included in the
registration of the other Holders participating in such registration and
the number of Registrable Shares requested to be included therein. The
Holders initially requesting a registration pursuant to this Section
4(a) may, at any time prior to the effective date of the registration
statement relating to such registration, revoke such request by
providing a written notice to the Company revoking such request;
PROVIDED, HOWEVER, that if such revocation occurs after the date of the
filing of such registration statement, then the Registration Expenses
incurred by the Company in connection with the revoked request shall be
payable by the Holders participating in such demand registration.
(b) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 4 shall not be deemed to have been effected unless
it has become effective under the Securities Act and has remained effective
for 180 days or such shorter period as all the Registrable Shares included in
such registration have actually been sold thereunder.
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(c) PRIORITY IN DEMAND REGISTRATIONS. If a demand registration
pursuant to this Section 4 involves an underwritten offering and the managing
underwriter in good faith advises the Company in writing that, in its
opinion, the number of securities requested to be included in such
registration (including securities of the Company which are not Registrable
Shares) exceeds the largest number of securities which can be sold in such
offering without having an adverse effect on such offering (including the
price, acceptable to the Holders requesting such registration, at which such
securities can be sold), then the Company will include in such registration
(i) FIRST, 100% of the Registrable Shares requested to be registered pursuant
to Section 4(a) (provided that if the number of Registrable Shares requested
to be registered pursuant to Section 4(a) exceeds the number which the
Company has been advised can be sold in such offering without having the
adverse effect referred to above, the number of such Registrable Shares to be
included in such registration by the Holders shall be allocated pro rata
among such Holders on the basis of the relative number of Registrable Shares
each Holder has requested to be included in such registration); and (ii)
SECOND, to the extent that the number of Registrable Shares requested to be
registered pursuant to Section 4(a) is less than the number of securities
which the Company has been advised can be sold in such offering without
having the adverse effect referred to above, such number of shares of equity
securities that, FIRST, the Company and, SECOND, Other Holders may request to
be included in such registration.
5. REGISTRATION PROCEDURES.
(a) If and whenever the Company is required by the provisions of
Sections 2 or 4 hereof to use its best efforts to effect or cause the
registration of Registrable Shares, the Company shall as expeditiously as
possible:
(i) prepare and, in any event within 60 days after the end of
the period within which a request for registration may be given to the
Company, file with the Securities and Exchange Commission (the "SEC") a
registration statement with respect to such Registrable Shares and use its
best efforts to cause such registration statement to become effective;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period not in excess of 90 days and to comply with the
provisions of the Securities Act, the Exchange Act, and the rules and
regulations promulgated thereunder with respect to the disposition of all the
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Holders thereof
set forth in such registration statement; provided, that the Company shall
notify each Holder of Registrable Shares covered by such registration
statement of any stop order issued or threatened by the SEC, any other order
suspending the use of any preliminary prospectus or of the suspension of the
qualification of the registration statement for offering or sale in any
jurisdiction, and take all reasonable actions required to prevent the entry
of such stop order, other order or suspension or to remove it if entered;
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<PAGE>
(iii) furnish to each Holder and each underwriter, if
applicable, of Registrable Shares covered by such registration statement such
number of copies of the registration statement and of each amendment and
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus included in such registration statement (including
each preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as each Holder
of Registrable Shares covered by such registration statement may reasonably
request in order to facilitate the disposition of the Registrable Shares
owned by such Holder;
(iv) use its best efforts to register or qualify such
Registrable Shares covered by such registration statement under the state
securities or blue sky laws of such jurisdictions as each Holder of
Registrable Shares covered by such registration statement and, if applicable,
each underwriter, may reasonably request, and do any and all other acts and
things which may be reasonably necessary to consummate the disposition in
such jurisdictions of the Registrable Shares owned by such Holder; PROVIDED,
HOWEVER, that in connection therewith, the Company shall not be required to
(A) qualify as a foreign corporation to do business or to register as a
broker or dealer in any such jurisdiction where it would not otherwise be
required to qualify or register but for this clause (iv), (B) subject itself
to taxation in any jurisdiction or (C) file a general consent to service of
process in any such jurisdiction.
(v) use its best efforts to cause such Registrable Shares
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the Holders thereof to consummate the disposition of such Registrable Shares;
(vi) if at any time when a prospectus relating to the
Registrable Shares is required to be delivered under the Securities Act any
event shall have occurred as the result of which any such prospectus as then
in effect would include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, immediately give written notice
thereof to each Holder and the managing underwriter, if any, of such
Registrable Shares and prepare and furnish to each such Holder a reasonable
number of copies of an amended or supplemental prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vii) use its best efforts to cause such Registrable Shares
to be accepted for listing or quotation on any securities exchange or
automated quotation system on which similar securities of the Company are
then listed, and enter into customary agreements including a listing
application and indemnification agreement in customary form, provided that
the applicable listing requirements are satisfied, and provide a transfer
agent and registrar for such Registrable Shares covered by such registration
statement not later than the effective date of such registration statement;
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<PAGE>
(viii) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions as each
Holder of Registrable Shares being sold or the underwriter, if any,
reasonably requests in order to expedite or facilitate the disposition of
such Registrable Shares, including customary indemnification and opinions;
(ix) to the extent reasonably requested by the Holders of at
least 51% of the Registrable Shares being sold, or the underwriters, if any,
use its best efforts to obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form and covering
matters of the type customarily covered by "cold comfort" letters;
(x) make available, at the Company's expense, for inspection
by representatives of any Holder of Registrable Shares covered by such
registration statement, by any underwriter participating in any disposition
to be effected pursuant to such registration statement and by any attorney,
accountant or other agent retained by such Holders or any such underwriter
(collectively, the "HOLDER REPRESENTATIVES"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (excluding any such records and documents as are protected by
attorney-client privilege or which the Company is prohibited from disclosing
pursuant to the terms of any nondisclosure agreements to which the Company or
any of its subsidiaries is a party; PROVIDED that, to the extent permitted
under any such nondisclosure agreement, the Company shall disclose any
information subject to such nondisclosure agreement upon execution and
delivery by such Holder or Holder Representative of a confidentiality
agreement for the benefit of the parties to such nondisclosure agreement);
(xi) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable after the effective date
of the registration statement, an earnings statement which shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder; and
(xii) notify counsel for the Holders of Registrable Shares
included in such registration statement and the managing underwriter, if any,
immediately, and confirm the notice in writing, (A) when the registration
statement, or any post-effective amendment to the registration statement,
shall have become effective, or any supplement to the prospectus or any
amendment prospectus shall have been filed and (B) of any request of the SEC
to amend the registration statement or amend or supplement the prospectus or
for additional information.
(b) Each Holder of Registrable Shares hereby agrees that, upon
receipt of any notice from the Company of the happening of any event of the
type described in Section 5(a)(vi) hereof, such Holder shall forthwith
discontinue disposition of such Registrable Shares covered by such
registration statement or related prospectus until such Holder's receipt of
the copies of the supplemental or amended prospectus contemplated by Section
5(a)(vi) hereof. In the event the Company shall give any such notice, the
period mentioned in Section 5(a)(ii) hereof shall be extended by the number
of days during the period from and including the date of the
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<PAGE>
giving of such notice pursuant to Section 5(a)(vi) hereof and including the
date when such Holder shall have received the copies of the supplemental or
amended prospectus contemplated by Section 5(a)(vi) hereof. If for any other
reason the effectiveness of any registration statement filed pursuant to
Section 4 hereof is suspended or interrupted prior to the expiration of the
time period regarding the maintenance of the effectiveness of such
Registration Statement required by Section 5(a)(ii) hereof so that
Registrable Shares may not be sold pursuant thereto, the applicable time
period shall be extended by the number of days equal to the number of days
during the period beginning with the date of such suspension or interruption
to and ending with the date when the sale of Registrable Shares pursuant to
such registration statement may be recommenced.
(c) Each Holder hereby agrees to provide the Company, upon
receipt of its request, with such information about such Holder to enable the
Company to comply with the requirements of the Securities Act and to execute
such certificates as the Company may reasonably request in connection with
such information and otherwise to satisfy any requirements of law. Each
Holder further agrees to furnish to the Company in writing such information
regarding the Holder and his, her or its proposed distribution of Registrable
Shares as the Company may from time to time reasonably request.
6. UNDERWRITTEN REGISTRATIONS. Subject to the provisions of
Sections 2, 3 and 4 hereof, any of the Registrable Shares covered by a
registration statement may be sold in an underwritten offering at the
discretion of the Holder thereof. In the case of an underwritten offering
pursuant to Section 2 hereof, the managing underwriter or underwriters that
will administer the offering shall be selected by the Company, PROVIDED that
such managing underwriter or underwriters is reasonably satisfactory to the
Holders of a majority of the Registrable Shares to be registered. In the
case of any underwritten offering pursuant to Section 4 hereof, the managing
underwriter or underwriters that will administer the offering shall be
selected by the Holders of a majority of the Registrable Shares to be
registered, PROVIDED that such underwriters are reasonably satisfactory to
the Company.
7. SUSPENSION OF REGISTRATION REQUIREMENT.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation to use its best efforts to cause a
registration statement and any filings with any state securities authorities
to become effective or to amend or supplement any such registration statement
or filings shall be suspended during such period as circumstances exist
(including, without limitation, pending negotiations relating to, or the
consummation of, any transaction) which (i) would require additional
disclosure of material information by the Company in such registration
statement or filing which the Company has a bona fide business purpose for
not disclosing in such registration statement or (ii) render the Company
unable to comply with SEC requirements (any such circumstances hereinafter
referred to as a "Suspension Event"); PROVIDED that any suspension as a
result of a Suspension Event shall occur on not more than one occasion during
any 365-day period and shall continue only for so long as such event or its
effect is continuing and in no event shall any such suspension continue for
more than 120 days. To the extent that any such suspension occurs during a
period in which a registration
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<PAGE>
statement has been filed pursuant hereto and remains effective, the time
during which the Company shall be required to maintain the effectiveness of
such registration statement shall be extended for the number of days during
which such suspension continued.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company shall not be required to cause a registration
statement requested pursuant to Section 4(a) to become effective during the
period beginning 30 days prior to the Company's good faith estimate of the
date of filing of, and ending 180 days after the effective date of, a
Company-initiated registration, provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective.
(c) The Company shall give the holders written notice immediately
upon the occurrence of any Suspension Event instructing such holders to
suspend sales of Registrable Shares as a result of such Suspension Event.
The Holders agree that after receipt of such notice they will not effect any
sales of Registrable Shares pursuant to any registration statement filed
pursuant to this Agreement until such time as such Holders shall have
received further notice from the Company that such sales may be recommenced,
which notice shall be given by the Company not later than five days after the
conclusion of any such Suspension Event.
8. EXPENSES.
(a) The fees, costs and expenses of all registrations in
accordance with Sections 2 and 4 hereof shall be borne by the Company,
subject to the provisions of Section 8(b) hereof.
(b) The fees, costs and expenses of registration to be borne as
provided in Section 8(a) hereof shall include, without limitation, all
expenses incident to the Company's performance of or compliance with this
Agreement, including without limitation all SEC and stock exchange or NASD
registration and filing fees and expenses, fees and expenses of compliance
with securities or blue sky laws (including without limitation reasonable
fees and disbursements of counsel for the underwriters, if any, or for the
selling Holders in connection with blue sky qualifications of the Registrable
Shares), rating agency fees, printing expenses (including expenses of
printing certificates for Registrable Shares and prospectuses), the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange or automated quotation system on which
similar securities issued by the Company are then listed, and fees and
disbursements of counsel for the Company and all independent certified public
accountants (including the expenses of any annual audit, special audit and
"cold comfort" letters required by or incident to such performance and
compliance) (but in any event not including any underwriting discounts or
commissions or transfer taxes, if any, attributable to the sale of
Registrable Shares by such Holders) (collectively, "Registration Expenses").
9. INDEMNIFICATION.
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(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act
pursuant to Sections 2 or 4 hereof, the Company shall, and it hereby does,
indemnify and hold harmless, to the extent permitted by law, each of the
Holders of any Registrable Shares covered by such registration statement,
each affiliate of such Holder and their respective directors and officers
(and the directors, officers, affiliates and controlling Persons thereof),
each other Person who participates as an underwriter in the offering or sale
of such securities and each other Person, if any, who controls such Holder or
any such underwriter within the meaning of the Securities Act (collectively,
the "Indemnified Parties"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the Company's consent, which consent shall not
be unreasonably withheld and including any expenses paid in connection with
the enforcement of the indemnification rights contained herein) to which any
Indemnified Party may become subject under the Securities Act, state
securities or blue sky laws, common law, any other applicable law, foreign or
domestic, or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof, whether or not
such Indemnified Party is a party thereto) or expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final
or summary prospectus contained therein, or any amendment or supplement
thereto, (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating
to action required of or inaction by the Company in connection with any such
registration, and the Company shall reimburse such Indemnified Party for any
legal or any other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; PROVIDED that the Company shall not be liable to any Indemnified
Party in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out
of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement or amendment
or supplement thereto or in any such preliminary, final or summary prospectus
in reliance upon and in conformity with written information with respect to
such Holder furnished to the Company by such Holder specifically for use
therein. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Holder or any Indemnified
Party and shall survive the transfer of such securities by such Holder.
(b) INDEMNIFICATION BY THE HOLDERS AND UNDERWRITERS. The Company
may require, as a condition to including any Registrable Shares in any
registration statement filed in accordance with Sections 2 or 4 hereof, that
the Company shall have received an undertaking reasonably satisfactory to it
from the Holders of such Registrable Shares or any underwriter to, severally
and not jointly, indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 9(a) hereof) the Company with respect to
any statement or alleged statement in or omission or alleged omission from
such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in conformity with written information with respect to such Holder or
such underwriter furnished to
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the Company by such Holder or such underwriter specifically for use in such
registration statement, preliminary, final or summary prospectus or amendment
or supplement, or a document incorporated by reference into any of the
foregoing; PROVIDED that no such Holder shall be liable for any indemnity
claims in excess of the amount of net proceeds received by such Holder from
the sale of Registrable Shares. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Company or any of the Holders, or any of their respective affiliates,
directors, officers or controlling Persons, and shall survive the transfer of
such securities by such Holder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Section 9, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action; PROVIDED that the
failure of the indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Section 9,
except to the extent that the indemnifying party is actually materially
prejudiced by such failure to give notice. In case any such action is
brought against an indemnified party, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs
of investigation; PROVIDED that the indemnified party shall have the right to
employ counsel to represent the indemnified party and its respective
controlling persons, directors, officers, general or limited partners,
employees or agents who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the indemnified party against
such indemnifying party under this Section 9 PROVIDED that the employment of
such counsel shall be at the expense of the indemnified party, unless (i) the
indemnifying party shall have agreed in writing to pay the expenses of such
counsel, (ii) the indemnifying party shall not have promptly employed counsel
reasonably satisfactory to the indemnified party to assume the defense of
such action or counsel or (iii) any indemnified party shall have reasonably
concluded that there may be defenses available to such indemnified party or
its respective controlling persons, directors, officers, employees or agents
which are in conflict with or in addition to those available to the
indemnifying party, and in that event the reasonable fees and expenses of one
firm of separate counsel for the indemnified party (in addition to the
reasonable fees and expenses of one firm serving as local counsel) shall be
paid by the indemnifying party. No indemnifying party shall consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 9 shall for any reason be unavailable to any indemnified party under
Section 9(a) or 9(b) hereof or is insufficient to hold it harmless in respect
of any loss, claim, damage or liability, or any
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action in respect thereof referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the
relative benefits received by the indemnified party and indemnifying party or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) but also the relative fault of
the indemnified party and indemnifying party with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations. Notwithstanding any other provision of this Section 9(d), no
Holder of Registrable Shares shall be required to contribute an amount
greater than the dollar amount of the proceeds received by such Holder with
respect to the sale of any such Registrable Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) OTHER INDEMNIFICATION. Indemnification and contribution
similar to that specified in the preceding subdivisions of this Section 9
(with appropriate modifications) shall be given by the Company and each
Holder of Registrable Shares with respect to any required registration or
other qualification of securities under any federal or state law or
regulation or governmental authority other than the Securities Act.
(f) NON-EXCLUSIVITY. The obligations of the parties under this
Section 9 shall be in addition to any liability which any party may otherwise
have to any other party.
10. ASSIGNABILITY. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and permitted assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are
for the benefit of the parties hereto other than the Company shall also be
for the benefit of and enforceable by any subsequent Holder of any
Registrable Shares, subject to the provisions contained herein. The Company
may not assign any of its rights or delegate any of its duties under this
Agreement without the written consent of the Holders of 66 2/3% of the
Registrable Shares; PROVIDED, HOWEVER, that it is understood and agreed by
the parties hereto that MergerCo will be merged with and into Burke (the
"Merger"), with Burke as the surviving corporation, pursuant to the Agreement
and Plan of Merger, dated as of August 13, 1997, by and among MergerCo, Burke
and the other parties thereto, and upon consummation of the Merger, this
Agreement and the rights and obligations hereunder will be assumed by Burke
and the definition of "Registrable Shares" contained herein will refer to the
common stock of Burke issuable upon exercise of the Warrants (which such
Warrants will become exercisable for shares of the common stock of Burke by
operation of law upon consummation of the Merger).
11. NOTICES. Any and all notices, designations, consents, offers,
acceptances or any other communications shall be given in writing by either
(a) personal delivery to and receipted for by the addressee or by (b)
telecopy or registered or certified mail which shall be addressed, in the
case of the Company, to 2250 South Tenth Street, San Jose, California 95112,
facsimile (408) 995-5163, attention of Chief Executive Officer, with a copy
to J.F. Lehman Equity Investors I, L.P., 450 Park Avenue, New York, New York
10022, facsimile (212) 634-1155, attention of Mr. Donald Glickman, and in the
case of Holders, to the address or
12
addresses thereof appearing on the books of the Company or of the transfer
agent and registrar for the Registrable Shares.
All such notices and communications shall be deemed to have been
duly given and effective: when delivered by hand, if personally delivered;
five business days after being deposited in the mail, postage prepaid, if
mailed; and when receipt acknowledged, if telecopied.
12. ARBITRATION. Any controversy, dispute or claim arising out of,
in connection with or in relation to the interpretation, performance or
breach of this Agreement shall be determined, at the request of any party, by
arbitration in a city mutually agreeable to the parties to such controversy,
dispute or claim, or, failing such agreement, in New York, New York, before
and in accordance with the then-existing Rules for Commercial Arbitration of
the American Arbitration Association, and any judgment or award rendered by
the arbitrator will be final, binding and unappealable and judgment may be
entered by any state or Federal court having jurisdiction thereof. The
pre-trial discovery procedures of the Federal Rules of Civil Procedure shall
apply to any arbitration under this Section 12. Any controversy concerning
whether a dispute is an arbitrable dispute or as to the interpretation or
enforceability of this Section 12 shall be determined by the arbitrator. The
arbitrator shall be a retired or former United States District Judge or other
person acceptable to each of the parties, provided such individual has
substantial professional experience with regard to corporate or partnership
legal matters. The parties intend that this agreement to arbitrate be valid,
enforceable and irrevocable.
13. SEVERABILITY. If any provision of this Agreement or any portion
thereof is finally determined to be unlawful or unenforceable, such provision
or portion thereof shall be deemed to be severed from this Agreement. Every
other provision, and any portion of such an invalidated provision that is not
invalidated by such a determination, shall remain in full force and effect.
14. AMENDMENTS, WAIVERS. This Agreement may not be amended,
modified or supplemented and no waivers of or consents to departures from the
provisions hereof may be given unless consented to in writing by the Company
and the Holders of at least 66 2/3% of the Registrable Shares.
15. ATTORNEYS' FEES. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties hereto with respect to the transactions contemplated herein
and understandings among the parties relating to the subject matter hereof.
Any and all previous agreements and understandings between or among the
parties hereto regarding the subject matter hereof are, whether written or
oral, superseded by this Agreement.
13
<PAGE>
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which,
together, shall constitute one and the same instrument.
18. CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
19. LIMITATION OF LIABILITY OF SHAREHOLDERS AND OFFICERS OF COMPANY.
ANY OBLIGATION OR LIABILITY WHATSOEVER OF THE COMPANY WHICH MAY ARISE AT ANY
TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY BE
INCURRED BY IT PURSUANT TO ANY INSTRUMENT, TRANSACTION OR UNDERTAKING
CONTEMPLATED HEREBY SHALL BE SATISFIED OUT OF THE COMPANY'S ASSETS ONLY. NO
SUCH OBLIGATION OR LIABILITY SHALL BE PERSONALLY BINDING UPON, NOR SHALL
RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO, THE PROPERTY OF ANY OF THE
COMPANY'S SHAREHOLDERS (SOLELY AS A RESULT OF THEIR STATUS AS SHAREHOLDERS),
DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, REGARDLESS OF WHETHER SUCH
OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE.
NOTWITHSTANDING THE FOREGOING, THIS SECTION 19
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<PAGE>
SHALL NOT IN ANY WAY AFFECT OR LIMIT ANY RIGHTS OR OBLIGATIONS OF THE
COMPANY OR ANY HOLDER UNDER THIS AGREEMENT.
20. GOVERNING LAW. This Agreement is made pursuant to and shall be
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective authorized officers as of the date aforesaid.
BURKE INDUSTRIES, INC.
By:
-------------------------------
Name: Keith Oster,
Title: Assistant Vice President
MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By: Massachusetts Mutual Life
Insurance Company
Its: Investment Advisor
By:
-------------------------------
Name:
Title:
15
<PAGE>
MASSMUTUAL HIGH YIELD PARTNERS
LLC
By: HYP Management, Inc.
Its: Managing Member
By:
-------------------------
Name:
Title:
PARIBAS NORTH AMERICA, INC.
By:
-------------------------------
Name:
Title:
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM America, Inc.
Its: Agent
By:
-------------------------------
Name:
Title:
16
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY
NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE SUCH A
REGISTRATION IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFERS SET FORTH IN A SHAREHOLDERS' AGREEMENT, DATED AS OF
AUGUST , 1997 (AS AMENDED, MODIFIED OR SUPPLEMENTED THROUGH THE DATE HEREOF,
THE "SHAREHOLDERS' AGREEMENT"), BY AND AMONG BURKE INDUSTRIES, INC., A
CALIFORNIA CORPORATION ("BURKE") AND THE SHAREHOLDERS NAMED THEREIN, A COPY
OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES OF JFL MERGER CO., A
CALIFORNIA CORPORATION (THE "COMPANY") AND BURKE. NO TRANSFER OF SUCH
SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY
EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENTS.
EXERCISABLE AT ANY TIME SUBJECT TO THE PROVISIONS HEREOF
NO. 1 JFL MERGER CO.
WARRANT CERTIFICATE
Warrant Certificate for _______ Warrants
to Purchase _______ Warrant Shares
This Warrant Certificate certifies that, for value received,
[Massachusetts Mutual Life Insurance Company, MassMutual Corporate Value
Partners, L.P. and MassMutual High Yield Partners, L.L.C.]
[Jackson National Life Insurance Company] [Paribas Principal Partners] (the
"Holder") is the owner of the number of Warrants (as defined in Section
1.2(a) below) set forth above, each of which entitles the Holder to purchase
from JFL Merger Co., a California corporation (the "Company") at any time
from and after the date hereof and until the Expiration Date (as defined in
Section 2.1 hereof) one Warrant Share (as defined below), at the purchase
price stated in Section 2.3 hereof (the "Exercise Price"). The number of
Warrant Shares purchasable upon exercise of the Warrants and the Exercise
Price shall be subject to adjustment from time to time as herein provided.
For purposes of this Warrant Certificate, "Warrant Shares" shall
mean shares of the Company's Common Stock, no par value (the "Common Stock");
PROVIDED, HOWEVER, that if, in accordance with Section 6.3 hereof, the
securities issuable upon exercise of the Warrants are issued by an entity
other than the Company or there is a change in the class of securities so
issuable, then the "Warrant Shares" shall mean the securities so issuable by
such entity or the securities of the class of securities so issuable.
<PAGE>
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. REGISTRATION; TRANSFERABILITY; EXCHANGE OF WARRANT
CERTIFICATE.
1.1 REGISTRATION. The Company shall number and register the
Warrants in a register (the "Warrant Register") maintained at the principal
office of the Company (the "Office"). The Company shall be entitled to treat
the Holder of the Warrants as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in such
Warrants on the part of any other person.
1.2 TRANSFER AND EXCHANGE.
(a) Subject to compliance with any restrictions on transfer set
forth in the Shareholders' Agreement, dated as of August __, 1997, by and
among Burke Industries, Inc. ("Burke"), Holder, [Massachusetts Mutual Life
Insurance Company] [Jackson National Life Insurance Company] [Paribas Principal
Partners] and the other shareholders named therein (the "Shareholders'
Agreement") (Holder and [Massachusetts Mutual Life Insurance Company]
[Jackson National Life Insurance Company] [Paribas Principal Partners] shall
sometimes be collectively referred to herein as the "Initial
Warrantholders"), the warrants issued to the Initial Warrantholders (the
"Warrants") shall be transferable only on the Warrant Register upon delivery
thereof by the Holder or by his duly authorized attorney or representative or
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any such registration of transfer, a new Warrant Certificate,
in substantially the form of this Warrant Certificate, evidencing the
Warrants so transferred shall be issued to the transferee of such Warrants
and a new Warrant Certificate, in substantially the form of this Warrant
Certificate, evidencing the remaining Warrants, if any, not so transferred,
shall be issued to the Holder. In all cases of transfer by an attorney, the
original power of attorney, duly approved, or a copy thereof, duly certified,
shall be deposited and shall remain with the Company. In case of transfers
by executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be
required to be deposited and to remain with the Company in its discretion. No
transfer of the Warrants or any interest therein other than in compliance
with this Section 1.2 shall be made or recorded in the Warrant Register, and
any such purported transfer shall be void and of no effect.
(b) This Warrant Certificate is exchangeable, in whole or in part,
upon the surrender hereof by the holder hereof at the Office for new Warrant
Certificates, in substantially the form of this Warrant Certificate,
evidencing in the aggregate the right to purchase the number of Warrant
Shares that may then be purchased hereunder, each of such new Warrant
Certificates to be dated the date of such exchange and to represent the right
to purchase such number of Warrant Shares as shall be designated by the
holder of such new Warrant Certificates at the time of such surrender.
2
<PAGE>
SECTION 2. TERM OF WARRANTS; EXERCISE OF WARRANTS.
2.1 TERM OF WARRANT. Subject to the terms of this Warrant
Certificate, the Holder shall have the right, which may be exercised by the
registered Holder hereof from time to time on any Business Day before 5:00
P.M. (New York City time) during the period through and including February
, 2008 (the "Expiration Date") to purchase from the Company an aggregate of
_______ fully paid and nonassessable Warrant Shares or such other number of
Warrant Shares which the Holder may at the time be entitled to purchase in
accordance with this Warrant Certificate. At 5:00 P.M. (New York City time)
on the Expiration Date, each Warrant not exercised prior thereto shall be and
become void and of no value.
2.2 EXERCISE OF WARRANTS. Subject to the terms of this Warrant
Certificate, the Warrants evidenced by this Warrant Certificate may be
exercised in whole or in part, upon surrender to the Company, at its Office,
of this Warrant Certificate, with a Purchase Form substantially in the form
attached hereto duly completed and signed, and upon payment to the Company of
the Exercise Price. Payment of the aggregate Exercise Price shall be in cash;
PROVIDED, HOWEVER, that in lieu of payment in cash, the Holder may, at its
option, pay all or a portion of the aggregate Exercise Price by tendering
shares it holds of the Series A 11.5% Cumulative Redeemable Preferred Stock
of the Company, which shares shall be valued at their stated liquidation
value, plus any accrued but unpaid dividends thereon, to the date of exercise
pursuant to this Section 2.2. Payment of the aggregate Exercise Price in
cash shall be by wire transfer in immediately available funds to an account
designated in writing by the Company to the Holder.
Upon the surrender of this Warrant Certificate, with the Purchase
Form duly executed, and payment of the Exercise Price as aforesaid, the
Company shall (subject to compliance, if necessary, with applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended), promptly and, in any event within ten Business Days, issue and
deliver to or upon the written order of the Holder and in such name or names
as the Holder may designate a certificate or certificates for such number of
Warrant Shares so purchased. Such certificate or certificates shall be dated
and deemed to have been issued as of the date of the surrender of this
Warrant Certificate and payment of the Exercise Price, as aforesaid. The
right of purchase represented by this Warrant Certificate shall be
exercisable, at the election of the Holder, in full at any time or in part
from time to time. In the event the Holder shall exercise fewer than all the
Warrants evidenced hereby, a new Warrant Certificate shall be issued
evidencing the remaining unexercised Warrants.
2.3 EXERCISE PRICE. The price per share at which each Warrant
Share shall be purchased upon exercise of each Warrant (the "Exercise Price")
shall be $____, subject to adjustment pursuant to Section 6 LESS an amount
per Warrant equal to the dividends in respect of the Warrant Shares that the
holder would have received had such Warrant been exercised on August 20,
1997. The aggregate Exercise Price for all Warrant Shares subject to this
Warrant Certificate shall be rounded to the next higher $0.01.
3
<PAGE>
SECTION 3. PAYMENT OF TAXES. The Company covenants and agrees that
it will pay when due and payable all documentary, stamp and other similar
taxes, if any, which may be payable in respect of the issuance or delivery of
the Warrants or of the Warrant Shares purchasable and issuable upon the
exercise of the Warrants; PROVIDED, HOWEVER, that the Company shall not be
required to pay any such tax or other charge imposed in respect of the
transfer of Warrants, or the issuance or delivery of certificates for Warrant
Shares or other Securities in respect of the Warrant Shares upon the exercise
of Warrants, to a person or entity other than a then-existing registered
Holder of Warrants.
SECTION 4. MUTILATED OR MISSING WARRANTS. In the event this
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall issue and deliver in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and in
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent right or
interest, but only upon, in the event of a lost, stolen or destroyed
certificate, receipt of evidence satisfactory to the Company of such loss,
theft or destruction and, if requested by the Company, upon indemnity that
also is satisfactory to it; PROVIDED that a written undertaking of such loss,
theft or destruction of this Warrant Certificate by the registered Holder
hereof shall be deemed a satisfactory indemnity of the Company for purposes
of this Section 4. In making application for such a substitute Warrant
Certificate, the Holder shall also comply with such other reasonable
requirements as the Company may prescribe.
SECTION 5. RESERVATION AND AVAILABILITY OF WARRANT SHARES; PURCHASE
AND CANCELLATION OF WARRANTS.
5.1 RESERVATION OF WARRANT SHARES.
(a) The Company shall at all times reserve and keep available free
from preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, for the purpose of enabling it to satisfy any
obligations to issue the Warrant Shares upon exercise of the Warrants, the
full number of Warrant Shares deliverable upon the exercise of all the
Warrants evidenced by this Warrant Certificate. The Company or, if
appointed, the transfer agent for the Common Stock and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon
the exercise of any of the rights of purchase aforesaid (each, a "Transfer
Agent") shall be irrevocably authorized and directed at all times to reserve
such number of authorized shares of Common Stock as shall be required for
such purpose. The Company will keep a copy of this Warrant Certificate on
file with each Transfer Agent. The Company will furnish such Transfer Agent
a copy of all notices of adjustments and certificates related thereto which
are transmitted to the Holder pursuant to Section 6 hereof.
(b) The Company covenants that all Warrant Shares issuable upon
exercise of the Warrants will, upon issuance, be fully paid, nonassessable
and free from preemptive
4
<PAGE>
rights and free from all taxes, liens, charges and security interests with
respect to the issuance thereof.
(c) Before taking any action which would cause an adjustment
pursuant to Section 6, the Company will take any and all corporate action
which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable Warrant
Shares at the Exercise Price as so adjusted.
5.2 WARRANT SHARES RECORD DATE. Each person in whose name any
stock certificate for Warrant Shares is issued shall for all purposes be
deemed to have become the holder of record of the Warrant Shares represented
thereby, and such stock certificate shall be dated the date upon which this
Warrant Certificate was duly surrendered and payment of the Exercise Price
(and any applicable transfer taxes) was made.
5.3 CANCELLATION OF WARRANT. Upon surrender of the Warrant
Certificate for exchange, substitution, transfer or exercise, it shall be
cancelled by the Company and retired.
SECTION 6. ADJUSTMENT OF NUMBER OF WARRANT SHARES AND EXERCISE
PRICE. The number of securities purchasable upon the exercise of each Warrant
and the Exercise Price shall be subject to adjustment from time to time upon
the happening of certain events as hereinafter described.
6.1 MANDATORY ADJUSTMENTS. The number of securities purchasable
upon the exercise of the Warrants and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company shall (i) declare or pay a dividend on
any of its outstanding Common Stock in shares of Common Stock or make a
distribution to holders of its outstanding Common Stock in shares of
Common Stock, (ii) subdivide any of its outstanding Common Stock into a
greater number of shares of Common Stock, (iii) combine any of its
outstanding Common Stock into a smaller number of shares of Common Stock
or (iv) issue by reclassification of any of its shares of Common Stock
other securities of the Company (including any such reclassification in
connection with a consolidation, merger or other business combination in
which the Company is the surviving corporation), the number and kind of
Warrant Shares purchasable and issuable upon exercise of the Warrants
shall be adjusted so that the Holder, upon exercise thereof, shall be
entitled to receive the number and kind of Warrant Shares and other
securities of the Company that the Holder would have owned or have been
entitled to receive after the happening of any of the events described
above had the Warrants been exercised and the relevant Warrant Shares
issued in the name of the Holder immediately prior to the happening of
such event or, if applicable, any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become effective on
the date of the dividend payment, subdivision, combination or issuance
retroactive to the record date with respect thereto, if any, for such
event. Upon adjustment of the number of Warrant
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<PAGE>
Shares as provided in this paragraph (a), the Exercise Price payable upon
exercise of each Warrant shall be adjusted by multiplying such Exercise
Price immediately prior to such adjustment by a fraction of which the
numerator shall be the number of Warrant Shares purchasable upon the
exercise of each Warrant immediately prior to such adjustment and of
which the denominator shall be the number of Warrant Shares purchasable
immediately thereafter.
(b) In case the Company shall distribute to all holders of its
outstanding Common Stock evidences of indebtedness of the Company, cash
(including cash dividends payable out of consolidated earnings or earned
surplus) or assets or securities other than its Common Stock (including
stock of a subsidiary or securities convertible into or exercisable for
such stock but excluding dividends or distributions referred to in
Sections 6.1(a) above or Section 6.1(c) below) (any such evidences of
indebtedness, cash, assets or securities, the "assets or securities"),
then, in each case, the Exercise Price shall be adjusted by subtracting
from the Exercise Price then in effect the value per share (as determined
in accordance with Section 6.2(b)) of the assets or securities that the
Holder would have been entitled to receive as a result of such
distribution had the Warrant been exercised and the relevant Warrant
Shares issued in the name of the Holder immediately prior to the record
date for such distribution; PROVIDED that if, after giving effect to such
adjustment, the Exercise Price would be less than $0.01 per share, the
Company shall distribute such assets or securities to the Holder as if
the Holder had exercised the Warrants and the Warrant Shares had been
issued in the name of the Holder immediately prior to the record date for
such distribution. Any adjustment required by this Section 6.1(b) shall
be made whenever any such distribution is made, and shall become
effective on the date of distribution retroactive to the record date for
the determination of shareholders entitled to receive such distribution.
(c) If at any time after the date hereof the Company shall
issue or sell any shares of Common Stock or any warrants, options or
rights to subscribe for or purchase Common Stock or securities
convertible into Common Stock (but excluding distributions referred to in
paragraph (a) or (b) above or (d) below), and the consideration per share
for, or the price per share at which such warrant, option or right is
exercisable for or convertible into, such Common Stock is less than the
Fair Market Value (as defined below) of the Common Stock immediately
prior to such issuance or sale, then, forthwith upon such issuance or
sale, the Exercise Price shall be reduced to the price determined by
multiplying the Exercise Price in effect immediately prior to the time of
such issuance or sale by a fraction the numerator of which shall be the
sum of (i) the number of shares of Common Stock outstanding immediately
prior to such issuance or sale MULTIPLIED BY the Fair Market Value
immediately prior to such issuance or sale and (ii) the consideration
received by the Company upon such issuance or sale, and the denominator
of which shall be the total number of shares of Common Stock outstanding
immediately after such issuance or sale MULTIPLIED BY the Fair Market
Value immediately prior to such issuance or sale.
6
<PAGE>
Notwithstanding the foregoing, the Company may, without
adjustment to the Exercise Price pursuant to this Section 6.1(c), issue
options, warrants or rights to subscribe for shares of its Common Stock
to officers, directors, employees, consultants or agents of the Company
pursuant to the terms of any stock option plan or arrangement approved by
the Board of Directors, and may issue shares of its Common Stock upon the
exercise of any such stock options, warrants or rights; PROVIDED,
HOWEVER, that the aggregate number of shares of Common Stock that may be
issued at any one time under such stock option plan or arrangement
without adjustment to the Exercise Price under this Section 6.1(c) shall
not exceed 10% of the shares of Common Stock outstanding on the date
hereof, calculated on a fully diluted basis.
As used herein, "Fair Market Value" of the Common Stock or
other securities means, on any date, the average of the last sale price,
regular way, for the 10-business day period immediately preceding such
date, or if no such sales took place during such 10-business day period,
the average of the closing bid and asked prices, regular way, for each
day in such 10-business day period, in either case as reported on the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the shares of Common Stock or such other securities are listed, or, if
the Common Stock or such other securities are not listed or admitted to
trading on any national securities exchange, the average of the last
quoted sale price for such 10-business day period or, if not so quoted,
the average of the high bid and low asked prices for each day in such
10-business day period in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation
System or such other system then in use, or, if on any such date the
Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices during such 10-business day period as
furnished by a professional market maker making a market in the Common
Stock or such other securities selected by the Board of Directors of the
Company. If the shares of Common Stock or such other securities are not
publicly held or so listed or publicly traded, "Fair Market Value" shall
mean the fair market value per share of Common Stock or such other
securities as determined by the Company and the holders of at least a
majority of the Warrants issued to the Warrantholders that are then
outstanding. negotiating in good faith toward agreeing upon such value.
If no agreement can be reached within 14 days from the date of receipt by
Required Purchasers of the notice required by Section 6.2(a), the Company
and the Required Purchasers shall appoint within 21 days from the date of
such receipt a mutually acceptable independent investment banking firm to
determine the Fair Market Value. Such firm shall make the necessary
determination which shall be binding absent actual fraud or manifest
error. The fees of such firm for making such determination and any
related reimbursable expenses shall be paid by the Company.
(d) If at any time after the date hereof the Company shall
issue or sell to any person any securities convertible into or
exercisable for Common Stock
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<PAGE>
("Convertible Securities") (other than securities distributed in a
transaction described in paragraph (b) or (c) above), whether or not the
rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such
conversion or exchange shall be less than the Fair Market Value in effect
immediately prior to the time of such issue or sale, then the Exercise
Price shall be adjusted as provided in subparagraph (c) above on the
basis that (i) the maximum number of shares of Common Stock necessary to
effect the conversion or exchange of all such Convertible Securities
shall be deemed to have been issued and outstanding, (ii) the price per
share of such shares shall be deemed to be the lowest possible price in
any range of prices at which such additional shares are available to such
holders, and (iii) the Company shall be deemed to have received all of
the consideration payable therefor, if any, as of the date of actual
issuance of such Convertible Securities. No adjustment of the Exercise
Price shall be made under this subparagraph (d) upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to subparagraph (c) above. No further
adjustments of the Exercise Price shall be made upon the actual issuance
of such Common Stock upon conversion or exchange of such Convertible
Securities and, if any issue or sale of such Convertible Securities is
made upon exercise of any warrant or other right to subscribe for or to
purchase any such Convertible Securities for which adjustments of the
Exercise Price have been or are to be made pursuant to other provisions
of this Section 6.1, no further adjustments of the Exercise Price shall
be made by reason of such issue or sale. For the purposes of this
subparagraph (d), the date as of which the Exercise Price shall be
computed shall be the earlier of (i) the date on which the Company shall
enter into a firm contract for the issuance of such Convertible
Securities and (ii) the date of actual issuance of such Convertible
Securities. Such adjustments shall be made upon each issuance of
Convertible Securities and shall become effective immediately after such
issuance.
(e) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one quarter of one percent (0.25%) in
the number of Warrant Shares purchasable upon the exercise of each
Warrant; PROVIDED, HOWEVER, that any adjustments which by reason of this
Section 6.1(e) are not required to be made shall be made immediately
prior to any exercise of any Warrants or, if no such exercise occurs
prior to the time that any subsequent adjustment would be made, carried
forward and taken into account in such subsequent adjustment. All
calculations shall be made to the nearest one-thousandth of a share. No
adjustment need be made for a change in the par value of the Warrant
Shares.
(f) Upon each adjustment of the Exercise Price pursuant to
paragraphs (b) through (d) of this Section 6.1, this Warrant Certificate
shall be deemed to evidence the right to purchase, at the adjusted Exercise
Price, that number
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<PAGE>
of Warrant Shares obtained by multiplying the number of Warrant Shares
covered by this Warrant Certificate immediately prior to such adjustment
by the Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the Exercise Price in effect after such adjustment.
(g) The number of shares of Common Stock outstanding at any given
time shall not include shares directly or indirectly owned or held by or for
the account of the Company or any of its subsidiaries, and the disposition
of any such shares shall be considered an issue or sale of Common Stock for
the purposes of this Section 6.1.
6.2 NOTICE OF ADJUSTMENT.
(a) The Company hereby agrees that whenever any adjustment of the
number of Warrant Shares purchasable upon the exercise of the Warrants or the
Exercise Price of such Warrants is effected as herein provided, the Company
shall promptly notify the Holder, by first class mail, postage prepaid, of
such adjustment and shall deliver to the Holder a certificate of the Chief
Financial Officer of the Company, setting forth in reasonable detail (i) the
number of Warrant Shares purchasable upon the exercise of the Warrants and
the Exercise Price of the Warrants after such adjustment, (ii) a brief
statement of the facts requiring such adjustment and (iii) the computation by
which such adjustment was made.
(b) If any adjustment is required to be made pursuant to Section
6.1(b) (unless the PROVISO to the first sentence of that Section is
applicable to the action), the Company and the holders of at least a majority
of the Warrants issued to the Warrantholders that are then outstanding shall
negotiate in good faith toward agreeing upon the value of the assets or
securities and the necessary adjustment. If no agreement can be reached
within 14 days from the date of receipt by Required Purchasers of such
notice, the Company and the Required Purchasers shall appoint within 21 days
from the date of such receipt a mutually acceptable independent investment
banking firm to determine the necessary adjustment. Such firm shall make the
necessary determination which shall be binding absent actual fraud or
manifest error. The fees of such firm for making such determination and any
related reimbursable expenses shall be paid by the Company.
6.3 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
(a) In the event of any merger, consolidation or other acquisition
or business combination in which the Company is not the surviving corporation
or in which all of the outstanding Common Stock of the Company is converted
into, acquired or exchanged for securities, cash or property or in the event
of the sale or other disposition of all or substantially all the assets of
the Company, then, and in each such case, proper provision shall be made so
that, upon the basis and upon the terms and in the manner provided in this
Section 6.3, the holder of this Warrant Certificate, upon the exercise of any
of its Warrants at any time after the consummation of such consolidation,
merger, transfer, reorganization or
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reclassification, shall be entitled to receive, in lieu of shares of Common
Stock issuable upon such exercise prior to such consummation, the stock,
securities, cash and assets to which such holder would have been entitled
upon such consummation if such holder had so exercised such Warrant
immediately prior thereto, at the aggregate Exercise Price in effect for all
shares of Common Stock issuable upon such exercise immediately prior to such
consummation as adjusted to the time of such transaction (subject to
adjustments subsequent to such corporate action as nearly equivalent as
possible to the adjustments provided for in Section 6.1 above); provided,
however, that the holder of this Warrant Certificate shall not be required to
accept as consideration any property or securities the holding of which by
such holder would be prohibited by any law, rule or regulation of any
governmental entity or insurance industry regulatory body. Such undertaking
shall provide for adjustments, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6; PROVIDED,
HOWEVER, that if upon such consolidation, merger, transfer, reorganization or
reclassification, different holders of Common Stock shall be entitled to
receive different forms of consideration for their Common Stock, the form of
such consideration thereafter deliverable upon the exercise of the Warrants
shall be as determined in good faith by the Board of Directors, whose
determination shall be conclusive; PROVIDED, HOWEVER, that it is understood
and agreed that the Company will be merged with and into Burke (the
"Merger"), with Burke as the surviving corporation, pursuant to the Agreement
and Plan of Merger, dated as of August __, 1997, by and among the Company,
Burke and the other parties thereto (the "Merger Agreement"), and, upon
consummation of the Merger, this Warrant Certificate and the rights and
obligations hereunder will be assumed by Burke and this Warrant Certificate
will, by operation of law, become exercisable for a like number of shares of
common stock of Burke, on the same terms (including Exercise Price) and
conditions as set forth herein. The provisions of this Section 6.3 shall also
apply to successive mergers or consolidations.
(b) Upon any liquidation, dissolution or winding up of the Company,
the Holder shall receive such cash or property (less the Exercise Price)
which the Holder would have been entitled to receive upon the happening of
such liquidation, dissolution or winding up had the Warrants been exercised
and the Warrant Shares issued immediately prior to the occurrence of such
liquidation, dissolution or winding up.
6.4 STATEMENT ON THE WARRANT. Irrespective of any adjustments in
the number or kind of securities purchasable upon the exercise of the Warrant
or the Exercise Price, any Warrant Certificate theretofore or thereafter
issued may continue to express the same price and number and any kind of
shares as are stated in this Warrant Certificate.
SECTION 7. FRACTIONAL INTERESTS. The Holder shall not be required
to accept fractional securities on the exercise of Warrants. If any fraction
of a security would be issuable on the exercise of Warrants, the Holder may,
at its option, require the Company to pay to the Holder of such Warrants an
amount in cash equal to the fair market value of such fraction.
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SECTION 8. REGISTRATION. The Holder shall, from time to time, have
the rights, if any, with respect to registration of Warrant Shares as are set
forth in the Registration Rights Agreement for such Warrant Shares.
SECTION 9. NO RIGHTS AS A SHAREHOLDER; NOTICES TO HOLDER. Nothing
contained in this Warrant Certificate shall be construed as conferring upon
the Holder the right to vote or to consent or to receive notice as a
shareholder in respect of any meeting of shareholders of the Company for the
election of the directors of the Company or any other matter, or any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the exercise of the Warrants evidenced by this Warrant Certificate, any of
the following events shall occur:
(a) the Company shall declare any dividend payable in cash or in
any securities upon its shares of Common Stock or make any distribution to
the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right
to subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or
lease of all or substantially all of its property, assets and business as
an entirety) shall be proposed; or
(d) any consolidation or merger to which the Company is a
party and for which approval of the holders of Common Stock is required,
or of the conveyance or transfer of all or substantially all assets of
the Company as, or substantially as, an entirety, or of any
reclassification or change of outstanding shares of Common Stock issuable
upon exercise of the Warrant (other than a change in par value to no par
value, or from no par value to par value) or as a result of a subdivision
or combination,
then in any one or more of said events, the Company shall give to the Holder
the greater of 15 business days' written notice and the number of days
written notice required to be given to shareholders with respect to such
action prior to the applicable record date hereinafter specified, stating (i)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such dividends, rights or warrants are to be
determined or (ii) the date on which any such dissolution, liquidation,
winding up, consolidation, merger, conveyance or transfer is expected to
become effective and the date as of which it is expected that holders of
record of shares of Common Stock shall be entitled to exchange their shares
of Common Stock for securities or other property, if any, deliverable upon
such
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reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation, or winding up.
SECTION 10. IDENTITY OF TRANSFER AGENT. Forthwith upon the
appointment of any Transfer Agent for the Common Stock, or any other shares
of the Company's capital stock issuable upon the exercise of the Warrants,
the Company shall promptly notify the Holder of the name and address of such
Transfer Agent.
SECTION 11. NOTICES. Any notice, except as provided in Section 9
of this Warrant Certificate, or demand authorized by this Warrant Certificate
to be given by the Holder to the Company, shall be in writing and shall be
delivered in person or by facsimile transmission, or mailed by overnight
courier, or otherwise delivered, to the Company, at 2250 South Tenth Street,
San Jose, California 95112, attention of Chief Executive Officer, with a copy
to J.F. Lehman Equity Investors I, L.P., 450 Park Avenue, New York, New York
10022, attention of Mr. Donald Glickman. The Company may change the address
to which notices to it are to be delivered or mailed hereunder by notice to
the Holder.
Any notice pursuant to this Warrant Certificate by the Company to
the Holder shall be in writing and shall be mailed by overnight courier or
otherwise delivered, to the Holder at its address set forth in the Warrant
Register.
Notices delivered personally shall be effective at the time
delivered by hand, notices sent by mail shall be effective when received,
notices sent by facsimile transmission shall be effective when confirmed and
notices sent by courier guaranteeing next day delivery shall be effective on
the next business day after timely delivery to the courier.
SECTION 12. AMENDMENT AND WAIVER. Any term, covenant, agreement or
condition in this Warrant Certificate may be amended, or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), by a written instrument or written
instruments executed by the Company and the holders of at least 66-2/3% a
majority of the Warrants issued to the Warrantholders that are then
outstanding; PROVIDED, HOWEVER, that no such amendment or waiver shall change
the number of Warrant Shares issuable under the Warrants, change the Exercise
Price, change the period during which the Warrants may be exercised or modify
any provision of Section 6 or this Section 12 without the consent of the
holders of all such Warrants then outstanding or shall have a disparate and
adverse impact on any Warrantholder.
SECTION 13. SUCCESSORS. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure
to the benefit of its respective successors and assigns hereunder. As set
forth in Section 6.3(a) hereof, it is understood and agreed that the Company
will merge with and into Burke pursuant to the Merger Agreement, with Burke
as the surviving corporation, and upon consummation of the Merger, this
Warrant Certificate and the rights and obligations hereunder will be assumed
by Burke and this Warrant Certificate will, by operation of law, become
exercisable for a like
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number of shares of common stock of Burke, on the same terms (including
Exercise Price) and conditions as set forth herein.
SECTION 14. GOVERNING LAW. This Warrant Certificate shall be
construed in accordance with and governed by the internal laws of the State
of California applicable to contracts executed and to be performed wholly
within such state, without regard to the principles of conflicts or choice of
law.
SECTION 15. BENEFITS OF THIS WARRANT CERTIFICATE. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; and this Warrant Certificate shall be for the
sole and exclusive benefit of this Company and the Holder.
SECTION 16. SURVIVAL OF RIGHTS AND DUTIES. This Warrant
Certificate shall terminate and be of no further force and effect on the
earlier of 5:00 P.M. (New York City time) on the Expiration Date or the date
on which all of the Warrants have been exercised. Notwithstanding anything
herein to the contrary, it is understood and agreed that the Company shall
have the right, power and authority to cause the holders of the Warrants to
exercise such Warrants in full in the event of the sale (by purchase, merger
or other form of business combination) of the Company as a going concern (a
"SALE EVENT"); PROVIDED that any Warrants that shall be outstanding at the
time of the consummation of any such Sale Event (or at the relevant record
date established to determine which shareholders are eligible to participate
in such Sale Event) shall be deemed (without any further action on the part
of the Company or any holder of the Warrants) to have been exercised
immediately prior to the consummation of such Sale Event, with each holder
thereof entitled to receive the same consideration as such holder would
receive pursuant to the terms of Section 6.3.
SECTION 17. AGREEMENT TO BE BOUND. The Holder acknowledges and
hereby agrees to be bound by such terms and conditions of the Shareholders'
Agreement as are by their terms applicable to the Holder. Any and all
Warrant Shares issued upon exercise hereof shall, immediately upon such
issuance, and without further action by or on behalf of the Holder or the
Company, become subject to such terms and conditions of the Shareholders'
Agreement as are by their terms applicable to such Warrant Shares.
SECTION 17. CAPTIONS. The captions of the Sections and paragraphs
of this Warrant Certificate have been inserted for convenience only and shall
have no substantive effect.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed this 20th day of August 1997.
BURKE INDUSTRIES, INC.
By: _________________________________
Rocco C. Genovese, President
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FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise
Warrants Evidenced by the Foregoing Warrant Certificate)
To JFL Merger Co.:
The undersigned hereby irrevocably elects to exercise ____________
Warrants evidenced by the foregoing Warrant Certificate for, and to purchase
thereunder, ____________ full shares of Common Stock issuable upon exercise
of said Warrants and delivery of $_____ in cash (or in liquidation preference
of the Series A 11.5% Cumulative Redeemable Preferred Stock of the Company,
or any combination thereof) with and any applicable taxes payable by the
undersigned pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued
in the name of ____________________________.
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
(Please print name and address) ____________________________________
____________________________________
____________________________________
If said number of Warrants shall not be all the Warrants evidenced
by the foregoing Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so exercised be issued in the
name of and delivered to:
________________________________________________________________________
________________________________________________________________________
(Please print name and address)
By: ______________________________
Name:
Title:
Dated: __________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _____________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the
undersigned in and to the number of Warrants (as defined in and evidenced by
the foregoing Warrant Certificate) set opposite the name of such assignee
below and in and to the foregoing Warrant Certificate with respect to said
Warrants and the shares of Common Stock issuable upon exercise of said
Warrants:
NAME OF ASSIGNEE ADDRESS NUMBER OF WARRANTS
---------------- ------- ------------------
If the total of said Warrants shall not be all the Warrants
evidenced by the foregoing Warrant Certificate, the undersigned requests that
a new Warrant Certificate evidencing the Warrants not so assigned be issued
in the name of and delivered to the undersigned.
By: ______________________________
Name:
Title:
Dated: __________________
<PAGE>
Exhibit 10.11
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement"), dated as of August 20,
1997, by and between Burke Industries, Inc., a California corporation (the
"Company") and J.F. Lehman & Company, a Delaware corporation (the "Advisor").
WHEREAS, the Board of Directors of the Company has determined to effect
a recapitalization of Burke Industries, Inc. pursuant to which, among other
things, (i) J.F. Lehman Equity Investors I, L.P. ("JFLEI"), an affiliate of
the Advisor, will make a capital contribution in the amount of $20.0 million
to JFL Merger Co., a wholly owned subsidiary of JFLEI and an affiliate of the
Advisor ("MergerCo"), (ii) MergerCo will issue to certain purchasers $18.0
million in stated value of its Series A 11.5% Cumulative Redeemable Preferred
Stock (the "Series A Preferred Stock") and warrants to purchase up to 20% of
the shares of its common stock on a fully diluted basis (the "Warrants") in
exchange for an aggregate of $18.0 million, (iii) MergerCo will offer and the
Company will issue $110.0 million in aggregate principal amount of 10% Senior
Notes due 2007 (the "Senior Notes"), (iv) MergerCo will merge with and into
the Company, with the Company surviving such merger and assuming the
liabilities and obligations of MergerCo (the "Merger"), including without
limitation the liabilities and obligations with respect to the Series A
Preferred Stock, the Warrants and the Senior Notes, (v) pursuant to the
Merger Agreement, (A) each share of the Company's common stock, no par value
(the "Common Stock") issued and outstanding immediately prior to the Merger,
other than certain shares held by certain shareholders and members of
management, will be converted into the right to receive approximately $9.16
per share in cash and (B) each outstanding vested option to purchase a share
of Common Stock will be converted into the right to receive cash in the
amount of approximately $9.16 per share less the exercise price for such
option and (vi) the Company will enter into a new credit facility providing
for revolving credit borrowings of up to $15.0 million (all such transactions
shall be collectively referred to herein as the "Recapitalization");
WHEREAS, the Company desires to retain the Advisor to provide
management, consulting and financial services to the Company after
consummation of the Recapitalization; and
WHEREAS, the Advisor wishes to provide such services to the Company and
the Company wishes to compensate the Advisor for such services.
NOW, THEREFORE, in consideration of the premises and the covenants and
conditions contained herein, the parties hereto agree as follows:
1. COMPENSATION.
(a) RECAPITALIZATION FEE. Upon consummation of the
Recapitalization, the Company shall pay to the Advisor a one-time advisory
fee (the "Recapitalization Fee") in the amount of $1,500,000 in consideration
for services rendered by the Advisor to the Company in connection with the
Recapitalization. The Recapitalization Fee shall be paid upon consummation
of the
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Recapitalization in immediately available funds by wire transfer to such
account as the Advisor shall specify prior to the consummation of the
Recapitalization.
(b) ANNUAL FEE. In consideration for the advisory and consulting
services to be rendered by the Advisor to the Company hereunder, including
services in connection with strategic financial planning, investment
management, management and administration and other matters relating to the
business and operations of the Company, the Company shall pay to the Advisor
a fee (the "Annual Fee") in the amount of $500,000 per annum for each year
during the period commencing on October 1, 1998 and ending on the date of the
termination this Agreement. The Annual Fee shall be payable in quarterly
installments, payable in arrears beginning on January 1, 1999 and on the same
calendar day of every third month thereafter until the date of termination of
this Agreement.
(c) FUTURE TRANSACTION FEES. The Advisor shall be entitled to receive
such additional compensation under this Agreement for services rendered in
transactions such as mergers, consolidations, sales or purchases of a
significant amount of assets or capital stock, and financings involving the
public or private offering of the Company's debt or equity securities or the
incurrence of bank debt. The compensation to be payable to the Advisor for
services rendered in connection with any such transaction shall be such
compensation as is customary for the type of services rendered in similar
transactions and as may be agreed upon by the Company and the Advisor at such
time.
(d) REIMBURSEMENTS FOR OUT-OF-POCKET EXPENSES. In addition to the fees
set forth above, the Company shall reimburse the Advisor for all reasonable
out-of-pocket expenses incurred by the Advisor in rendering the services to
the Company contemplated by paragraphs (a), (b) and (c) above. All
reimbursements for out-of-pocket expenses shall be made promptly upon or as
soon as practicable, and in any event not later than 30 days, after
presentation by the Advisor to the Company of a reasonably detailed statement
of expenses in connection therewith.
2. INTEREST. In the event that the Company shall fail to pay all or
any part of the fees or out-of-pocket expenses described in Section 1 hereof
within 10 days after the date when due, then the Advisor shall be entitled to
interest on the unpaid amount thereof at a rate equal to 10% per annum until
paid.
3. INDEMNIFICATION. The Company will indemnify and hold harmless the
Advisor, its affiliates and their respective partners (both general and
limited), officers, directors, employees, agents and representatives (each
such person being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, whether joint or several (the
"Liabilities"), related to, arising out of or in connection with the services
contemplated by this Agreement or the engagement of the Advisor pursuant to,
and the performance by the Advisor of the services contemplated by, this
Agreement. The Company will reimburse any Indemnified Party for all
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) as they are incurred in connection with investigating, preparing,
pursuing, defending or assisting in the defense of any action, claim, suit,
investigation or proceeding for which the Indemnified Party would be entitled
to indemnification under the terms of the previous sentence, or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a
party hereto. The
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Company will not be liable under the foregoing indemnification provision with
respect to any Indemnified Party, to the extent that any loss, claim, damage,
liability, cost or expense is determined by a court, in a final judgment from
which no further appeal may be taken, to have resulted primarily from the
gross negligence or willful misconduct of the Advisor.
4. TERM. This Agreement shall be effective as of the date hereof and
shall continue in effect until the earliest to occur of (i) the tenth
anniversary of this Agreement and (ii) the closing of a sale to an entity
which is not an "Affiliate" (as defined in Section 12b-2 of the Securities
Exchange Act of 1934) of the Company or any of its existing shareholders on
the date hereof of all or substantially all of the capital stock or assets of
the Company. The provisions of Sections 1(d), 2, 3 and otherwise as the
context so requires shall survive the termination of this Agreement.
5. PERMISSIBLE ACTIVITIES. Subject to applicable law, nothing herein
shall in any way preclude the Advisor, its affiliates or their respective
partners (both general and limited), officers, directors, employees, agents
or representatives from engaging in any business activities or from
performing services for its or their own account or for the account of
others, including for companies that may be in competition with the business
conducted by the Company.
6. CONSULTING RELATIONSHIP. It is understood and agreed that the
Advisor shall for all purposes hereof be deemed to be an independent
contractor and shall not, unless otherwise expressly authorized by the
Company, have any authority to act for or represent the Company in any way,
execute any transaction on behalf of the Company or otherwise be deemed an
agent of the Company. No federal, state or local withholding deductions
shall be withheld from the fees and other amounts payable to the Advisor
pursuant to this Agreement unless otherwise required by law.
7. MISCELLANEOUS.
(a) No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party hereto from any such provision,
shall be effective unless the same shall be in writing and signed by each of
the parties hereto. Any amendment, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(b) Any and all notices hereunder shall, in the absence of receipted
hand delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to the Advisor: J.F. Lehman & Company
450 Park Avenue
New York, New York 10022
Attention: Mr. Donald Glickman
If to the Company: Burke Industries, Inc.
2250 South Tenth Street
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<PAGE>
San Jose, California 95112
Attention: Mr. Rocco C. Genovese
(c) This Agreement shall constitute the entire agreement between the
parties with respect to the subject matter hereof, and shall supersede all
previous oral and written (and all contemporaneous oral) negotiations,
commitments, agreements and understandings relating hereto.
(d) THIS AGREEMENT SHALL BE GOVERNED BY, AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED IN THAT STATE. This Agreement shall inure to the benefit of, and
be binding upon, the Advisor and the Company, and their respective successors
and permitted assigns. None of the rights or obligations of the parties
hereunder may be assigned by either party without the prior written consent
of the other party hereto, PROVIDED that the Advisor may assign its rights
and obligations hereunder to any corporation or other entity controlled by or
under common control with the Advisor.
(e) This Agreement may be executed by one or more parties to this
Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
(f) The waiver by any party of any breach of this Agreement shall not
operate as or be construed to be a waiver by such party of any subsequent
breach.
(g) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers or agents as of the
date first above written.
BURKE INDUSTRIES, INC.
By:________________________________
Rocco C. Genovese,
Chief Executive Officer
J.F. LEHMAN & COMPANY
By:________________________________
Donald Glickman,
Managing Principal
4
<PAGE>
EXHIBIT 10.12
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, April
30, 1997 is made by and between SENTER PROPERTIES, LLC, a California limited
liability company ("LESSOR") and BURKE INDUSTRIES, INC., a California
corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 2049 Senter Road located in the County of Santa
Clara, State of California and generally described as (describe briefly the
nature of the property) an approximately, 82,000 square foot building and other
improvements located on the property more specifically described in Exhibit "A"
attached hereto and incorporated herein by this reference ("PREMISES"). (See
Paragraph 2 for further provisions.)
1.3 TERM: See Addendum, Paragraph 3
1.4 EARLY POSSESSION:N/A ("EARLY POSSESSION DATE").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $ See Addendum, Paragraph 4
(See Paragraph 4 for further provisions.)
/X/ If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ N/A
1.7 SECURITY DEPOSIT: $ 21,600.00 ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: Any lawful purpose
(See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessee the "INSURING PARTY". (See Paragraph 8 for
further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 1 through 8 and Exhibits A all of which constitute a part of this
Lease.
2. PREMISES. SEE ADDENDUM, PARAGRAPH 1
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that
may have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants
to Lessee that the improvements on the Premises comply with all applicable
covenants or restrictions of record and applicable building codes, regulations
and ordinances in effect on the Commencement Date. Said warranty does not apply
to the use to which Lessee will put the Premises or to any Alterations or
Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee. If the Premises do not comply with said warranty, Lessor shall, except
as otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
NET PAGE 1
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3.3 DELAY IN POSSESSION. IF for any reason Lessor cannot deliver possession of
the Premises to Lessee as agreed herein by the Early Possession Date, if one is
specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee
fails to pay Base Rent or other rent or charges due hereunder, or otherwise
Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use,
apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefor deposit moneys with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. Any
time the Base Rent increases during the term of this Lease, Lessee shall,
upon written request from Lessor, deposit additional moneys with Lessor
sufficient to maintain the same ratio between the Security Deposit and the
Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within thirty (30) business days give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES. See Addendum, Paragraph 6
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any
obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability
therefrom or therefor, including, but not limited to, the installation (and
removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee's obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment and the cost of investigation (including
consultant's and attorney's fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances or storage tanks, unless specifically so agreed by Lessor in writing
at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this Lease,
Lessee, shall, at Lessee's sole cost and expense, fully, diligently and in a
timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control, Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every
seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of Lessor
contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is used
in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees And costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or become
the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations
and Utility Additions made to the Premises by Lessee shall be the property of
and owned by Lessee, but considered a part of the Premises. Lessor may, at any
time and at its option, elect in writing to Lessee to be the owner of all or any
specified part of the Lessee Owned Alterations and Utility Installations. Unless
otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon and be
surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that any
or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of
the last day of the Lease term or any earlier termination date, with all of the
improvements, parts and surfaces thereof clean and free of debris and in good
operating order, condition and state of repair, ordinary wear and tear excepted.
"ORDINARY WEAR AND TEAR" shall not include any damage or deterioration that
would have been prevented by good maintenance practice or by Lessee performing
all of its obligations under this Lease. Except as otherwise agreed or specified
in writing by Lessor, the Premises, as surrendered, shall include the Utility
Installations. The obligation of Lessee shall include the repair of any damage
occasioned by the installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Alterations and/or Utility Installations,
as well as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or remediation of any soil, material or ground water
contaminated by Lessee, all as may then be required by Applicable Law and/or
good service practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under
this Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $2,000,000 per occurrence. Premiums for
policy periods commencing prior to or extending beyond the Lease term shall be
prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the term
of this Lease a Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $2,000,000 per occurrence
with an "Additional Insured-Managers or Lessors of Premises" Endorsement and
contain the "Amendment of the Pollution Exclusion" for damage caused by heat,
smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor shall
also maintain liability insurance described in Paragraph 8.2(a), above, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
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8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep
in force during the term of this lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss
or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time including any costs necessary to cause the Premises to comply with law
or the amount required by Lenders. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted U.S.
Department of Labor Consumer Price Index for all Urban Consumers for the city
nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the
event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or if
the Premises are part of a group of buildings owned by Lessor which are adjacent
to the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5,
Lessee at its cost shall either by separate policy or, at Lessor's option, by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property, Lessee Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by the
Insuring Party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure end maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. See Addendum, Paragraph 7
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultants fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused or
results from earthquake, flood, fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether the said injury or damage results from
conditions arising upon the Premises or upon other portions of the building of
which the Premises are a part, or from other sources or places, and regardless
of whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the lend and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations. The
repair cost of which damage or destruction is 50% or more of the then
replacement cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land end Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery
of a condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds as and when required to
complete said repairs. In the event, however, the shortage in proceeds was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance hereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If in such case Lessor
does not so elect, then this Lease shall terminate sixty (60) days following the
occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall
in no event have any right to reimbursement from Lessor for
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any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is not an
Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty,(60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs,
?????? to the provisions of Paragraph 6 of the Addendum, Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense
but subject to Lessee's indemnity obligations under Paragraph 6 of the
Addendum, in which event this Lease shall continue in full force and effect,
or (ii) if the estimated cost to investigate and remediate such condition
exceeds twelve times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee within thirty (30) days after receipt
by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition of Lessor's desire to terminate this Lease as of the date sixty
(60) days following the giving of such notice. In the event Lessor elects to
give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation
and remediation of such Hazardous Substance Condition totally at Lessee's
expense and without reimbursement from Lessor except to the extent of an
amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the fund required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full
force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible and the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination. If a
Hazardous Substance Condition occurs for which Lessee is not legally
responsible, there shall be abatement of Lessee's obligations under this
Lease to the same extent as provided in Paragraph 9.6(a) for a period of not
to exceed twelve(12) months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to
this Paragraph 9, an equitable adjustment shall be made concerning advance Base
Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall
govern the effect of any damage to or destruction of the Premises with respect
to the termination of this Lease and hereby waive the provisions of any present
or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the Real Property Taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations
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assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessees said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "ASSIGNMENT") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of the execution by Lessor of
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation AS may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the Market Value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's Interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its obligations
under this Lease, Lessor, at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of the sublessor under such sublease from the time of the
exercise of said option to the expiration of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security deposit paid by
such sublessee to such sublessor or for any other prior Defaults or Breaches of
such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee
to the sublessee, who shall have the right to cure the Default of Lessee within
the grace period, if any, specified in such notice. The sublessee shall have a
right of reimbursement and offset from and against Lessee for any such Defaults
cured by the sublessee.
3. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted
by Lessor in connection with a Lessee Default or Breach (as hereinafter
defined), $350.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said Default. A "Default" is defined as failure by
the Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "Breach"
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is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement Per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) The execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions
of this Lease, or of the rules adopted under Paragraph 40 hereof that are to be
observed, complied with or performed by Lessee, other than those described in
subparagraphs (a), (b) or (c), above, where such Default continues for a period
of thirty (30) days after written notice thereof by or on behalf of Lessor to
Lessee; provided, however, that if the nature of Lessee's Default is such that
more than thirty (30) days are reasonably required for its cure, then it shall
not be deemed to be a Breach of this Lease by Lessee if Lessee commences such
cure within said thirty (30) day period and thereafter diligently prosecutes
such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors:
(II) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check In the event of a Breach
of this Lease by Lessee, as defined in Paragraph 13.1, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under
this Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or Judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that it the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes
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title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessees option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.5 Lessee and Lessor each represent and warrant to the other that it has had
no dealings with any person, firm, broker or finder in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any broker, finder or other similar party by reason of any
dealings or actions of the indemnifying Party, including any costs, expenses,
attorneys' fees reasonably incurred with respect thereto.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (The "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior Lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. IF sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided A copy is also delivered via delivery or mail. IF notice is received on
A Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of This Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the nondisturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquires ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (i) be liable for any act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment of
more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the Lender
that Lessee's possession and this Lease, including any options to extend the
term hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises. Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in A separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations;
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the root, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender.
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any Lease that Lessee has on other property of
Lessor; See Addendum, Paragraph 5
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable. either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
NET PAGE 9
<PAGE>
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the' preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures
<TABLE>
<S> <C>
Executed at SAN JOSE, CALIFORNIA Executed at
on 4-18-97 on
by LESSOR: by LESSEE:
SENTER PROPERTIES, LLC, BURKE INDUSTRIES, INC.,
a California limited liability company a California corporation
By /s/ Daniel P. Flamen By
Name Printed: DANIEL P. FLAMEN Name Printed:
Title: Title:
By /s/ Timothy E. Howard By
Name Printed: TIMOTHY E. HOWARD Name Printed:
Title: Title:
Address: c/o Daniel P. Flamen Address: 2250 South Tenth Street, San Jose.
485 Ramona Street, Suite 200, Palo Alto, CA 95112 Att: Rocco Genovese CA 94301
Tel. No. (415) 328-8300 Fax No. (415) 328-8301 Tel. No. (408) 297-3500 Fax No. (408) 280-0699
</TABLE>
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, L Angeles, CA
90071. (213) 687-8777. Fax. No. (213) 687-8616.
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL LEASE
This ADDENDUM TO STANDARD INDUSTRIAL LEASE (this "Addendum") is made and
entered into by and between SENTER PROPERTIES, LLC, a California limited
liability company ("Lessor") and BURKE INDUSTRIES, INC., a California
corporation ("Lessee"), as of the date set forth on the first page of that
certain Standard Industrial/Commercial Single-Lessee Lease - Net (the "Lease )
between Lessor and Lessee to which this Addendum is attached and incorporated.
The terms, covenants and conditions set forth herein are intended to and shall
have the same force and effect as if set forth at length in the body of the
Lease. To the extent there are any inconsistencies between this Addendum and the
terms and provisions of the Lease to which this Addendum is attached, the terms
and provisions of this Addendum shall control.
1. LESSEE PRIOR OCCUPANT/ACCEPTANCE OF PREMISES "AS IS". Notwithstanding
anything contained in the Lease to the contrary, the provisions of this
Paragraph 1 shall control and prevail.
1.1 LESSEE PRIOR OCCUPANT. Lessor and Lessee acknowledge and agree
that immediately prior to the Commencement Date of this Lease, Lessee was the
occupant of the Premises pursuant to that certain Lease ("Prior Lease"), dated
August 1, 1971, originally by and between Senter Associates ("Original Lessor")
and Burke Rubber Company, Inc. ("Original Lessee"), which Prior Lease was for a
twenty-five (25) year term expiring immediately prior to the Commencement Date
of this Lease. Prior to the date hereof, Lessee acquired all of Original
Lessee's right, title and interest in and to the Prior Lease, and is currently
the "Lessee" under the Prior Lease.
1.2 ACCEPTANCE OF PREMISES "AS IS". Lessee acknowledges receipt and
delivery of possession of the Premises and further acknowledges that Lessee
currently occupies the Premises, is familiar with the Premises, has fully
inspected and otherwise has knowledge of the condition of the Premises prior to
the execution and delivery of this Lease, and has found the same to be in good
order and repair and satisfactory for it purposes hereunder. Lessee is leasing
the Premises "AS-IS" in its present condition. Lessee waives any claim or action
against Lessor in respect of the condition of the Premises. LESSOR MAKES NO
WARRANTY OR REPRESENTATIONS, EXPRESS OR IMPLIED, IN RESPECT OF THE PREMISES OR
ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, ITS DESIGN OR CONDITION, OR
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE PREMISES HAS
BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT.
2. LESSOR'S ACQUISITION OF THE PREMISES. Lessor and Lessee acknowledge
and agree that at the time of executing this Lease, Lessor might not own the
Premises. Accordingly, this Lease, and all obligations hereunder of either
party, are contingent upon Lessor's acquisition of the fee simple interest in
the Premises pursuant to that certain Real Estate Sales Agreement ("Sales
Agreement") to be entered into between Lessor and Original Lessor or Original
Lessor's successor in interest.
3. COMMENCEMENT DATE. The "Original Term" shall commence on the date of
the close of escrow under the Purchase Agreement ("Commencement Date") and shall
expire on December 31, 2008 ("Expiration Date") unless earlier terminated
pursuant to the provisions of this Lease. Lessee has the right to extend the
term of this Lease, at Lessee's option, as provided under Paragraph 5 of this
Addendum. (The Original Term plus all validly exercised options to extend, if
any, shall be referred to herein as the "Term").
4. BASE RENT.
4.1 BASE RENT. Lessee will pay to Lessor, without deduction or offset,
in lawful money of the United States and Lessor's address set forth in this
Lease, Base Rent (as defined below) during the Term as follows:
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<PAGE>
LEASE YEAR BASE RENT
1 $.28 per square foot per month
2 $.30 per square foot per month
3 the higher of: Fair Market Rent, as
determined below; or $.30 per square
foot per month, adjusted by the C.P.I.
Annual Multiplier (as defined below)
4 through Expiration Date Base Rent at the rate paid during the
immediately prior Lease Year, adjusted
by the C.P.I. Annual Multiplier (as
defined below)
For purposes of calculating the amount of Base Rent payable during the Term
(including without limitation payable during any Extended Term as provided under
Paragraph 5 below), the square footage of the Premises shall be 82,000 square
feet. Base Rent shall be paid in advance on or before the first day of each
calendar month during the Term. Base Rent shall be prorated for any partial
month at the beginning or end of the Term. Base Rent during the Extended Terms
shall be as stated in Paragraph 5.2 below.
4.2 LEASE YEAR. As used herein, "Lease Year" shall mean any twelve
(12) month period from January 1 to December 31 in each calendar year during the
Term. In the case of the beginning of the Original Term, the provisions "Lease
Year" shall mean the period from the Commencement Date to December 31, 1997; in
the case of the end of the Term, the provision Lease Year shall mean the period
from the last January 1 to occur during the Term to the Expiration Date.
4.3 FAIR MARKET RENT. (i) If Lessor and Lessee cannot agree on the
Fair Market Rent within thirty (30) days prior to the commencement of the Lease
Year for which Fair Market Rent applies, each party shall, by notice to the
other, appoint a disinterested and licensed M.A.I. Real Estate Appraiser to
determine the Fair Market Rent. If any party should fail to appoint an
appraiser, the appraiser selected by the other party shall determine the Fair
Market Rent. In determining the Fair Market Rent, each appraiser shall give
appropriate consideration to, among other things, generally applicable terms and
conditions of tenancies for property comparable to the Premises in the general
vicinity of the Premises.
(ii) If the two appraisers selected pursuant to Paragraph 4.3(i)
above cannot agree upon the Fair Market Rent within forty-five (45) days, they
shall immediately give written notice of such inability ("Notice of
Disagreement") to both Lessor and Lessee setting forth the Fair Market Rent
determinations of each of the appraisers. If the determinations of each of the
two appraisers differ by less than ten percent (10%) of the lower determination,
the Fair Market Rent shall be fixed at an amount equal to the average of the two
determinations.
(iii) If the determinations of each of the two appraisers
selected pursuant to Paragraph 4.3(i) above, differ by ten percent (10%) or more
of the lower determination, then within thirty (30) days after the giving of the
Notice of Disagreement, the two appraisers shall appoint a third disinterested
and licensed M.A.I. Real Estate Appraiser. If the parties cannot then agree on
the Fair Market Rent, the third appraiser shall determine the Fair Market Rent,
and in so doing, shall give appropriate consideration to those items described
in Paragraph 4.3(i). The third appraiser shall not select a Fair Market Rent
either (a) higher than the higher of the two appraisals made pursuant to
Paragraph 4.3(i); or (b) lower than the lower of the two appraisals made
pursuant to Paragraph 4.3(i) above. If the first two appraisers cannot agree on
the selection of a third appraiser within such thirty (30) days, or if the first
two appraisers fail to provide a Notice of Disagreement (as stated above in
Paragraph 4.3(ii)), then the Fair Market Rent shall be determined by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association.
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<PAGE>
(iv) During the time before the determination of the Fair Market
Rent, as specified above, Lessee shall continue to pay Base Rent at the same
rate as paid during the immediately preceding Lease Year; provided, however,
that, once the Fair Market Rent is determined, the Base Rent owed by Lessee at
the Fair Market Rent shall be effective retroactively as of the first day of
such Lease Year. If, after the Base Rent is adjusted and applied retroactively
as of the first day of such Lease Year, it is determined that additional rent is
due Lessor, the amount of any such additional rent shall be paid by Lessee
promptly after determination of the Fair Market Rent for such Lease Year (but
not later than the date of the next monthly installment of Base Rent, unless the
next installment falls due within five (5) days after determination of Fair
Market Rent, in which case not later than the date of the second next monthly
installment of Base Rent).
(v) Each of the parties shall pay the fees of the appraiser that
it selects pursuant to Paragraph 4.3(i) above, and shall equally share the cost
of the third appraiser, if necessary, and shall equally share the cost of
arbitration (excluding attorneys' fees), if necessary.
4.4 C.P.I. ANNUAL MULTIPLIER. The "C.P.I. Annual Multiplier" shall be
the fraction, the numerator of which shall be the C.P.I. (defined below) for
January of the Lease Year then in effect, and the denominator of which shall be
the C.P.I. for January of the immediately preceding Lease Year. "C.P.I." shall
mean and refer to the Consumer Price Index published as the "CPI-U" index by the
Bureau of Labor Statistics of the Department of Labor, U.S. Cities Average, All
Items (1982-84=100); provided that if compilation of the C.P.I. is discontinued
or transferred to any other governmental department or bureau, then the index
most nearly the same as the C.P.I. shall be used. If Lessor is unable to
determine the C.P.I. by January 1 of any Lease Year, Lessee shall continue to
pay the Base Rent at the rate paid for the immediately prior Lease Year, and
once the C.P.I. for January 1 of such Lease Year is published, the new Base Rent
(as increased by the C.P.I. Annual Multiplier) shall be effective retroactively
as of the first day of such Lease Year and the aggregate amount of any
additional Base Rent shall be paid by Lessee promptly after written notice
thereof from Lessor (but not later than the date of the next monthly installment
of Base Rent, unless the next installment falls due within five (5) days after
Lessor's notice, in which case not later than the date of the second next
monthly installment of Base Rent). No delay by Lessor in providing notice of any
such increase in Base Rent shall be deemed a waiver of Lessor's right to
increase the Base Rent as provided hereunder.
5. OPTIONS TO EXTEND.
5.1 OPTIONS TO EXTEND. Lessee shall have two (2) options to extend
the Original Term of the Lease (each, an "Option") for a period of five (5)
years each (each such additional term shall be referred to herein as an
"Extended Term") for the entire Premises, commencing immediately following the
end of the Original Term or the immediately preceding Extended Term as the case
may be. The Lease during any Extended Term shall be on the same terms and
conditions as during the Original Term, except that the Base Rent shall be
determined as set forth in Paragraph 5.2 below. In the event Lessee desires to
exercise any option to extend granted in this Paragraph 5.1, Lessee shall give
Lessor written notice ("Notice to Extend") not less than three hundred sixty
(360) days prior to the expiration of the Original Term or the immediately
preceding Extended Term, as the case may be. If Lessee fails to give Lessor any
such notice, then such option to extend and all future options to extend granted
in this Paragraph 5.1 shall be null and void.
5.2 BASE RENT DURING EXTENDED TERMS. The Base Rent for the first
Lease Year in each Extended Term shall be the higher of: Fair Market Rent (as
determined in Paragraph 4.3 above); or the Base Rent at the rate paid
immediately preceding such Extended Term, adjusted by the C.P.I. Annual
Multiplier (as defined in Paragraph 4.4 above). The Base Rent for each
subsequent Lease Year in each Extended Term shall be the Base Rent at the rate
paid during the immediately prior Lease Year, adjusted by the C.P.I. Annual
Multiplier.
-3-
<PAGE>
6. HAZARDOUS SUBSTANCES.
6.1 LESSEE'S OBLIGATIONS FOR HAZARDOUS SUBSTANCES. Lessee shall, at
its sole cost and expense, take all actions as may be required to cause the
Premises including, but not limited to, the real property described in Exhibit
"A" attached hereto and all improvements located thereon, to be in compliance
with the applicable requirements under any federal, state and/or local law, any
judicial order and/or any governmental entity, relating to any Hazardous
Substances released, arising or discovered prior to, at, or after the
Commencement Date and during the Term.
6.2 INDEMNIFICATION. Lessee hereby agrees to fully indemnify,
protect, defend and hold harmless Lessor from any costs, damages, claims,
liability or loss of any kind or nature that arise during or after the Term of
this Lease directly or indirectly from or in connection with the presence,
suspected presence, release or suspected release, removal or remediation of
Hazardous Substances in, on, under or about the Premises, or any part thereof,
whether or not such injury or damage has been caused in whole or in part by the
act, negligence, fault or omission of Tenant, its agents, servants, contractors,
employees, representatives, licensees or invitees. Lessee's obligations
hereunder shall apply to all Hazardous Substances, irrespective of when they
arose or were discovered and therefore will include any Hazardous Substances
that existed prior to, at, or after the Commencement Date and during the Term.
6.3 REMEDIAL WORK. In the event any investigation or monitoring of
site conditions or any clean-up, containment, restoration, removal or other
remedial work (collectively, "Remedial Work") is required under any applicable
federal, state or local law, by any judicial order, or by any governmental
entity, Lessee shall perform or cause to be performed the Remedial Work in
compliance with such law or order. All Remedial Work shall be performed by one
or more contractors, selected by Lessee and approved in advance in writing by
Lessor, and under the supervision of a consulting engineer selected by Lessee
and approved in advance in writing by Lessor. All costs and expenses of such
Remedial Work shall be paid by Lessee, including without limitation the charges
of such contractor(s), the consulting engineer and Lessor's reasonable
attorneys' fees and costs incurred in connection with monitoring or review of
such Remedial Work.
6.4 ARBITRATION. In the event that Lessor and Lessee are unable to
resolve any dispute concerning Hazardous Substances, or the provisions of this
Paragraph 6 or Paragraphs 6.2 or 9.7 of the Lease, then either party may request
that resolution of the dispute be determined pursuant to binding arbitration
under the Commercial Arbitration Rules of the American Arbitration Association.
In the event that the parties' dispute is resolved pursuant to arbitration, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
other costs and expenses incurred in connection with such arbitration.
6.5 SURVIVAL. Each of the covenants and agreements of Lessee set
forth in this Paragraph 6, and in Paragraph 6 of the Lease, shall survive the
expiration or earlier termination of this Lease.
7. WAIVER OF SUBROGATION. In the event that Lessor's insurance policies
with respect to the Premises permit a waiver of subrogation, Lessor hereby
waives any and all rights of recovery against Lessee for loss of or damages to
the Premises arising out of or incident to the perils required to be insured
against under Paragraph 8 of the Lease; provided however that such waiver of
subrogation shall be limited exclusively to insurance proceeds actually received
by Lessor for such damage or destruction. In the event Lessee's insurance
policies with respect to the Premises permit a waiver of subrogation, Lessee
hereby waives any and all rights of recovery against Lessor for loss of or
damage to any property of Lessee arising out of or incident to the perils
required to be insured against under Paragraph 8 of the Lease.
8. SEISMIC UPGRADE. No later than December 31,1998, Lessee shall, at
Lessee's sole cost and expense, perform or cause to be performed all repairs and
other actions as may be necessary or appropriate to cause the Premises to be in
compliance with all applicable laws,
-4-
<PAGE>
ordinances, rules and regulations relating to earthquake or seismic safety to
the satisfaction of the appropriate governmental entities or as otherwise
required by Lessor.
9. LESSOR EXCULPATION. It is expressly understood and agreed that
notwithstanding anything to the contrary in the Lease, and notwithstanding any
applicable law to the contrary, the liability of Lessor hereunder (including any
successor landlord) and any recourse by Lessee against Lessor shall be limited
solely and exclusively to the interests of Lessor in and to the Premises, and
neither Lessor, nor any of its constituent members or partners, shall have any
personal liability therefor, and Lessee hereby expressly waives and releases
such personal liability on behalf of itself and all persons claiming by, through
or under Lessee.
LESSOR: SENTER PROPERTIES, LLC,
a California limited liability company
By: /s/ DANIEL P. FLAMEN
-------------------------------------------
Name: DANIEL P. FLAMEN
--------------------------------------
Title:
--------------------------------------
By: /s/ TIMOTHY E. HOWARD
-------------------------------------------
Name: TIMOTHY E. HOWARD
--------------------------------------
Title:
--------------------------------------
LESSEE: BURKE INDUSTRIES, INC.,
a California corporation
By:
-------------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
-5-
<PAGE>
EXHIBIT "A"
THE PREMISES
-6-
<PAGE>
Order No. 512306
Page No. 8
LEGAL DESCRIPTION
REAL PROPERTY in the City of San Jose, County of Santa Clara, State of
California, described as follows:
PARCEL ONE:
Parcel Two, as shown on that certain Parcel Map, being a portion of Lot 2 of the
Chaboya Partition, which Map was filed for record in the office of the Recorder
of the County of Santa Clara, State of California on October 30, 1978, in Book
429 of Maps page(s) 18 and 19.
PARCEL TWO:
A perpetual easement for light and air over the Southeasterly 30 feet of Parcel
One, as said Parcel One is shown on that certain Parcel Map filed for record on
October 30, 1978 in Book 429 of Maps, page(s) 18 and 19, Santa Clara County
Records; and as granted in the Deeds executed by Burke Rubber Company, Inc., a
corporation and recorded August 15, 1968 in Book 8228, page 216, Official
Records, and recorded September 27, '1971 in Book 9518, page 216, Official
Records.
APN: 477-50-005
ARB: 477-21-49, 64
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO
Stern, Neubauer, Greenwald & Pauly
A Professional Corporation
1299 Ocean Avenue, Tenth Floor
Santa Monica, California 90401-1007
Attention: Dennis L. Greenwald, Esq.
- -------------------------------------------------------------------------------
LEASE AMENDMENT AGREEMENT
This Lease Amendment Agreement (this "Agreement") is entered into as of
the 18th day of April, 1997, by and among SENTER PROPERTIES, LLC, a California
limited liability company ("Landlord"), and B INDUSTRIES, INC., a California
corporation, successor in interest to Burke Rubber Company, Inc. ("Tenant").
RECITALS:
A. Tenant and Senter Associates ("Original Landlord") entered into that
certain Lease ("Lease") dated August 1, 1971, and disclosed by that certain
Memorandum of Assignment of Lease, recorded March 4, 1988 in Book K462, page
220, Official Records of Santa Clara County, California, whereby Original
Landlord leased to Tenant, and Tenant leased from Original Landlord, those
certain premises located at 2049 Senter Road, San Jose, California (the
"Premises").
B. Substantially concurrently herewith, Landlord is acquiring from
National Industrial Investors, Inc., a California corporation, successor in
interest to Original Landlord ("Seller") all of Seller's right, title and
interest in, to and under the Premises and the Lease.
C. Tenant and Landlord desire to amend the Lease subject to the terms and
conditions and as otherwise provided below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
conditions and the covenants hereinafter contained, and for other consideration
hereinafter set forth, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
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<PAGE>
1. TERM OF THE LEASE. Notwithstanding any provision in the Lease to the
contrary, the Lease is hereby amended to provide that the term of the Lease
shall expire at the earlier to occur of the following: (a) 11:59 p.m. Pacific
Daylight Savings Time on May 9, 1997; or (b) the close of "Escrow" and the
recordation of the Grant Deed in the Official Records of Santa Clara County,
California, as and when contemplated under that certain Real Estate Sales
Agreement, by and between Seller, as "Seller", and Landlord, as "Purchaser",
relating to the Premises.
2. EFFECT OF EXPIRATION OF TERM. Upon expiration of the term of the Lease,
as and when provided herein, the Lease and all of the parties' rights and
obligations thereunder shall immediately terminate and be of no further force
and effect.
3. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but such counterparts, when taken together,
shall constitute one agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement as of
the day and year first above written.
SENTER PROPERTIES, LLC,
a California limited liability company
By:
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
By:
-----------------------------------------
Name:
-----------------------------------------
Title:
-----------------------------------------
BURKE INDUSTRIES, INC.,
a California corporation
By: /s/ Rocky Genovese
-----------------------------------------
Name: Rocky Genovese
-----------------------------------------
Title: President
-----------------------------------------
-2-
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) SS.
COUNTY OF )
On ___________ before me, _______________ Notary Public, personally appeared
_____________________________________________________________________________
________________________________________ personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument person(s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------
NOTARY PUBLIC
State of California
STATE OF CALIFORNIA )
) SS.
COUNTY OF )
On APRIL 29, 1997 before me, ROSEANN DYBAS, Notary Public, personally
appeared ROCKY GENOVESE personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Roseann Dybas
[SEAL] ---------------------------------------
NOTARY PUBLIC
State of California
<PAGE>
EXHIBIT 10.13
COMMERCIAL
LEASE AGREEMENT
SSMRT BENSENVILLE INDUSTRIAL PARK (3), INC.
Landlord
AND
BURKE INDUSTRIES, INC.
Tenant
<PAGE>
STANDARD INDUSTRIAL LEASE AGREEMENT BIP #14
COMMERCIAL 93 579 THOMAS DRIVE
NET ESCROW BENSENVILLE, IL 60106
TRAMMELL CROW COMPANY DATE DRAFTED: MAY 1, 1996
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between, SSMRT Bensenville
Industrial Park (3), Inc. or its assigns, hereinafter referred to as
"Landlord", and Burke Industries, Inc. hereinafter referred to as "Tenant";
WITNESSETH:
1. PREMISES AND TERM. In consideration of the mutual obligations of
Landlord and Tenant set forth herein, Landlord leases to Tenant, and Tenant
hereby takes from Landlord the Premises situated within the County of DUPAGE,
State of ILLINOIS, more particularly described on EXHIBIT "A", commonly known
as 870 THOMAS DRIVE, BENSENVILLE, ILLINOIS and outlined in red attached
hereto and incorporated herein by reference, (the "Premises"), to have and to
hold, subject to the terms, covenants and conditions in this Lease. The term
of this Lease shall commence on the commencement date hereinafter set forth
and shall end on the last day of the month that is 37 months after the
commencement date.
A. EXISTING BUILDING. If no improvements are to be constructed to the
Premises, the commencement date shall be ON OR ABOUT JUNE 1, 1996 BUT WILL BE
NO LATER THAN JUNE 15, 1996. Tenant acknowledges that (i) it has inspected
and accepts the Premises, (ii) the buildings and improvements comprising the
same are suitable for the purpose for which the Premises are leased, (iii)
the Premises are in good and satisfactory condition, and (iv) no
representations as to the repair of the Premises, nor promises to alter,
remodel or improve the Premises have been made by Landlord (unless otherwise
expressly set forth in this Lease). If this lease is executed before the
Premises become vacant or otherwise available and ready for occupancy, or if
any present Tenant or occupant of the Premises holds over, and Landlord
cannot, using good faith efforts, acquire possession of the Premises prior to
the date above recited as the commencement date of this lease, Landlord shall
not be deemed to be in default hereunder nor in any way liable to Tenant
because of such failure, and Tenant agrees to accept possession of the
Premises at such time as Landlord is able to tender the same, which date
shall thenceforth be deemed to be the "commencement date"; and the term of
this lease automatically shall be extended so as to include the full number
of months hereinbefore provided for, except that if the commencement date is
other than the first day of a calendar month such term also shall be extended
for the remainder of the calendar month in which possession is tendered.
Landlord hereby waives payment of rent covering any period prior to such
tendering of possession. After the commencement date, Tenant shall, upon
demand, execute and deliver to Landlord a letter of acceptance of delivery of
the Premises. LANDLORD SHALL MAKE THE TENANT IMPROVEMENTS OUTLINED IN EXHIBIT
"A".
2. BASE RENT, SECURITY DEPOSIT AND ESCROW PAYMENTS.
A. Tenant agrees to pay to Landlord rent for the Premises, in advance,
without demand, deduction or set off, at the rate of SIX THOUSAND NINE
HUNDRED EIGHTY ONE AND 85/100 Dollars ($6,981.85) per month during the term
hereof. One such monthly installment, plus the other monthly charges set
forth in Paragraph 2C below shall be due and payable on the date hereof and a
like monthly installment shall be due and payable on or before the first day
of each calendar month succeeding the commencement date, except that all
payments due hereunder for any fractional calendar month shall be prorated.
TENANT WILL RECEIVE THE FIRST MONTH RENT FREE.
B. In addition, Tenant agrees to deposit with Landlord on the date hereof
the sum of EIGHT THOUSAND ONE HUNDRED FORTY ONE AND 15/100 Dollars
($8,141.l5) which shall be held by Landlord, without obligation for interest,
as security for the performance of Tenant's obligations under this lease, it
being expressly understood and agreed that this deposit is not an advance
rental deposit or a measure of Landlord's damages in case of Tenant's
default. Upon each occurrence of an event of default, Landlord may use all or
part of the deposit to pay past due rent or other payments due Landlord under
this Lease, and the cost of any other damage, injury, expense or liability
caused by such event of default without prejudice to any other remedy
provided herein or provided by law. On demand, Tenant shall pay Landlord the
amount that will restore the security deposit to its original amount. The
security deposit shall be deemed the property of Landlord, but any remaining
balance of such deposit shall be returned by Landlord to Tenant when Tenant's
obligations under this Lease have been fulfilled. LANDLORD WILL RETURN TO
TENANT SECURITY DEPOSIT WITHIN 30 DAYS AFTER THE FINAL RECONCILIATION.
C. Tenant agrees to pay its proportionate share (as defined in Paragraph 22K
below) of (i) Taxes (hereinafter defined) payable by Landlord pursuant to
paragraph 3A below, (ii) the cost of utilities payable pursuant to paragraph
8 below, (iii) the cost of administering and maintaining any insurance
pursuant to paragraph 9 below and (iv) the cost of any common area charges
payable by Tenant in accordance with paragraph 4C. below. During each month
of the term of this Lease, on the same day that rent is due hereunder, Tenant
shall escrow with Landlord an amount equal to 1/12 of the estimated annual
cost of its proportionate share of such items. Tenant authorizes Landlord to
use the funds deposited with Landlord under this Paragraph 2C to pay such
costs. The initial monthly escrow payments are based upon the estimated
amounts for the year in question, and shall be increased or decreased
annually to reflect the projected actual cost of all such items. If the
Tenant's total escrow payments are less than Tenant's actual proportionate
share of all such items, Tenant shall pay the difference to Landlord within
ten (10) days after demand. If the total escrow payments of Tenant are more
than Tenant's actual proportionate share of all such items, Landlord shall
retain such excess and credit it against Tenant's next annual escrow
payments. IF THERE IS AN INCREASE IN ESCROW COSTS TENANT WILL HAVE THE RIGHT
TO REVIEW THE ESCROW CHARGES WITH LANDLORD. The amount of the monthly rental
and the initial monthly escrow payments are as follows:
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(1) Base Rent as set forth in Paragraph 2A. . . . . . . . . . . .$6,981.85
(2) Tax Escrow Payment. . . . . . . . . . . . . . . . . . . . . .$859.71
(3) Insurance Escrow Payment. . . . . . . . . . . . . . . . . . .$78.16
(4) Utility Charge. . . . . . . . . . . . . . . . . . . . . . . .$N/A
(5) Common Area Charge. . . . . . . . . . . . . . . . . . . . . .$221.44
(6) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .$N/A
Monthly Payment Total. . . . . . . . . . . . . . . . . . . . .$8,141.16
3. TAXES.
A. Landlord agrees to pay all taxes, assessments and governmental charges of
any kind and nature (collectively referred to herein as "Taxes") that accrue
against the Premises, and/or the land and/or improvements of which the
Premises are a part. If at any time during the term of this Lease, there
shall be levied, assessed or imposed on Landlord a capital levy or other tax
directly on the rents received therefrom and/or a franchise tax assessment,
levy or charge measured by or based, in whole or in part, upon such rents
from the Premises and/or the land and improvements of which the Premises are
a part, then all such taxes, assessments, levies or charges, or the part,
thereof so measured or based, shall be deemed to be included within the term
"Taxes" for the purposes hereof. The Landlord shall have the right to employ
a tax consulting firm to attempt to assure a fair tax burden on the building
and grounds within the applicable taxing jurisdiction. Tenant agrees to pay
its proportionate share of the cost of such consultant.
B. Tenant shall be liable for all taxes levied or assessed against any
personal property or fixtures placed in the Premises. If any such taxes are
levied or assessed against Landlord or Landlord's property and (i) Landlord
pays the same or (ii) the assessed value of Landlord's property is increased
by inclusion of such personal property and fixtures and Landlord pays the
increased taxes, then, upon demand Tenant shall pay to Landlord such taxes.
4. LANDLORD'S REPAIRS.
A. Landlord, at its own cost and expense, shall maintain the roof,
foundation and the structural soundness of the exterior walls of the building
of which the Premises are a part in good repair, reasonable wear and tear
excluded. The term "walls" as used herein shall not include windows, glass or
plate glass, doors, special store fronts or office entries. Tenant shall
immediately give Landlord written notice of defect or need for repairs, after
which Landlord shall have reasonable opportunity to repair same or cure such
defects.
B. Landlord reserves the right to perform the paving, floor slab, common
area, and landscape replacement and maintenance, exterior painting, common
sewage line plumbing and any other items that are otherwise Tenant's
obligations under Paragraph 5A, in which event, Tenant shall be liable for
its proportionate share of the cost and expense of such repair, replacement,
maintenance and other such items (which cost shall include any administration
and supervision fees incurred by Landlord in connection therewith equal to
fifteen percent (15%) of the cost thereof unless a repair is necessitated by
damage caused by the act or neglect of Tenant, its agents, employees,
invitees, licensees or contractors, in which event Tenant shall bear one
hundred percent (100%) of such cost which cost shall include an
administration and supervision fee of fifteen percent 15%) of the cost
thereof). The cost that the Tenant may be charged is the cost of performing
such service for this building on a stand alone basis.
C. Tenant agrees to pay its proportionate share of the cost (i) maintenance
and/or landscaping of any property that is a part of the building and/or
project of which the Premises are a part, (ii) maintenance and/or landscaping
of any property that is maintained or landscaped by any property owner or
community owner association that is named in the restrictive covenants or
deed restrictions to which the Premises are subject, and (iii) operating and
maintaining any property, facilities or services provided for the common use
of Tenant and other lessees of any project or building of which the Premises
are a part.
D. Landlord, at Tenant's cost and expense, shall enter into a regularly
scheduled preventive maintenance/service contract with a maintenance
contractor for servicing all hot water, heating and air conditioning systems
and equipment within the Premises. The service contract will include all
services suggested by the equipment manufacturer in its
operations/maintenance manual and an executed copy of such contract will be
provided to Tenant.
5. TENANT'S REPAIRS.
A. Tenant, at its own cost and expense, shall (i) maintain all parts and
floor slab of the Premises, landscape and grounds surrounding the Premises
(except those for which Landlord is expressly responsible hereunder) in good
condition, (ii) promptly make all necessary repairs and replacements, (iii)
keep the parking areas sidewalks, driveways and alleys surrounding the
Premises in a clean and sanitary condition and shall remove all rubbish, snow
and ice from same, and
B. Tenant, at its own cost and expense, shall property maintain the surface
of the floor slab, and shall use equipment and fixtures which avoid damage to
the floor slab. In addition, Tenant agrees not to overload the floor slabs in
any way so as to cause damage to the slab or the foundation.
6. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Landlord.
Tenant, at its own cost and expense, may erect such shelves, bins machinery
and trade fixtures as it desires provided that (a)
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<PAGE>
such items do not alter the basic character of the Premises or the building
and/or improvements of which the Premises are a part, (b) such items do not
overload or damage the same, (c) such items may be removed without injury to
the Premises; and (d) the construction, erection or installation thereof
complies with all applicable governmental laws, ordinances, regulations and
with Landlord's specifications and requirements. All alterations, additions,
improvements and partitions erected by Tenant shall be and remain the
property of Tenant during the term of this Lease. All shelves, bins,
machinery and trade fixtures installed by Tenant shall be removed on or
before the earlier to occur of the date of termination of this Lease or
vacating the Premises, at which time Tenant shall restore the Premises to
their original condition, REASONABLE WEAR AND TEAR ACCEPTED. All alterations,
installations, removals and restoration shall be performed in a good and
workmanlike manner so as not to damage or alter the primary structure or
structural qualities of the buildings and other improvements situated on the
Premises or of which the Premises are a part.
7. SIGNS. Tenant shall not install any signs upon the Premises without the
prior written consent of Landlord. Any signs shall be removed at Tenant's
cost upon termination or expiration of this Lease. Tenant shall repair,
paint, and/or replace the building facia surface to which its signs are
attached upon vacation of the Premises, or the removal or alteration of its
signage. Tenant shall not, (i) make any changes to the exterior of the
Premises, (ii) install any exterior lights, decorations, balloons, flags,
pennants, banners or painting, or (iii) erect or install any signs, windows
or door lettering, placards, decorations or advertising media of any type
which can be viewed from the exterior of the Premises, without Landlord's
prior written consent. All signs, decorations, advertising media, blinds,
draperies and other window treatment or bars or other security installations
visible from outside the Premises shall conform in all respects to the
criteria established by Landlord.
8. UTILITIES. Landlord agrees to provide normal water service to the
Premises. Tenant shall pay for all water, gas, heat, light, power, telephone,
sewer, sprinkler charges and other utilities and services used on or at the
Premises, together with any taxes, penalties, surcharges or the like
pertaining to the Tenant's use of the Premises, and any maintenance charges
for utilities. Landlord shall have the right to cause any of said services to
be separately metered to Tenant, at Tenant's expense. Tenant shall pay its
pro rata share, as reasonably determined by Landlord, of all charges for
jointly metered utilities. Landlord shall not be liable for any interruption
or failure of utility service on the Premises.
9. INSURANCE.
A. Landlord shall maintain insurance covering the buildings situated on the
Premises or of which the Premises are a part in an amount not less than
eighty percent (80%) of the "replacement cost" thereof insuring against the
perils of Fire, Lightning, Extended Coverage Vandalism and Malicious
Mischief, Liability and Rental Interruption and such other insurance as
Landlord shall deem necessary.
B. Tenant, at its own expense, shall maintain during the term of this Lease
a policy or policies of worker's compensation and comprehensive general
liability insurance, including personal injury and property damage, with
contractual liability endorsement, in the amount of Five Hundred Thousand
Dollars ($500,000.00) for property damage and Two Million Dollars
($2,000,000) per occurrence for personal injuries or deaths of persons
occurring in or about the Premises. Tenant, at its own expense, also shall
maintain during the term of this Lease, fire and extended coverage insurance
covering the replacement cost of (i) all alterations, additions, partitions
and improvements installed or placed on the Premises by Tenant or by Landlord
on behalf of Tenant and (ii) all of Tenant's personal property contained
within the Premises. Said policies shall (i) name Landlord as an additional
insured (except for the worker's compensation policy, which instead shall
include waiver of subrogation endorsement in favor of Landlord), (ii) be
issued by an insurance company which is acceptable to Landlord, and (iii)
provide that said insurance shall not be canceled unless thirty (30) days
prior written notice shall have been given to Landlord. Said policies shall
provide primary coverage to Landlord; when any policy issued to Landlord is
similar or duplicate in coverage, Landlord's policy shall be excess over
Tenant's policies. Said policy or policies, or certificates thereof, shall be
delivered to Landlord by Tenant upon commencement of the term of the Lease
and upon each renewal of said insurance.
C. Tenant will not permit the Premises to be used for any purpose or in any
manner that would (i) void the insurance thereon (ii) increase the insurance
risk, or (iii) cause the disallowance of any sprinkler credits, including
without limitation, use of the Premises for the receipt, storage or handling
of any product, material or merchandise that is explosive or highly
inflammable. If any increase in the cost of any insurance on the Premises or
the building of which the Premises are a part is caused by Tenant's use of
the Premises, or because Tenant vacates the Premises FOR A PERIOD SIX MONTHS,
then Tenant shall pay the amount of such increase to Landlord.
10. FIRE AND CASUALTY DAMAGE.
A. If the Premises or the building of which the Premises are a part should
be damaged or destroyed by fire or other peril, Tenant immediately shall give
written notice to Landlord. If the buildings situated upon the Premises or of
which the Premises are a part should be totally destroyed by any peril
covered by the insurance to be provided by Landlord under Paragraph 9A above,
or if they should be so damaged thereby that, in Landlord's estimation,
rebuilding or repairs cannot be completed within one hundred eighty (180)
days after the date of such damage, this Lease shall terminate and the rent
shall be abated during the unexpired portion of this Lease effective upon the
date of the occurrence of such damage.
B. If the buildings situated upon the Premises or of which the Premises are
a part, should be damaged by any peril covered by the insurance to be
provided by Landlord under Paragraph 9A above, and in Landlord's estimation,
rebuilding or repairs can be substantially completed within one hundred
eighty (180) days after the date of such damage, this Lease shall not
terminate, and Landlord shall restore the Premises to substantially its
previous condition, except that Landlord shall not be required to rebuild,
repair or replace any part of the partitions, fixtures, additions and other
improvements that may have been constructed, erected or installed in, or
about the Premises or for the benefit of, or by or for Tenant. If such
repairs and rebuilding have not been substantially completed within one
hundred eighty (180) days after the date of such damage (subject to delays
outside of Landlord's control DURING THE FIRST TWELVE MONTHS OF THE TERM
HEREOF), Tenant, as Tenant's exclusive remedy, may terminate this Lease by
delivering written notice of termination to Landlord in which event the
rights and obligations hereunder shall cease and terminate. In the event of
any insurance claim, Tenant shall be liable for payment of any deductible
WHICH IS EQUAL TO TEN THOUSAND AND 00/100 DOLLARS $10,000.00), under any of
Landlord's insurance policies with respect to the premises.
C. Notwithstanding anything herein to the contrary, in the event the holder
of any indebtedness secured by a mortgage or deed of trust covering the
Premises requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within fifteen (15) days
after such requirement is made known by any such holder, whereupon all rights
and obligations hereunder shall cease and terminate. LANDLORD WILL NOTIFY
TENANT OF INTENT TO REBUILD OR REPAIR PREMISES WITHIN FORTY-FIVE (45) DAYS OF
SUCH DAMAGE.
D. Anything in this Lease to the contrary notwithstanding, Landlord and
Tenant hereby waive and release each other of and from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage
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that may occur to the Premises, improvements to the building of which the
Premises are a part, or personal property (building contents) within the
building and/or Premises, for any reason regardless of cause or origin. Each
party to this Lease agrees immediately after execution of this Lease to give
each insurance company, which has issued to it policies of fire and extended
coverage insurance, written notice of the terms of the mutual waivers
contained in this subparagraph, and if necessary, to have the insurance
policies properly endorsed.
E. If the Premises are damaged by any peril not covered by the insurance to
be provided by Landlord under paragraph 9A above and the cost to repair such
damage exceeds any amount Tenant may elect to contribute, Landlord may elect
either to commence to repair and restore the Premises, in which event this
Lease shall remain in full force and effect, or not to repair and restore the
Premises, in which event this Lease shall terminate.
11. LIABILITY AND INDEMNIFICATION. Tenant shall hold Landlord AND LANDLORD
SHALL HOLD TENANT harmless from and defend against any and all claims or
liability for any injury or damages (i) to any person or property whatsoever
occurring in, on or about the Premises or any part thereof and/or of the
building of which the Premises are a part, including without limitation
elevators, stairways, passageways or hallways, the use of which Tenant may
have in accordance with this Lease, when such injury or damage shall be
caused by the act neglect, fault of, or omission of any duty with respect to
the same by their agents, servants, employees, or invitees (ii) arising from
the conduct of management of any work done by LANDLORD OR TENANT in or about
the Premises, (iii) arising from transactions of the Tenant, and (iv) all
REASONABLE costs, counsel fees, expenses and liabilities incurred in
connection with any such claim or action or proceeding brought thereon. The
provisions of this Paragraph 11 shall survive the expiration or termination
of this Lease with respect to any claims or liability occurring prior to such
expiration or termination.
12. USE. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (other than retail) products, materials and
merchandise made and/or distributed by Tenant and for such other lawful
purposes as may be incidental thereto. Outside storage, including without
limitation, storage of trucks and other vehicles, is prohibited without
Landlord's prior written consent. Tenant shall have the non-exclusive right
to use, in common with other Tenants of the building of which the Premises
are a part, the parking provided and designated as such by Landlord. Tenant
shall comply with all governmental laws, ordinances and regulations
applicable to the use of the Premises, and promptly shall comply with all
governmental orders and directives for the correction, prevention and
abatement of nuisances in or upon, or connected with, the Premises, all at
Tenant's sole expense. Tenant shall not permit any objectionable or
unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the
Premises, nor take any other action that would constitute a nuisance or would
disturb, unreasonably interfere with, or endanger Landlord or any other
lessees of the building in which the Premises are a part. Tenant shall pay
the cost of any modifications to the Premises, the building in which the
Premises are located and the common areas required as a result of Tenant's
particular use of the Premises.
13. INSPECTION. Landlord and Landlord's agents and representatives shall
have the right to enter the Premises at any reasonable time during business
hours, to inspect the Premises and to make such repairs as may be required or
permitted pursuant to this Lease. During the period that is six (6) months
prior to the end of the Lease term, upon telephonic notice to Tenant,
Landlord and Landlord's representatives may enter the Premises during
business hours for the purpose of showing the Premises. In addition, Landlord
shall have the right to erect a suitable sign on the Premises stating the
Premises are available. Tenant shall notify Landlord in writing at least
thirty (30) days prior to vacating the Premises and shall arrange to meet
with Landlord for a joint inspection of the Premises prior to vacating. If
Tenant fails to give such notice or to arrange for such inspection, then
Landlord's inspection of the Premises shall be deemed correct for the purpose
of determining Tenant's responsibility for repairs and restoration of the
Premises.
14. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not have the right to assign, sublet, transfer or encumber
this Lease, or any interest therein without the prior written consent of
Landlord. Any attempted assignment, subletting, transfer or encumbrance by
Tenant in violation of the terms and covenants of this Paragraph shall be
void. In the event Tenant desires to sublet the Premises, or any portion
thereof, or assign this Lease, Tenant shall give written notice thereof to
Landlord within a reasonable time prior to the proposed commencement date of
such subletting or assignment which notice shall set forth the name of the
proposed sublessee or assignee, the relevant terms of any sublease and copies
of financial reports and other relevant financial information of the proposed
sublessee or assignee. LANDLORD CONSENT SHALL NOT BE UNREASONABLY WITHHELD
AND LANDLORD SHALL GRANT OR DENY CONSENT WITHIN 14 BUSINESS DAYS OF RECEIVING
CONSENT TO SUBLEASE NOTICE.
C. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et. seq., (the
Bankruptcy Code"), any and all monies or other consideration payable or
otherwise to be delivered in connection with such assignment shall be paid or
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any and all monies or other
considerations constituting Landlord's property under the preceding sentence
not paid or delivered to Landlord shall be held in trust for the benefit of
Landlord and be promptly paid or delivered to Landlord. Any person or entity
to which this Lease is assigned pursuant to the provisions of the Bankruptcy
Code, shall be deemed, without further act or deed to have assumed all of the
obligations arising under this I case on and after the date of such
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interest in this Lease (all such assignees, sublessees and transferees being
hereinafter referred to as "Transferees"), by assuming Tenant's obligations
hereunder, shall assume liability to Landlord for all amounts paid to persons
other than Landlord by such Transferees in contravention of this Paragraph.
No assignment, subletting or other transfer, whether consented to by Landlord
or not or permitted hereunder shall relieve Tenant of its liability
hereunder. If an event of default occurs while the Premises or any part
thereof are assigned or sublet, then Landlord, in addition to any other
remedies herein provided, or provided by law, may collect directly from such
Transferee all rents payable to the Tenant and apply such rent against any
sums due Landlord hereunder. No such collection shall be construed to
constitute a novation or a release of Tenant from the further performance of
Tenant's obligations hereunder.
15. CONDEMNATION. If the Premises are taken for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof and the taking prevents or
materially interferes with the use of the Premises for the purpose for which
they were leased to Tenant, this Lease shall terminate and the rent shall be
abated during the unexpired portion of this Lease, effective on the date of
such taking. If less than eighty percent (80%) of the Premises are taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, this Lease shall not terminate, but the rent payable hereunder
during the unexpired portion of this Lease shall be reduced to such extent as
may be fair and reasonable under all of the circumstances. All compensation
awarded in connection with or as a result of any of the foregoing proceedings
shall be the property of Landlord and Tenant hereby assigns any interest in
any such award to Landlord; provided, however, Landlord shall have no
interest in any award made to Tenant for the taking of Tenant's fixtures and
improvements, if a separate award for such items is made to Tenant.
16. HOLDING OVER. At the termination of this Lease by its expiration or
otherwise, Tenant immediately shall deliver possession to Landlord with all
repairs and maintenance required herein to be performed by Tenant completed.
If, for any reason, Tenant retains possession of the Premises or any part
thereof after such termination, then Landlord may, at its option, serve
written notice upon Tenant that such holding over constitutes either, (ii)
creation of a month to month tenancy, upon the terms and conditions set forth
in this lease, or (iii) creation of a tenancy at sufferance, in any case upon
the terms and conditions set forth in this lease; provided, however, that the
monthly rental or daily rental under (iii) shall, in addition to all other
sums which are to be paid by Tenant hereunder whether or not as additional
rent, be equal to ONE HUNDRED FIFTY PERCENT (l50%) OF the rental being paid
monthly to Landlord under this lease immediately prior to such termination
(prorated in the case of (iii) on the basis of a 365 day year for each day
Tenant remains in possession). If no such notice is served then a tenancy at
sufferance shall be deemed to be created at the rent in the preceding
sentence. Tenant shall also pay to Landlord all damages sustained by Landlord
resulting from retention of possession by Tenant, including the loss of any
proposed subsequent tenant for any portion of the Premises. The provisions of
this Paragraph shall not constitute a waiver by Landlord of any right of
re-entry as herein set forth; nor shall receipt of any rent or any other act
in apparent affirmance of the tenancy operate as a waiver of the right to
terminate this Lease for a breach of any of the terms, covenants, or
obligations herein on Tenant's part to be performed. No holding over by
Tenant, whether with or without consent of Landlord shall operate to extend
this Lease except as otherwise expressly provided. The preceding provisions
of this Paragraph 16 shall not be construed as consent for Tenant to retain
possession of the Premises in the absence of written consent thereto by
Landlord.
17. QUIET ENJOYMENT. Landlord covenants that on or before the commencement
date it will have good title to the Premises, free and clear of all liens and
encumbrances, excepting only the lien for current taxes not yet due, such
mortgage or mortgages as are permitted by the terms of this Lease, zoning
ordinances and other building and fire ordinances and governmental
regulations relating to the use of such property, and easements restrictions
and other conditions of record. If this Lease is a sublease then Tenant
agrees to take the Premises subject to the provisions of the prior Leases.
Landlord represents that it has the authority to enter into this Lease and
that so long as Tenant pays all amounts due hereunder and performs all other
covenants and agreements herein set forth, Tenant shall peaceably and quietly
have, hold and enjoy the Premises for the term hereof without hindrance or
molestation from Landlord, subject to the terms and provisions of this Lease.
18. EVENTS OF DEFAULT. The following events (herein individually referred to
as "event of default") each shall be deemed to be events of nonperformance by
Tenant under this Lease:
A. Tenant shall fail to pay any installment of the rent herein reserved when
due, or any other payment or reimbursement to Landlord required herein when
due, and such failure shall continue for a period of five (5) days from the
date such payment was due. TENANT WILL BE ALLOWED TO BE LATE WITH RENTAL
PAYMENT TWICE DURING THE LEASE TERM, AND NOT BE CONSIDERED IN DEFAULT.
B. The Tenant or any guarantor of the Tenant's obligations hereunder shall
(i) become insolvent BECAUSE TENANT IS UNABLE TO PAY ITS DEBTS AS THEY COME
DUE, (ii) admit in writing its inability to pay its debts; (iii) make a
general assignment for the benefit of creditors, (iv) commence any case,
proceeding or other action seeking to have an order for relief entered on its
behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or
of any substantial part of its property, or (v) take any action to authorize
or in contemplation of any of the actions set forth above in this Paragraph.
C. Any case, proceeding or other action against the Tenant or any guarantor
of the Tenant's obligations hereunder shall be commenced seeking (i) to have
an order for relief entered against it as debtor or to adjudicate it a
bankrupt or insolvent; (ii) reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors;
(iii) appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and such case,
proceeding or other action (a) results in the entry of an order for relief
against it which it is not fully stayed within seven (7) business days after
the entry thereof or (b) shall remain undismissed for a period of forty-five
(45) days.
D. Tenant shall (i) vacate all or a substantial portion of the Premises AND
FAIL TO PAY RENT AS REQUIRED HEREIN or (ii) fail to continuously operate its
business at the Premises for the permitted use set forth herein, whether or
not Tenant is in default of the rental payments due under this Lease.
E. Tenant shall fail to discharge any lien placed upon the Premises in
violation of Paragraph 21 hereof within twenty (20) days after any such lien
or encumbrance is filed against the Premises.
F. Tenant shall fail to comply with any term, provision or covenant of this
Lease (other than those listed in this Paragraph 18), and shall not cure such
failure within twenty (20) days after written notice thereof to Tenant.
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19. REMEDIES.
A. Upon each occurrence of an event of default, Landlord shall have the
option to pursue any one or more of the following remedies without any notice
or demand:
(1) Terminate this Lease; and/or
(2) Enter upon and take possession of the Premises without terminating
this Lease; and/or
(3) Alter all locks and other security devices at the Premises with or
without terminating this Lease, and pursue, at Landlord's option, one or more
remedies pursuant to this Lease; and in any such event Tenant immediately
shall surrender the Premises to Landlord, and if Tenant fails so to do
Landlord, without waiving any other remedy it may have, may enter upon and
take possession of the Premises and expel or remove Tenant and any other
person who may be occupying such Premises or any part thereof,
(4) Maintain Tenant's right to possession in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises.
In such event Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover rent as it
becomes due.
B. If Landlord terminates this Lease, at Landlord's option, Tenant shall be
liable for and shall pay to Landlord, the sum of all rental and other
payments owed to Landlord hereunder accrued to the date of such termination,
plus, as liquidated damages, an amount equal to (1) the present value of the
total rental and other payments owed hereunder for the remaining portion of
the Lease term, calculated as if such term expired on the date set forth in
Paragraph 1, less (2) the then present fair market rental value of the
Premises for such period, which because of the difficulty of ascertaining
such value, Landlord and Tenant stipulate and agree, shall in no event be
deemed to exceed seventy-five percent (75%) of the rental amount set forth in
Paragraph 2 above.
C. If Landlord repossesses the Premises without terminating the Lease,
Tenant, at Landlord's option, shall be liable for and shall pay Landlord on
demand all rental and other payments owed to Landlord hereunder, accrued to
the date of such repossession, plus all amounts required to be paid by Tenant
to Landlord until the date of expiration of the term as stated in Paragraph
1, diminished by all amounts received by Landlord through reletting the
Premises during such remaining term (but only to the extent of the rent
herein reserved). Actions to collect amounts due by Tenant to Landlord under
this Subparagraph may be brought from time to time, on one or more occasions,
without the necessity of Landlord's waiting until expiration of the Lease
term.
D. Upon an event of default, in addition to any sum provided to be paid
herein, Tenant also shall be liable for and shall pay to Landlord (i)
brokers' fees incurred by Landlord in connection with reletting the whole or
any part of the Premises ATTRIBUTABLE TO THE BALANCE OF THE TERM HEREOF; (ii)
the costs of removing and storing Tenant's or other occupant's property;
(iii) the costs of repairing, altering, remodeling or otherwise putting the
Premises into condition acceptable to a new tenant or tenants EQUAL TO AN
AMOUNT NOT TO EXCEED THE UNAMORITZED PORTION OF THE COST OF THE IMPROVEMENTS
MADE BY LANDLORD TO THE PREMISES FOR TENANTS OCCUPANCY and (iv) all
reasonable expenses incurred in marketing the Premises and (v) all reasonable
expenses incurred by Landlord in enforcing or defending Landlord's rights
and/or remedies. If either party hereto institute any action or proceeding to
enforce any provision hereof by reason of any alleged breach of any provision
of this Lease, the prevailing party shall be entitled to receive from the
losing party all reasonable attorneys' fees and all court costs in connection
with such proceeding.
E. In the event Tenant fails to make any payment due hereunder when payment
is due, to help defray the additional cost to Landlord for processing such
late payments, Tenant shall pay to Landlord on demand a late charge in an
amount equal to five percent (5%) of such installment; and the failure to pay
such amount within ten (10) days after demand therefor shall be an additional
event of default hereunder. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at law
and shall not be construed as liquidated damages or as limiting Landlord's
remedies in any manner.
F. Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of
the Premises by Landlord, whether by agreement or by operation of law, it
being understood that such surrender can be effected only by the written
agreement of Landlord and Tenant. Tenant and Landlord further agree that
forbearance by Landlord to enforce its rights pursuant to the Lease at law or
in equity, shall not be a waiver of Landlord's right to enforce one or more
of its rights in connection with any subsequent default.
G. In the event of termination and/or repossession of the Premises for an
event of default, Landlord shall use reasonable efforts to relet the Premises
and to collect rental after reletting, provided, that, Tenant shall not be
entitled to credit or reimbursement of any proceeds in excess of the rental
owed hereunder. Landlord may relet the whole or any portion of the Premises
for any period, to any Tenant and for any use and purpose.
H. If Landlord fails to perform any of its obligations hereunder within
thirty (30) days after written notice from Tenant specifying such failure,
Tenant's exclusive remedy shall be an action for damages. Notwithstanding the
foregoing, if the nature of Landlord's obligation is such that more than
thirty (30) days is reasonably required to cure such failure, then Landlord
shall have such time as is reasonably required provided Landlord commences
such performance within thirty (30) days after written notice from Tenant and
thereafter diligently prosecutes the same to completion. Unless and until
Landlord fails to so cure any default after such notice, Tenant shall not
have any remedy or cause of action by reason thereof. All obligations of
Landlord hereunder will be construed as covenants, not conditions; and all
such obligations will be binding upon Landlord only during the period of its
possession of the Premises and not thereafter. The term "Landlord" shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all covenants and obligations of
the Landlord thereafter accruing, but such covenants and obligations shall be
binding during: the Lease term upon each new owner for the duration of such
owner's ownership. Notwithstanding any other provision hereof, Landlord shall
not have any personal liability hereunder. In the event of any breach or
default by Landlord in any term or provision of this Lease, Tenant agrees to
look solely to the equity or interest then owned by Landlord in the Premises
or of the building of which the Premises are a part; however, in no event,
shall any deficiency judgment or any money judgment of any kind be sought or
obtained against any Landlord.
I. If Landlord repossesses the Premises pursuant to the authority herein
granted, then Landlord shall have the right to (i) keep in place and use or
(ii) remove and store all of the furniture, fixtures and equipment at the
Premises including that which is owned by or leased to Tenant at all times
prior to any foreclosure thereon by Landlord or repossession thereof by any
Landlord thereof or third party having a lien thereon. Landlord also shall
have the right to relinquish possession of all or any portion of such
furniture, fixtures, equipment and
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said instrument. The rights of Landlord herein stated shall be in addition to
any and all other rights that Landlord has or may hereafter have at law or in
equity; and Tenant stipulates and agrees that the rights herein granted
Landlord are commercially reasonable.
J. Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord under this Lease, whether or
not expressly denominated as rent, shall constitute rent.
K. This is a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person or entity
other than Tenant.
20. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgages and/or deeds of trust now or at any time hereafter constituting a
lien or charge upon the Premises or the improvements situated thereon or the
building of which the Premises are a part, provided, however, that if the
mortgagee, trustee, or holder of any such mortgage or deed of trust elects to
have Tenant's interest in this Lease superior to any such instrument, then by
notice to Tenant from such mortgagee, trustee or holder, this Lease shall be
deemed superior to such lien, whether this Lease was executed before or after
said mortgage or deed of trust. Tenant, at any time hereafter on demand,
shall execute any instruments, releases or other documents that may be
required by any mortgagee for the purpose of subjecting and subordinating
this Lease to the lien of any such mortgage.
21. MECHANIC'S LIENS. Tenant has no authority, express or implied, to create
or place any lien or encumbrance of any kind or nature whatsoever upon, or in
any manner to bind the interest of Landlord or Tenant in the Premises or to
charge the rentals payable hereunder for any claim in favor of any person
dealing with Tenant, including those who may furnish materials or perform
labor for any construction or repairs. Tenant covenants and agrees that it
will pay or cause to be paid all sums legally due and payable by it on
account of any labor performed or materials furnished in connection with any
work performed on the Premises ON TENANT'S BEHALF and that it will save and
hold Landlord harmless from any and all loss, cost or expense based on or
arising out of asserted claims or liens against the leasehold estate or
against the right, title and interest of the Landlord in the Premises or
under the terms of this Lease. Tenant agrees to give Landlord immediate
written notice of the placing of any lien or encumbrance against the Premises.
22. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions
inserted in this Lease are for convenience only and in no way define, limit
or otherwise describe the scope or intent of this Lease, or any provision
hereof, or in any way affect the interpretation of this Lease.
B. The terms, provisions and covenants and conditions contained in this
Lease shall run with the land and shall apply to, inure to the benefit of,
and be binding upon, the parties hereto and upon their respective heirs,
executors, personal representatives, legal representatives, successors and
assigns, except as otherwise herein expressly provided. Landlord shall have
the right to transfer and assign, in whole or in part, its rights and
obligations in the building and property that are the subject of this Lease.
Each party agrees to furnish to the other, promptly upon demand, a corporate
resolution, proof of due authorization by partners, or other appropriate
documentation evidencing the due authorization of such party to enter into
this Lease.
C. Landlord shall not be held responsible for delays in the performance of
its obligations hereunder when caused by material shortages, weather, acts of
God or labor disputes.
D. Tenant agrees, from time to time, within THIRTY (30) days after request
by Landlord, to deliver to Landlord or Landlord's designee, a certificate of
occupancy, current financial statements prepared in accordance with GAAP, and
and an estoppel certificate stating that this Lease is in full force and
effect, the date to which rent is paid and such other factual matters
pertaining to this lease as may be requested by Landlord. IF TENANT IS IN
DEFAULT UNDER THIS LEASE, Tenant hereby irrevocably appoints Landlord as
attorney-in-fact for the Tenant with full power and authority to execute and
deliver in the name of Tenant such estoppel certificate if Tenant fails to
deliver the same within such THIRTY (30) day period and such certificate as
signed by Landlord or Landlord's beneficiary, as the case may be, shall be
fully binding on Tenant, if Tenant fails to deliver a contrary certificate
within five (5) days after receipt by Tenant of a copy of the certificate
executed by Landlord or Landlord's beneficiary, as the case may be, on behalf
of Tenant.
E. This Lease constitutes the entire understanding and agreement of the
Landlord and Tenant with respect to the subject matter of this Lease, and
contains all of the covenants and agreements of Landlord and Tenant with
respect thereto. Landlord and Tenant each acknowledge that no
representations, inducements, promises or agreements oral or written, have
been made by Landlord or Tenant, or anyone acting on behalf of Landlord or
Tenant, which are not contained herein, and any prior agreements, promises,
negotiations, or representations not expressly set forth in this Lease are of
no force or effect. This Lease may not be altered, changed or amended except
by an instrument in writing signed by both parties hereto.
F. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation, all payment obligations with respect to taxes and insurance and
all obligations concerning the condition and repair of the Premises. Upon the
expiration or earlier termination of the term hereof, and prior to Tenant
vacating the Premises, Tenant shall pay to Landlord any amount reasonably
estimated by Landlord as necessary to put the Premises, including without
limitation, all heating and air conditioning systems and equipment therein,
in good condition and repair, reasonable wear and tear excluded. Tenant shall
also, prior to vacating the Premises, pay to Landlord the amount, as
estimated by Landlord, of Tenant's obligation hereunder for real estate taxes
and insurance premiums for the PORTION OF THE YEAR in which the Lease expires
or terminates. All such amounts shall be used and held by Landlord for
payment of such obligations of Tenant hereunder, with Tenant being liable for
any additional costs therefor upon demand by Landlord, or with any excess to
be returned to Tenant after all such obligations have been determined and
satisfied as the case may be. Any security deposit held by Landlord shall be
credited against the amount due from Tenant under this Paragraph 22F.
G. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or
provision of this Lease that is illegal, invalid or unenforceable, THE
PARTIES WILL DEVELOP A MUTUALLY ACCEPTABLE ADDENDUM TO THIS LEASE.,
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I. Tenant represents and warrants that it has dealt with no broker, agent or
other person EXCEPT REGIONAL REALTY, in connection with this transaction or
that no broker, agent or other person EXCEPT REGIONAL REALTY, brought about
this transaction, other than as may be referenced in a separate written
agreement executed by Tenant, and delivered to Landlord, and Tenant agrees to
indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person EXCEPT REGIONAL REALTY, claiming a commission
or other form of compensation by virtue of having dealt with Tenant with
regard to this leasing transaction.
J. If and when included within the term "Landlord", as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of a notice
specifying some individual at some specific address for the receipt of
notices and payments to Landlord. If and when included within the term
"Tenant", as used in this instrument, there is more than one person, firm or
corporation, all shall jointly arrange among themselves for their joint
execution of a notice specifying some individual at some specific address
within the continental United States for the receipt of notices and payments
to Tenant. All parties included within the terms "Landlord" and "Tenant",
respectively shall be bound by notices given in accordance with the
provisions of Paragraph 25 hereof to the same effect as if each had received
such notice.
K. In the event the Premises constitute a portion of a multiple occupancy
building, Tenant's "proportionate share", as used in this Lease, shall mean a
fraction, the numerator of which is 15,631 and the denominator of which is
201,492 equaling 7.76 % ..
L. Submission of this Lease shall not be deemed to be a reservation of the
Premises. Landlord shall not be bound hereby until its delivery to Tenant of
an executed copy hereof signed by Landlord, already having been signed by
Tenant, and until such delivery Landlord reserves the right to exhibit and
lease the Premises to other prospective tenants. IF LANDLORD DOES NOT
EXECUTE AND RETURN THE LEASE WITHIN FOURTEEN (14) DAYS OF RECEIPT OF LEASE
EXECUTED BY TENANT, THIS LEASE WILL NO LONGER BE VALID. Notwithstanding
anything contained herein to the contrary Landlord may withhold delivery of
possession of the Premises from Tenant until such time as Tenant has paid to
Landlord the security deposit required by subparagraph 2B hereof and one
month's rent as set forth in Subparagraph 2A hereof.
M. SHOULD TENANT REQUIRE A 50% LARGER SPACE DURING THEIR LEASE TERM, AND
PROVIDED THE LEASE IS IN FULL FORCE AND EFFECT AND THE TENANT SHALL NOT BE IN
DEFAULT HEREUNDER, LANDLORD WILL ALLOW THEM TO RELOCATE, PROVIDED HOWEVER
THAT THE NEW SPACE IS AVAILABLE AND IS PART OF LANDLORD'S PORTFOLIO WITHIN
THE O'HARE CORRIDOR.
N. TENANT SHALL HAVE THE RIGHT TO A THREE (3) YEAR LEASE RENEWAL AT THE
EXPIRATION OF THE LEASE. TENANT MUST PROVIDE LANDLORD WITH WRITTEN NOTICE TO
RENEW 180 DAYS PRIOR TO THE LEASE EXPIRATION DATE. THE RENEWAL LEASE RATE
WILL BE DETERMINED BY THE CURRENT FAIR MARKET CONDITIONS. SHOULD LANDLORD AND
TENANT DISAGREE WITH THE FAIR MARKET RATE BOTH PARTIES WILL CONSULT WITH
INDEPENDENT FEE APPRAISERS TO DETERMINE THE FAIR MARKET RENEWAL RATE.
23. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances regulations and other requirements with
reference to the sending, mailing or delivering of notice or the making of
any payment by Landlord to Tenant or with reference to the sending, mailing
or delivering of any notice or the making of any payment by Tenant to
Landlord shall be deemed to be complied with when and if the following steps
are taken:
(a) All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address for Landlord set forth
below or at such other address as Landlord may specify from time to time by
written notice delivered in accordance herewith. Tenant's obligation to pay
rent and any other amounts to Landlord under the terms of this Lease shall
not be deemed satisfied until such rent and other amounts have been actually
received by Landlord. In addition to base rental due hereunder, all sums of
money and all payments due Landlord hereunder shall be deemed to be
additional rental owed to Landlord.
(b) All payments required to be made by Landlord to Tenant hereunder shall
be payable to Tenant at the address set forth below, or at such other address
within the continental United States as Tenant may specify from time to time
by written notice delivered in accordance herewith.
(c) Any written notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not
when deposited in the United States Mail, postage prepaid, Certified Mail,
addressed to the parties hereto at the respective addresses set out below, or
at such other address as they have theretofore specified by written notice
delivered in accordance herewith.
24. HAZARDOUS WASTE. The term "Hazardous Substances", as used in this Lease
shall mean pollutants, contaminants, toxic or hazardous materials or wastes,
petroleum products or any other substances, the removal of which is required
or the use of which is restricted prohibited or penalized by any
"Environmental Law", which terms shall mean any and all federal, state or
local laws including statutes, regulations, ordinances, codes, rules and
other governmental restrictions and requirements relating to the environment,
hazardous substances, or petroleum products including, but not limited to,
the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal
Clean Water Act, the Federal Resource Conservation and Recovery fact of 1976,
the Federal Comprehensive Environmental Responsibility, Cleanup and Liability
Act of 1980, regulations of the Environmental Protection Agency, regulations
of the nuclear Regulatory Agency, regulations or laws administered by OSHA
and regulations of any state department of natural resources or state
environmental protection agency now or at any time hereinafter in effect.
Tenant hereby agrees that (i) no activity will be conducted BY TENANT on the
Premises that shall produce any Hazardous Substance, except for such
activities that are part of the ordinary course of Tenant's business (the
"Permitted Activities") provided said Permitted Activities are conducted in
accordance with all Environmental Laws, are fully and completely disclosed to
Landlord, and are expressly approved in advance in writing by Landlord; (ii)
the Premises shall not be used BY TENANT in any manner for the storage of
HAZARDOUS SUBSTANCES, EXCEPT FOR those Hazardous Substances, except for such
storage that is in the ordinary course of Tenant's business in amounts
appropriate for such use (the "Permitted Material") UNLESS-such
Permitted Materials are properly stored in a manner and location meeting all
Environmental Laws, are fully and completely disclosed to Landlord, and are
expressly approved in advance in writing by Landlord; (iii) no portion of the
Premises shall be used BY TENANT as a landfill or a dump; (iv) Tenant shall
not install any underground tanks of any type; (v) Tenant shall not CAUSE-any
surface or subsurface conditions to exist or come into existence that
constitute, or with the passage of time may constitute, a public or private
nuisance; (vi) Tenant shall not permit any Hazardous Substances to be brought
onto the Premises IN CONNECTION WITH TENANT'S BUSINESS, except for the
Permitted Materials, and if so brought or found located thereon, the same
shall be immediately removed, with proper disposal, and all required removal
and cleanup procedures (AS REQUIRED BY LAW IN THE EVENT OF A RELEASE OF SUCH
HAZARDOUS SUBSTANCES SUBJECT TO SUCH REMOVAL) shall be diligently undertaken
pursuant to all Environmental Laws. IINSTER 1.) ATTACHED AS EXHIBIT C HERETO
AND INCORPORATED HERIN BY THIS REFERENCE IS A LIST OF PERMITTED MATERIALS
WHICH TENANT EXPECTS TO USE AT THE PREMISES, AND SUCH LIST ANDD ALL
REASONABLE SUBSTITUTES ARE HEREBY DEEMED APPROVED IN ADVANCE BY LANDLORD.
Tenant shall immediately give Landlord written notice as soon as Tenent
becomes aware of any suspected breach of this Paragraph, or any condition or
circumstance which makes the
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WITH THE PREMISES, or which seeks criminal or punitive penalties from Tenant
for an alleged violation of Environmental Laws, or otherwise pertaining to
Hazardous Substances which may affect the Premises, together with a copy
thereof. In the event TENANT CAUSES ANY RELEASE OF ANY HAZARDOUS SUBSTANCES
WITHIN THE PREMISES, Tenant agrees, at the request of Landlord, to permit an
environmental audit, to be conducted by the Landlord or an independent agent
selected by the Landlord TO BE CONDUCTED UPON FORTY-EIGHT (48) HOURS ADVANCE
NOTICE AT A REASONABLE TIME AND IN A MANNER WHICH SHALL NOT BE UNREASONABLY
DISRUPTIVE TO TENANT'S USE OF THE PREMISES. This provision shall not relieve
the Tenant from conducting its own environmental audits or taking any other
steps necessary to comply with Environmental Laws. Landlord, in the event it
is named as a party, shall have the right, but not the obligation, to join
and participate in any legal proceedings or actions initiated in connection
with any matters related to Environmental Laws and to have its attorneys'
fees in connection therewith paid by Tenant. Tenant shall, at Landlord's
request, defend all suits, actions or proceedings commenced against Landlord
with counsel approved by Landlord, in Landlord's sole discretion, and Tenant
shall pay all costs and judgments associated therewith. Tenant shall
indemnify, defend and hold Landlord, and any property manager of the
Premises, their directors, officers, employees, agents, successors and
assigns (THE "LANDLORD INDEMNITIES"), harmless from and against all claims,
demands, actions, losses, liabilities, costs, expenses, damages and
obligations of any nature (including, without limitation, diminution in value
of the Premises; all consequential damages; the cost of any required or
necessary repair, cleanup or detoxification of the Premises; the preparation
and implementation of any closure, remedial or other required plans; damages
for the loss or restriction on use of rentable or usable space or of any
amenity of the Premises; damages arising from any adverse impact on marketing
of space; damages to adjacent property; costs of restoring the Premises, and
sums paid in settlement of claims, attorneys' fees, court costs, consultant
fees, and expert fees, COLLECTIVELY "LIABILITIES") incurred by or asserted
against Landlord and directly or indirectly as a result of, arising from,
connected with, or attributable to TENANT'S, or the generation, storage,
release, threatened release, discharge, disposal, removal or presence of any
Hazardous Substances BROUGHT ONTO THE PREMISES BY TENANT OR ITS CONTRACTOR,.
or relating to any activity, act or omission BY TENANT OR ITS CONTRACTORS
involving Hazardous Substance, or TENANT'S noncompliance with any
Environmental Law, PROVIDED THAT THE FOREGOING INDEMNITY DEFENSE AND HOLD
HARMLESS OBLIGATIONSOF TENANT SHALL NOT APPLY TO THE EXTENT ANY SUCH
LIABILITIES ARE CAUSED, OR CONTRIBUTED TO BY ANY OF THE LANDLROD INDEMNITIES
OR THEIR CONTRACTORS. (INSERT 2) LANDLORD SHALL INDEMNIFY, DEFEND AND HOLD
TENANT, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS
(THE "TENANT INDEMNITIES"), HARMLESS FROM AND AGAINST ALL LIABILITIES
INCURRED OR ASSERTED AGAINST TENANT AND DIRECTLY OR INDIRECTLY AS A RESULT
OF, ARISING FROM, CONNECTED WITH, OR ATTRIBUTABLE TO (I) THE GENERATION,
INSTALLATION, STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, OR
REMOVAL FO ANY HAZARDOUS SUBSTANCES BY A LANDLORD INDEMNITEE OR THEIR
CONTRACTORS, OR (II) ANY ACTIVITY, ACT OR OMISSION INVOLVING HAZARDOUS
SUBSTANCES, OR ANY NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAW, BY A LANDLORD
INDEMNITEE OR THEIR CONTRACTORS, The foregoing indemnification shall survive
the termination or expiration of the Lease. Notwithstanding anything to the
contrary contained in this Lease, any default under the terms of this
Paragraph shall be a material default under this Lease enabling Landlord, at
Landlord's option, to immediately exercise any of the remedies set forth in
this Lease, in addition to any other remedies available to Landlord, without
notice to Tenant and without obligation to provide any grace or cure period
to Tenant. Notwithstanding anything to the contrary contained herein,
Landlord's approval of any activity or storage relating to any Hazardous
Substance is not intended to, and shall not, be deemed an undertaking by
Landlord to determine whether or not such activity or storage is in
compliance with Environmental Laws and Landlord assumes no responsibility
with respect thereto.
25. ADDITIONAL PROVISIONS. See EXHIBITS "A", "B", "C" attached hereto and
incorporated by reference herein.
Page 9
<PAGE>
EXECUTED BY LANDLORD, this _________ day of ___________, 19__.
Attest /Witness SSMRT BENSENVILLE INDUSTRIAL
PARK (3), INC.
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By: /s/ [ILLEGIBLE]
- ------------------------ -----------------------
Title: Title: ASSET MANAGER 6-4-96
------------------ --------------------
ADDRESS:
-------------------------
-------------------------
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EXECUTED BY TENANT, this _____________ day of _________, 19 ___.
Attest/Witness
- -------------------------- -------------------------
By: /s/ Rocky Genovese
- --------------------------- ----------------------
Title: Title: President
--------------------- --------------------
ADDRESS:
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Page 10
<PAGE>
EXHIBIT "A"
LANDLORD WILL PERFORM THE FOLLOWING SPACE IMPROVEMENTS:
1. Demo a portion of existing office space.
2. Clean and seal warehouse floor.
3. Install glass entrance door.
4. Repaint office area.
5. Install tile in general office area. (Tenant to supply tile).
6. Install concrete block to existing rail door.
Within ten (10) days after the commencement date Tenant shall submit to
Landlord a punch list of items needing completion or correction. Landlord
shall use its best efforts to complete such items within (14) days after the
receipt of such notice.
<PAGE>
EXHIBIT "B"
That part of Lot 6 in Thorndale Distribution Park in Bensenville, Unit 2,
Being a Subdivision of part of the South 1/2 of Section 2, Township 40.
North, Range 11, East of the Third Principal Meridian, according to the Plat
thereof recorded November 7, 1977 as Document No. R77-102030 and consent to
contents and recordation of Plat recorded January 31, 1978 as Document No.
R78-08789, described as follows: beginning at the intersection of the East
line of said Lot 6 with a line 702.00 feet, as measured at right angles,
south of and parallel with the north line of said Lot 6; thence South 00
degress 34 minutes 25 seconds East along the East line of said Lot 6, 616.51
feet; thence South 89 degrees 28 minutes 26 seconds West, 640.12 feet to the
West line of said Lot 6; thence North 00 degrees 31 minutes 34 seconds West
along the West line of said Lot 6, 607.55 feet to an intersection with a line
702.00 feet, as measured at right angles, south of and parallel with the
North line of said Lot 6; thence North 88 degrees 40 minutes 15 seconds East
along said last described parallel line, 639.67 feet to the place of
beginning, in DuPage County, Illinois containing a 201,492 square foot
building commonly referred to as 870 Thomas Drive in Bensenville, Illinois
60106.
<PAGE>
EXHIBIT "C"
[Site Plan]
<PAGE>
PERMITTED MATERIALS
EXHIBIT "C"
I. NON-FLAMMABLE SOLVENT FREE FLOORING ADHESIVES:
- BR 200-92
- BR-102
- BR-829
- BR-830
- BR-831
II. OTHER:
- ZYLENE
- BR700 - ROOFING ADHESIVE
- BR772 - LINER WELD
<PAGE>
EXHIBIT 10.14
LEASE AGREEMENT
(NET)
BASIC LEASE INFORMATION
LEASE DATE: October 20, 1995
LESSOR: Lincoln Property Company
No. 2106 Limited Partnership
LESSOR'S ADDRESS: c/o Lincoln Property Company Management Services,
Inc.
P.O. Box 19693, 30 Executive Park, Suite 100
Irvine, California 92713-9693
LESSEE: Burke Industries, Inc.
LESSEE'S ADDRESS: 13767 Freeway Drive
Santa Fe Springs, California 90670
PREMISES: Approximately 80,722 square feet as shown on
Exhibit A
PREMISES ADDRESS: 13767 Freeway Drive
Santa Fe Springs, California 90670
BUILDING: 80,722 square feet
LOT (BUILDING'S
TAX PARCEL): Land on which the Building is
located
PARK: Consists of the Building and
the Lot
TERM: September 1, 1995 ("Commencement Date"), through
January 31, 2001 ("Expiration Date")
BASE RENT (PARA 3): Twenty-Five Thousand Eight Hundred Thirty-One
Dollars ($25,831) per month
ADJUSTMENTS TO BASE RENT: February 1, 1996 - $28,033.00 per month
March 1, 1997 - CPI adjustment to monthly Base
Rent per Addendum II.
September 1, 1998 - CPI adjustment to monthly Base
Rent per Addendum II.
March 1, 2000 - CPI adjustment to monthly Base
Rent per Addendum II.
SECURITY DEPOSIT (PARA 4.A): Twenty-Eight Thousand Thirty-Three Dollars
($28,033)
CLEANING DEPOSIT (PARA 4.B): None
*LESSEE'S SHARE OF OPERATING
EXPENSES (PARA 6.A): 100% of the [Building/Lot/Park]
*LESSEE'S SHARE OF TAX
EXPENSES (PARA 6.B): 100% of the [Building/Lot/Park]
*LESSEE'S SHARE OF COMMON
AREA UTILITY COSTS (PARA 7): 100% of the [Building/Lot/Park]
PERMITTED USES: The manufacture, distribution, warehousing, and
sales administration of rubber elastomeric
products and compounds and related administrative
offices.
GENERAL LIABILITY INSURANCE
AMOUNT (PARA 12): Bodily injury limit of not less than $1,000,000
per occurrence; Property damage limit of not less
than $1,000,000 per occurrence; Combined single
limit of not less than $2,000,000.
UNRESERVED PARKING SPACES: Exclusive and undesignated spaces within fenced
area.
BROKER (PARA 38): None
EXHIBITS: Exhibit A - Premises, Building, Lot and/or Park
Exhibit B - Tenant Improvements
Exhibit C - Rules and Regulations
Exhibit E - Form of Subordination,
Nondisturbance and Attornment
Agreement
Exhibit F - Hazardous Materials Disclosure
Certificate
Exhibit G - Intentionally Omitted
Exhibit H - Intentionally Omitted
ADDENDA: Addendum I: Option to Extend
Addendum II: CPI Calculation and Adjustments
1
<PAGE>
LEASE AGREEMENT
DATE: This Lease is made and entered into as of the Lease Date defined on
Page 1. The Basic Lease information set forth on Page 1 and this Lease
are and shall be construed as a single instrument.
1. PREMISES: Lessor hereby leases the Premises to Lessee upon the terms and
conditions contained herein. Lessee shall have the right to use, on a
non-exclusive basis, parking areas and ancillary facilities located within the
Common Area (as defined below) of the Park, subject to the terms of this Lease.
Lessee shall have the right of access to the Premises, the Building, and the
Park twenty-four (24) hours per day, seven (7) days per week during the term of
the Lease. Notwithstanding anything to the contrary set forth in the Lease,
Lessor shall not take any actions of regulating or restricting the use of the
Common Areas without the prior consent of Lessee if any such action is likely to
have a material adverse affect on Lessee's use of or access to the Premises or
the Park; provided, however, Lessor may take the foregoing actions without the
prior consent of Lessee in the event of an emergency, repairs or in order to
comply with laws. Lessee shall have the right to install its own security system
in the Premises, provided that the same does not interfere with the operation of
the Park security system, if any. As used herein, the term "Building" means the
building in which the Premises are located; the term "Lot" means the land on
which the Building is located; and the term "Park" means the Building and the
Lot.
2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES: As of the
Lease Date, Lessee is already occupying the Premises pursuant to that certain
Month-To-Month Rental Agreement effective as of January 29, 1995, between Lessor
and Lessee (the "Original Lease Agreement"). The parties acknowledge that Lessee
first took occupancy of the Premises on or about January 29, 1995 pursuant to
the Original Lease Agreement. The Original Lease Agreement shall terminate and
be of no further force or effect from and after the date on which the parties
execute and deliver this Lease. The initial Lease term and the obligation to pay
Rent shall commence on the Commencement Date and continue through the Expiration
Date. In addition to the foregoing, Lessee shall be required to deliver to
Lessor the Security Deposit and the insurance certificates required under the
provisions of this Lease upon the execution of this Lease by Lessee. By taking
possession of the Premises, Lessee shall be deemed to have already accepted the
Premises in a good, clean and completed condition and state of repair, in
compliance with all applicable laws, codes, regulations, administrative orders
and ordinances, and subject to all matters of record. Notwithstanding the
foregoing, Lessee shall not be responsible for costs associated with any latent
defect in the original construction of the Building. Lessee hereby acknowledges
and agrees that neither Lessor nor Lessor's agents or representatives has made
any representations or warranties as to the suitability, safety or fitness of
the Premises for the conduct of Lessee's business, Lessee's intended use of the
Premises or for any other purpose, and that neither Lessor nor Lessor's agents
or representatives has agreed to undertake any alterations or construct any
Tenant Improvements to the Premises except as expressly provided in Section 5 of
this Lease. Lessee hereby agrees that the completion by Lessor of the Tenant
Improvements referred to in Section 5 below, and as more particularly described
in Exhibit B to this Lease, shall not in any manner extend, delay nor otherwise
affect the Commencement Date and the Expiration Date of this Lease.
3. RENT: On the date that Lessee executes this Lease, Lessee shall deliver to
Lessor the original executed Lease, the Security Deposit, and all insurance
certificates evidencing the insurance required to be obtained by Lessee under
Paragraph 12 of this Lease. Lessee agrees to pay Lessor, without prior notice or
demand, or abatement, offset, deduction or claim, except as otherwise provided
herein, the Base Rent described on Page 1, payable in advance at Lessor's
address shown on Page 1 on the first day of each month throughout the term of
the Lease. In addition to the Base Rent set forth on Page 1, Lessee shall pay
Lessor in advance and on the first (1st) day of each month throughout the term
of this Lease (including any extensions of such term), as additional rent
Lessee's share, as set forth on Page 1, of Operating Expenses, Tax Expenses,
Common Area Utility Costs, administrative expenses and Utility Expenses, as
specified in Paragraphs 6.A., 6.B., 6.C. and 7 of this Lease, respectively.
Additionally, Lessee shall pay to Lessor as additional rent hereunder, within
thirty (30) days after Lessor's written demand therefore (which demand may be
made by delivery of a bill or statement to Lessee), any and all out-of-pocket
costs and expenses incurred by Lessor to enforce the provisions of this Lease,
including, but not limited to, costs associated with any proposed assignment or
subletting of all or any portion of the Premises by Lessee, costs associated
with the delivery of notices, delivery and recordation of notice(s) of default,
reasonable attorneys' fees, expert fees, court costs and filing fees
(collectively, the "Enforcement Expenses"). The term "Rent" whenever used herein
refers to the aggregate of the Base Rent, Lessee's share of Operating Expenses,
Tax Expenses, Insurance Expenses, Administrative Expenses and Utility Expenses,
Enforcement Expenses and all other amounts described herein as "additional
rent.". If Lessor permits Lessee to occupy the Premises without requiring Lessee
to pay rental payments for a period of time, the waiver of the requirement to
pay rental payments shall only apply to waiver of the Base Rent
2
<PAGE>
and Lessee shall otherwise perform all other obligations of Lessee hereunder,
including, but not limited to paying to Lessor any and all amounts considered
additional rent, such as Lessee's share of Operating Expenses, Tax Expenses,
Common Area Utility Costs, Utility Expenses, and administrative expenses. If, at
any time, Lessee is in default of or otherwise breaches any term, condition or
provision of this Lease, any such waiver by Lessor of Lessee's requirement to
pay rental payments shall be null and void and Lessee shall immediately pay to
Lessor all rental payments waived by Lessor. The Rent for any fractional part of
a calendar month at the commencement or termination of the Lease Term shall be a
prorated amount of the Rent for a full calendar month based upon the actual days
in the month. The prorated Rent shall be paid on the Commencement Date and the
first day of the calendar month in which the date of termination occurs, as the
case may be.
4. SECURITY DEPOSIT AND CLEANING DEPOSIT:
A. SECURITY DEPOSIT: Upon Lessee's execution of this Lease, Lessee shall
deliver to Lessor, as a Security Deposit for the performance by Lessee of its
obligations under this Lease, the amount described on Page 1. If Lessee is in
default beyond the applicable notice and cure period, Lessor may, but without
obligation to do so, use the Security Deposit, or any portion thereof, to cure
the default or to compensate Lessor for all damages sustained by Lessor
resulting from Lessee's default, including, but not limited to the Enforcement
Expenses. Lessee shall, immediately on demand, pay to Lessor a sum equal to the
portion of the Security Deposit so applied or used so as to replenish the amount
of the Security Deposit held up to the amount initially deposited with Lessor.
Upon Lessor's written request, concurrently with any increase in the Base Rent,
Lessee shall deliver to Lessor an amount equal to such increase, which amount
shall be added to the Security Deposit being held by Lessor and shall be deemed
a part of such Security Deposit thereafter. As soon as practicable after the
termination of this Lease, but in no event later than sixty (60) days after such
termination, Lessor shall return the Security Deposit to Lessee, less such
amounts as are reasonably necessary, to remedy Lessee's default(s) hereunder or
to otherwise restore the Premises to the condition existing as of the
Commencement Date, reasonable wear and tear and casualty excepted. If the cost
to restore the Premises exceeds the amount of the Security Deposit, Lessee shall
promptly deliver to Lessor any and all of such excess sums as reasonably
determined by Lessor. Lessor shall not be required to keep the Security Deposit
separate from other funds, and, unless otherwise required by law, Lessee shall
not be entitled to interest on the Security Deposit. In no event or circumstance
shall Lessee have the right to any use of the Security Deposit and,
specifically, Lessee may not use the Security Deposit as a credit or to
otherwise offset any payments required hereunder, including, but not limited to,
Rent or any portion thereof.
5. CONDITION OF PREMISES: Lessee has already accepted possession of the
Premises in its current "as is" condition as of the Lease Date. The parties
hereby acknowledge and agree that after the Commencement Date Lessor intends to
construct and install (or cause the construction and installation of) certain
improvements and additions in and to the Premises (the "Tenant Improvements"),
which construction and installation shall be subject to, and in accordance with,
the provisions of Exhibit B to this Lease. Lessee shall not be responsible for
costs associated with any latent defect in the original construction of the
Building. Lessee acknowledges that neither Lessor nor any of Lessor's agents,
representatives or employees has made any representations as to the suitability
or fitness of the Premises for the conduct of Lessee's business or for any other
purpose, and that neither Lessor nor any of Lessor's agents, representatives or
employees has agreed to undertake any alterations or construct any Tenant
3
<PAGE>
Improvements to the Premises except as expressly provided in Exhibit B to this
Lease.
6. EXPENSES:
A. OPERATING EXPENSES: In addition to the Base Rent set forth in
Paragraph 3, Lessee shall pay its share, which is defined on Page 1, of all
Operating Expenses as additional rent. The term "Operating Expenses" as used
herein shall mean the total amounts paid or payable by Lessor in connection with
the ownership, maintenance, repair and operation of the Premises, the Building
and the Lot, and where applicable, of the Park referred to on Page 1. These
Operating Expenses may include, but are not limited to:
(i) Lessor's cost of non-structural repairs to and maintenance
of the exterior walls of the Building;
(ii) Lessor's cost of maintaining the outside paved area,
landscaping and other common areas for the Park. The term "Common Area"
shall mean all areas and facilities within the Park exclusive of the
Premises. The Common Area includes, but is not limited to, parking areas,
access and perimeter roads, sidewalks, landscaped areas and similar areas
and facilities;
(iii) Lessor's annual cost of insurance insuring against fire and
extended coverage (including "all risk" coverage) and all other insurance,
including, but not limited to, earthquake, flood and/or surface water
endorsements for the Building, the Lot and the Park and rental value
insurance against loss of Rent in an amount equal to the amount of Rent for
a period of at least six (6) months but not more than twelve (12) months
commencing on the date of loss;
(iv) Lessor's cost of modifications to the Building, the Common
Area and/or the Park occasioned by any rules, laws or regulations effective
subsequent to the commencement of the Lease subject to Paragraph 6A. (7)
below;
(v) Lessor's cost of modifications to the Building, the Common
Area and/or the Park occasioned by any rules, laws or regulations arising
from Lessee's use of the Premises regardless of when such rules, laws or
regulations became effective;
(vi) If Lessor elects to so procure, Lessor's cost of
preventative maintenance, repair and replacement contracts including, but
not limited to, contracts for elevator systems and heating, ventilation and
air conditioning systems, and trash or refuse collection;
(vii) Lessor's cost of security and fire protection services for
the Park, if in Lessor's sole discretion such services are provided;
(viii) Lessor's establishment of reasonable reserves for
replacements and/or repairs of Common Area improvements, equipment and
supplies, repair or replacement of which would be properly included in
Operating Expenses; provided, however, upon expiration or earlier
termination of this Lease, Lessee shall be appropriately credited or
reimbursed for any such reserves to the extent Lessor has not actually
drawn upon such reserves;
(ix) Lessor's cost for the creation and negotiation of, and
pursuant to, any rail spur or track agreements, licenses, easements or
other similar undertakings; and
(x) Lessor's cost of supplies, equipment, rental equipment and
other similar items used in the operation and/or maintenance of the Park.
Notwithstanding the foregoing, for purposes of this Lease, Operating
Expenses shall not, however, include:
1. bad debt expenses and interest, principal, points and fees
on debts (except in connection with the financing of items which may be
included in Operating Expenses) or amortization on any mortgage or
mortgages or any other debt instrument encumbering the Park, including the
land on which the Park is situated;
2. real estate brokers' leasing commissions;
3. any costs expressly excluded from Operating Expenses
elsewhere in this Lease;
4
<PAGE>
4. costs of any items including, but not limited to, costs
incurred by Lessor for the repair or damage to the Park to the extent
Lessor receives reimbursement from insurance proceeds or from a third party
(such reimbursement to be deducted from Operating Expenses in the year in
which received, except that any deductible amount under any insurance
policy shall be included within Operating Expenses);
5. costs of capital improvements, except for (i) capital
repairs and replacements to the existing Building or equipment, including,
without limitation, seismic upgrades to the Building, and (ii) capital
improvements constructed after the Commencement Date in order to comply
with any governmental law or regulation that was enacted subsequent to the
Commencement Date (but specifically not including any re-enactment or
subsequent codification, local or otherwise, of any laws or regulations
existing as of the Commencement Date, including without limitation the
Americans with Disabilities Act or any state or local codification
thereof); in either event such capital costs shall be amortized over their
useful life, together with interest at the actual interest rate incurred by
Lessor. Notwithstanding the foregoing, in no event shall Operating Expenses
include capital improvements of or repairs to structural, foundation or
roof portions of the Building for which Lessor is otherwise specifically
responsible to maintain hereunder;
6. rentals and other related expenses for leasing a HVAC
system, elevators, or other items (except when needed in connection with
normal repairs and maintenance of the Park) which if purchased, rather than
rented, would constitute a capital improvement not included in Operating
Expenses pursuant to this Lease;
7. depreciation, amortization and interest payments, except as
specifically included in Operating Expenses pursuant to the terms of this
Lease and except on materials, tools, supplies and vendor-type equipment
purchased by Lessor to enable Lessor to supply services Lessor might
otherwise contract for with a third party, where such depreciation,
amortization and interest payments would otherwise have been included in
the charge for such third party's services, all as determined in accordance
with generally accepted accounting principles, consistently applied, and
when depreciation or amortization is permitted or required, the item shall
be amortized over its reasonably anticipated useful life;
8. costs incurred by Lessor for alterations (including
structural additions), repairs, equipment and tools which are of a capital
nature and/or which are considered capital improvements or replacements
under generally accepted accounting principles, consistently applied,
except as specifically included in Operating Expenses pursuant to the terms
of this Lease;
9. costs incurred by Lessor due to the violation by Lessor of
the terms and conditions of any lease of space in the Park;
10. overhead and profit increment paid to Lessor or to
subsidiaries or affiliates of Lessor for goods and/or services in the Park
to the extent the same exceeds the costs of such by unaffiliated third
parties on a competitive basis;
11. any costs of Lessor's general corporate overhead and general
and administrative expenses, that are in excess of the Administrative
Expenses (as defined below);
12. advertising and promotional expenditures, and costs of signs
in or on the Park identifying the owner of the Park;
13. tax penalties incurred as a result of Lessor's negligence,
inability or unwillingness to make payments or file returns when due,
unless such inability or unwillingness is due, in whole or in part, to
Lessee's failure to pay amounts due hereunder when the same are due;
14. costs arising from Lessor's charitable or political
contributions;
15. costs of repairs to the Building necessitated by or
resulting from the gross negligence of Lessor, or any of its agents,
employees or independent contractors;
16. any ground lease rental;
17. notwithstanding any contrary provision of this Lease,
including without limitation, any provision relating to capital
expenditures, cost arising from the presence of Hazardous Materials (as
defined in Paragraph 29 below), in or about the Park, but only to the
extent not introduced or contributed to by Lessee.
5
<PAGE>
B. TAX EXPENSES: In addition to the Base Rent set forth in Paragraph 3,
Lessee shall pay one hundred percent (100%) of all real property taxes
applicable to the Park (including the Lot and the Building) and one hundred
percent (100%) of all personal property taxes now or hereafter assessed or
levied against the Premises or Lessee's personal property. Lessee shall also pay
any increase in real property taxes attributable, in Lessor's sole discretion,
to any and all alterations, Tenant Improvements or other improvements of any
kind whatsoever placed in, on or about the Premises for the benefit of, at the
request of, or by Lessee. The term "Tax Expenses" includes, but is not limited
to, any form of tax and assessment (general, special, ordinary or
extraordinary), commercial rental tax, payments under any improvement bond or
bonds, license, rental tax, transaction tax, levy, or penalty imposed by
authority having the direct or indirect power of tax (including any city,
county, state or federal government, or any school, agricultural, lighting,
drainage or other improvement district thereof) as against any legal or
equitable interest of Lessor in the Premises, Lot or Park, as against Lessor's
right to rent or other income therefrom, or as against Lessor's business of
leasing the Premises or the occupancy of Lessee or any other tax, fee, or
excise, however described (excluding inheritance or estate taxes), including any
value added tax, or any tax imposed in substitution, partially or totally, of
any tax previously included within the definition of real property taxes, or any
additional tax the nature of which was previously included within the definition
of real property tax. Notwithstanding anything to the contrary contained in the
Lease, Tax Expenses shall not include (i) any excess profits taxes, franchise
taxes, gift taxes, capital stock taxes, inheritance an succession taxes, estate
taxes, federal and state income taxes, and other taxes to the extent applicable
to Lessor's general or net income (as opposed to rents or receipts), (ii) any
items for which Lessee or other tenants are directly liable pursuant to their
leases, (iii) penalties incurred as a result of Lessor's negligence, inability
or unwillingness to make payment of, and/or to file any tax or informational
returns with respect to, any real property taxes or assessments, when due,
unless such inability or unwillingness is due, in whole or in part, to Lessee's
failure to pay amounts due hereunder when the same are due; or (iv) any other
taxes or assessments charged or levied against Lessor which are not related to
the use, ownership or operation of the Park
With respect to any assessments or taxes for which Lessor has the right to
elect to make a lump sum payment or cause such assessment or tax to be amortized
and paid over a reasonable period of time at a reasonably acceptable interest
rate, Lessor shall only include in the definition of Tax Expenses the amortized
portion of such taxes and assessments (including any applicable interest
charges) for purposes of this Lease. The parties acknowledge and agree that as
of the Lease Date Lessor is currently employing a firm that specializes in
reviewing and possibly contesting taxes and assessments levied against the Park
and other properties (the "Tax Consultant"). If at any time during the term of
this Lease Lessor permanently ceases to employ the Tax Consultant or another
firm to provide services similar to those being provided by the Tax Consultant
with respect to the Park or if the tax consultant chooses not to contest the Tax
Expenses in a given year, Lessee shall thereafter have the following right to
contest the Tax Expenses payable by Lessee hereunder and any other taxes payable
by Lessee with respect to the Premises. Provided Lessee is not in default of any
of the terms, provisions or obligations under this Lease beyond all notice and
applicable cure periods, and Lessee has delivered to Lessor at least sixty (60)
days prior written notice of Lessee's intention to initiate such a proceeding,
Lessee shall have the right to contest the amount or validity of the Tax
Expenses payable by Lessee hereunder and any other taxes payable by Lessee with
respect to the Premises by appropriate administrative and legal proceedings
brought either in its own name, Lessor's name or jointly with Lessor. Any such
proceeding shall be undertaken by counsel selected by Lessee and reasonably
approved by Lessor, and if Lessee deems it appropriate, such measures shall be
taken in the name of Lessee. Lessor hereby agrees that it will promptly upon
receipt of a written request therefor from Lessee (but in no event later than
forty-five (45) business days after Lessor's receipt of such written request)
furnish Lessee copies of all notices of assessment of Tax Expenses. Lessor shall
execute and deliver to Lessee whatever documents may be reasonably necessary or
proper to permit Lessee to so contest such taxes or which may be necessary to
secure payment of any refund which may result from any such proceedings;
provided, however, if Lessee makes such contest Lessee shall be solely
responsible for any and all penalties and liabilities arising therefrom as well
as for providing such security as Lessor may reasonably request in connection
with any such contest. Any such proceeding shall be undertaken at the sole cost
and expense of Lessee. Any tax refund shall, only to the extent of the Tax
Expenses payable by Lessee hereunder and any other taxes payable by Lessee with
respect to the Premises actually paid by Lessee to Lessor for the fiscal tax
year or years being contested, belong solely to Lessee to the extent such refund
is attributable to the Premises and for a period concurrent with the term of the
Lease (otherwise an appropriate apportionment shall be made), and any excess
amount of any such refund shall belong solely to Lessor. In exercising such
right to contest the above-described taxes and assessments in no event or
circumstances shall Lessee permit all or any portion of the Premises, the Lot or
the Park to be sold or otherwise transferred to the taxing authorities or any
governmental agency in connection with any such contest.
C. PAYMENT OF EXPENSES AND ADMINISTRATIVE EXPENSES: Lessor shall
estimate Lessee's share of the Operating Expenses and Tax Expenses for the
calendar year in which the Lease commences. Commencing on the Commencement
Date, one-twelfth (1/12th) of this estimated amount shall be paid by
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Lessee to Lessor, as additional rent, on the first (1st) day of each month and
throughout the remaining months of such calendar year. Thereafter, Lessor may
estimate such expenses as of the beginning of each calendar year and Lessee
shall pay one-twelfth (1/12th) of such estimated amount as additional rent
hereunder on the first day of each month during such calendar year and for each
ensuing calendar year throughout the term of this Lease (including any
extensions of the term). Not later than March 31 of each of the following
calendar years, or as soon thereafter as reasonably possible, including the
calendar year after the calendar year in which this Lease terminates or the term
expires, Lessor shall furnish Lessee with a true and correct accounting of
actual Operating Expenses and Tax Expenses. Within thirty (30) days of Lessor's
delivery of such accounting, Lessee shall pay to Lessor the amount of any
underpayment. Notwithstanding the foregoing, failure by Lessor to give such
accounting by the date which is one year after the end of the applicable
calendar year shall constitute a waiver by Lessor of its right to collect any of
Lessee's underpayment other than any underpayment of Tax Expenses as to which
such failures shall not constitute a waiver at any time. Lessor shall credit the
amount of any overpayment by Lessee toward the next estimated monthly
installment(s) of Rent falling due, or where the term of the Lease has expired,
refund the amount of overpayment to Lessee. After receipt of a statement by
Lessee, if Lessee disputes the amount of additional rent set forth in the
statement, a certified public accountant employed be Lessee or an independent
certified public accountant designated by Lessee, may, after reasonable notice
to Lessor and at reasonable times, inspect and photocopy Lessor's records at
Lessor's offices in the greater Los Angeles area. If after such inspection,
Lessee still disputes such additional rent, a certification as to the proper
amount shall be made, at Lessee's expense, by an independent certified public
account mutually selected by Lessor and Lessee. If such certification proves
that the Operating Expenses set forth in the statement were overstated by more
than ten percent (10%), then the cost of Lessee's accountant and the cost of
such certification shall be paid for by Lessor; otherwise, the costs of Lessee's
accountant, the audit and the certification shall be paid for by Lessee.
Promptly following the parties receipt of such certification, the parties shall
make such appropriate payment or reimbursements, as the case may be, to each
other, as are determined to be owing pursuant to such certification, together
with interest at the rate of ten percent (10%) per annum from the date due until
paid, in the case of payments by Lessee to Lessor, or from the date paid until
reimbursed, in the case of reimbursements by Lessor to Lessee. Lessor shall
maintain records of all Operating Expenses set forth in each statement delivered
to Lessee for a three (3) year period following Lessor's delivery of the
applicable statement. The payment by Lessee of any amounts pursuant to the Lease
shall not preclude Lessee from questioning the correctness of any statement
delivered by Lessor. Lessee's obligations to pay its share of Operating Expenses
and Tax Expenses and Lessor's obligation to refund any overpayment as provided
above, shall survive the expiration or earlier termination of this Lease.
If the term of the Lease expires prior to the annual reconciliation of
expenses, if any, Lessor shall have the right to reasonably estimate Lessee's
share of such expenses, and if Lessor determines that an underpayment is due,
Lessee hereby agrees that Lessor shall be entitled to deduct such underpayment
from Lessee's Security Deposit subject to the annual reconciliation. If Lessor
reasonably determines that an overpayment has been made by Lessee, Lessor shall
refund said overpayment together with the return of Lessee's Security Deposit.
Notwithstanding the foregoing, failure of Lessor to accurately estimate Lessee's
share of such expenses shall not constitute a waiver of Lessor's right to
collect any of Lessee's underpayment at anytime.
In addition to the Base Rent set forth in Paragraph 3 hereof, Lessee shall
pay Lessor, without prior notice or demand, except as otherwise provided herein
on the first (1st) day of each month throughout the term of this Lease
(including any extensions of such term), as compensation to Lessor for
accounting and management services rendered on behalf of the Park, an amount
equal to ten percent (10%) of the aggregate of Lessee's share of (i) the total
Operating Expenses and Tax Expenses as described in Paragraphs 6.A. and 6.B.
above, respectively, and (ii) all Common Area Utility Costs for the Park as
described in Paragraph 7. Lessee's obligations to pay its share of such
administrative expenses shall survive the expiration or earlier termination of
this Lease.
7. UTILITIES: Lessee shall pay the cost of all water, sewer use and
connection fees, gas, heat, electricity, refuse pickup, janitorial service,
telephone and other utilities billed or metered separately to the Premises
and/or Lessee. Lessee shall also pay 100% of any assessments or charges for
utility or similar purposes included within any tax bill for the Lot on which
the Premises are situated. For any such utility fees or use charges that are not
billed or metered separately to Lessee, Lessee shall pay to Lessor, as
additional rent, without prior notice or demand, except as otherwise provided
herein on the first (1st) day of each month throughout the term of this Lease
the amount which is attributable to Lessee's use of the Premises ("Utility
Expenses"). If Lessee disputes any such estimate or determination, then Lessee
shall either pay the estimated amount (subject to Lessee's right to conduct an
audit, as provided above) or cause the Premises to be separately metered at
Lessee's sole expense. In addition, Lessee shall pay; Lessor as additional
rent, 100% of any Common Area utility costs, fees, charges or expenses ("Common
Area Utility Costs") within fifteen (15) days after receiving a bill from
Lessor. Lessee acknowledges that the Premises may become subject to the
rationing of utility services or restrictions on utility use as
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required by a public utility company, governmental agency or other similar
entity having jurisdiction thereof. Notwithstanding any such rationing or
restrictions on use of any such utility services, Lessee acknowledges and agrees
that its tenancy and occupancy hereunder shall be subject to such rationing
restrictions as may be governmentally imposed or imposed by a utility company
upon Lessor, Lessee, the Premises, the Building or the Park, and Lessee shall in
no event be excused or relieved from any covenant or obligation to be kept or
performed by Lessee by reason of any such rationing or restrictions. Lessee
further agrees to pay and discharge, prior to delinquency, any amount, tax,
charge, surcharge, assessment or imposition attributed to the Term of this Lease
and levied, assessed or imposed upon the Premises, or Lessee's use and occupancy
thereof, or as a result directly or indirectly of any such rationing or
restrictions.
8. LATE CHARGES: Lessee acknowledges that late payment by Lessee to Lessor of
Base Rent, Lessee's share of Operating Expenses, Tax Expenses, Common Area
Utility Costs, Utility Expenses or other sums due hereunder, will cause Lessor
to incur costs not contemplated by this Lease, the exact amount of such costs
being extremely difficult and impracticable to fix. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Lessor by the terms of any note secured by any encumbrance against
the Premises, and late charges and penalties due to the late payment of real
property taxes on the Premises. Therefore, if any installment of Rent or any
other sum due from Lessee is not received by Lessor within ten (10) days
following the date of written notice that such installment or other sum is due,
(provided, the delivery of the normal monthly or other billing statements shall,
without limitation, constitute written notice as it pertains to Base Rent and
recurring monthly charges, and the delivery of a written invoice constitutes
written notice for any other sums due), Lessee shall promptly pay to Lessor all
of the following, as applicable: (a) an additional sum equal to seven percent
(7%) of such delinquent amount plus interest on such delinquent amount at the
rate equal to the prime or reference rate announced from time to time by Bank of
America at its main office in San Francisco, California (hereafter, the "prime
rate") plus two percent (2%) for the time period such payments are delinquent as
a late charge for every month or portion thereof that such sums remain unpaid,
(b) the amount of seventy-five dollars ($75) for each three-day notice prepared
for, or served on, Lessee, (c) the amount of fifty dollars ($50) relating to
checks for which there are not sufficient funds. The parties agree that this
late charge and the other charges referenced above represent a fair and
reasonable estimate of the costs that Lessor will incur by reason of late
payment by Lessee. Acceptance of any late charge or other charges shall not
constitute a waiver by Lessor of Lessee's default with respect to the delinquent
amount, nor prevent Lessor from exercising any of the other rights and remedies
available to Lessor for any other breach of Lessee under this Lease.
9. USE OF PREMISES: The Premises are to be used solely for the uses stated on
Page 1 and for no other uses or purposes without Lessor's prior written consent
which consent shall not be unreasonably withheld. The use of the Premises by
Lessee and its agents, invitees and employees shall be subject to, and at all
times in compliance with, (a) any and all applicable laws, ordinances, statutes,
orders and regulations as same exist from time to time (collectively, the
"Laws"), and (b) any and all declarations of covenants, conditions and
restrictions ("CC&Rs") and any supplement thereto that are hereafter recorded in
any official or public records with respect to the Premises, the Building, the
Lot and/or the Park, or any portion thereof; provided, Lessor agrees that after
the Lease date it will not enter in to any CC&Rs that would materially,
adversely affect Lessee's rights hereunder.
Lessee shall not use the Premises or permit anything to be done in or about
the Premises nor keep or bring anything therein which will in any way conflict
with any of the requirements of the Board of Fire Underwriters or similar body
now or hereafter constituted or in any way increase the existing rate of or
affect any policy of fire or other insurance upon the Building or any of its
contents, or cause a cancellation of any insurance policy. Lessee shall not do
or permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of Lessor, or use or allow the Premises to
be used for any, unlawful or objectionable purpose, as reasonably determined by
Lessor, nor shall Lessee cause, maintain or permit any private or public
nuisance in, on or about the Premises, Building, Park and/or the Common Area,
including, but not limited to, any offensive odors, fumes or vibrations. Lessee
shall not damage or deface or otherwise commit or suffer to be committed any
waste in, upon or about the Premises. Lessee shall not permit any animals,
including, but not limited to, any household pets, to be brought or kept in or
about the Premises. Lessee shall place no loads upon the floors, walls, or
ceilings in excess of the maximum designed load permitted by the applicable
Uniform Building Code or which may damage the Building or outside Park; nor
place any harmful liquids in the drainage systems; nor dump or store waste
materials, refuse or other such materials, or allow such to remain outside the
Building area, except in refuse dumpsters or in any enclosed trash areas
provided. Lessee shall honor the rules and regulations set forth in Exhibit C,
attached to and made a part of this Lease, and any other reasonable rules and
regulations of Lessor now or hereafter enacted related to parking and the
operation of the Building and the Park. Notwithstanding anything to the contrary
contained in the Lease, Lessor agrees that the Rules and Regulations shall not
be (i) modified or enforced in any way by Lessor so as to unreasonably interfere
with the permitted use set forth in the Basic Lease Information or Lessee's
access
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to the Premises, Building or Park, or (ii) discrimination enforced against
Lessee. Lessor agrees that nothing in the Rules and Regulations of the Park
shall be used to prohibit the conduct of any business from the Premises which
Lessee is permitted to conduct pursuant to the Basic Lease Information. If
Lessee fails to comply with such Laws, CC&Rs (hereinafter recorded), rules and
regulations or the provisions of this Lease, Lessor shall have the right to
collect from Lessee a reasonable sum as a penalty, in addition to all rights and
remedies of Lessor hereunder including, but not limited to, the payment by
Lessee to Lessor of all Enforcement Expenses and Lessor's costs and expenses, if
any, to cure any of such failures of Lessee, if Lessor, at its sole option,
elects to undertake such cure after twenty (20) days written notice that Lessor
has so elected to undertake such cure.
10. ALTERATIONS AND ADDITIONS: Lessee may make any improvements, alterations,
additions or changes to the Premises (collectively, the "Alterations") which (i)
do not affect the Building systems and equipment, exterior appearance of the
Building, or structural aspects of the Building, and (ii) do not, in the
aggregate, cost more than $25,000 in any twelve-month period, by providing
Lessor with written notice not less than ten (10) days prior to the commencement
thereof. Lessee may not make any Alterations which may affect the Building
systems and equipment, exterior appearance of the Building, or structural
aspects of the Building or which, in the aggregate, cost more than $25,000 in
any twelve-month period, or which require a permit from the applicable
governmental authorities, without first procuring the prior written consent of
Lessor to such Alterations, which consent shall be requested by Lessee not less
than fifteen (15) days prior to commencement thereof, and which consent may be
withheld by Lessor in its sole discretion. Any time Lessee proposes to make
Alterations, whether or not the consent of Lessor is required pursuant to this
Paragraph, Lessee's notice regarding the proposed Alterations shall be provided
together with the plans and specifications for the Alterations, and Lessor shall
approve or disapprove of the same within ten (10) days after its receipt of the
same. Lessee shall not install any signs, improvements, nor make or permit any
other alterations or additions to the Premises without the prior written consent
of Lessor, which consent shall not be unreasonably withheld. If any such
Alterations are expressly permitted by Lessor, Lessee shall deliver at least ten
(10) days prior notice to Lessor, from the date Lessee intends to commence
construction, sufficient to enable Lessor to post a Notice of
Non-Responsibility. In all events, Lessee shall obtain all permits or other
governmental approvals prior to commencing any of such work and deliver a copy
of same to Lessor. All Alterations shall be installed by a licensed contractor
reasonably approved by Lessor, at Lessee's sole expense in compliance with all
applicable Laws and CC&Rs. Lessee shall keep the Premises, the Building, the Lot
and the Park free from any liens arising out of any work performed, materials
furnished or obligations incurred by or on behalf of Lessee. Upon termination of
this Lease, Lessee shall remove all signs, fixtures, furniture and furnishings
and unless Lessor has advised Lessee at the time of installation that removal
will not be required, remove any improvements made by Lessee and repair any
damage caused by the installation or removal of such signs, fixtures, furniture,
furnishings and improvements and leave the Premises in as good condition as they
were in at the time of the commencement of this Lease, excepting for reasonable
wear and tear and casualty. Reasonable wear and tear shall not include any
damage or deterioration that would have been prevented by proper maintenance by
Lessee or Lessee otherwise performing all of its obligations under this Lease.
11. REPAIRS AND MAINTENANCE: Lessee shall, at Lessee's sole cost and expense,
keep and maintain the Premises and the adjacent Park in good, clean and safe
condition and repair including, but not limited to, repairing any damage caused
by Lessee or its employees, representatives, agents, invitees, licensees or
contractors. Without limiting the generality of the foregoing, Lessee shall be
solely responsible for maintaining, repairing and replacing all interior
plumbing and mechanical systems, heating, ventilation and air conditioning
systems, interior electrical wiring and equipment, interior lighting, all
interior glass in the Premises, interior window casements, partitions, tenant
signage, interior doors and door closers, fixtures, equipment, interior
painting, and interior walls and floors of the Premises. Lessee's obligation to
keep, maintain, preserve and repair the Premises and the adjacent Park shall
specifically extend to the cleanup and removal of any and all Hazardous
Materials (as defined in Paragraph 29 below) occurring in, on or about the
Premises, to the extent the same are introduced by or result from the actions of
Lessee, its agents, representatives, employees, invitees, licensees, subtenants
or contractors (collectively, "Lessee's Agents").
Subject to the provisions of Paragraphs 6 and 9 of this Lease and except
for repairs rendered necessary by the intentional or negligent acts or omissions
of Lessee or Lessee's Agents, Lessor agrees, at Lessor's expense, subject to
reimbursement pursuant to Paragraph 6 above, to keep in good repair the plumbing
and mechanical systems exterior to the Premises, signage (exclusive of tenant
signage), exterior electrical wiring and equipment, exterior lighting, all
exterior glass, exterior doors and entrances, exterior window casements,
exterior doors and door closer, exterior painting, and underground utility and
sewer pipes outside the exterior walls of the Building. Lessor reserves the
right, but without the obligation, to procure and maintain the heating,
ventilation and air conditioning systems maintenance contract and if Lessor so
elects, Lessee will reimburse Lessor for the cost thereof in accordance with the
provisions of Paragraph 6 above.
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Except for repairs rendered necessary by the active or passive negligent
acts or omissions of Lessee or Lessee's Agents, Lessor agrees, at Lessor's sole
cost and expense, to keep in good repair the structural portions of the floors,
foundations and exterior walls (exclusive of glass and exterior doors of the
Premises), and the structural portions of the roof and membrane of the Building
and any other repairs caused by the gross negligent acts or willful misconduct
of Lessor Lessor's agents. Term of this Lease, Lessee shall thereafter be
responsible for the cost of maintaining the roof membrane.
Except for normal maintenance and repair of the items outlined above,
Lessee shall have no right of access to or right to install any device on the
roof of the Building nor make any penetrations of the roof of the Building
without the express prior written consent of Lessor. If Lessee refuses or
neglects or otherwise fails to repair and maintain the Premises and the Park
properly as required herein and to the reasonable satisfaction of Lessor, within
thirty (30) days after Lessor's written notice to Lessee (or if the failure is
such that it cannot be corrected within thirty days, Lessee fails to commence
the repair and maintenance within such thirty-day period or fails to thereafter
to prosecute to completion such repair and maintenance within a reasonable
time), Lessor may, but without obligation to do so, during reasonable times and
in a manner designed to minimize interference with Lessee's business, make such
repairs and/or maintenance without Lessor having any liability to Lessee for any
loss or damage that may accrue to Lessee's merchandise, fixtures or other
property, or to Lessee's business by reason thereof except as a result of the
gross negligence or willful misconduct of Lessor, its agents, contractors or
employees. In the event Lessor makes such repairs and/or maintenance, upon
completion thereof Lessee shall pay to Lessor, as additional rent, the Lessor's
actual out-of-pocket costs for making such repairs and/or maintenance, plus ten
percent (10%) for overhead, upon presentation of a bill therefor, plus any
Enforcement Expenses. The obligations of Lessee hereunder shall survive the
expiration of the term of this Lease or the earlier termination thereof. Lessee
hereby waives any right to repair at the expense of Lessor under any applicable
Laws now or hereafter in effect respecting the Premises.
12. INSURANCE: Lessee shall maintain in full force and effect at all times
during the term of this Lease, at Lessee's sole cost and expense, for the
protection of Lessee and Lessor, as their interests may appear, policies of
insurance which afford the following coverages: (i) worker's compensation:
statutory limits; (ii) employer's liability: as required by law with a minimum
of $1,000,000; (iii) comprehensive general liability insurance (occurrence form)
including blanket contractual liability, broad form property damage, premises,
personal injury, completed operations, products liability, personal and
advertising coverage, a plate-glass rider to provide coverage for all glass in,
on or about the Premises including, without limitation, skylights, and fire
damage with a combined single limit of not less than $1,000,000 per occurrence,
and $2,000,000 general aggregate per occurrence per location if Lessee has
multiple locations, with deletion of (a) the exclusion for operations within
fifty (50) feet of a railroad track (railroad protective liability), if
applicable, and (b) the exclusion for explosion, collapse or underground hazard,
if applicable, and if necessary, Lessee shall provide for restoration of the
aggregate limit; (iv) comprehensive automobile liability insurance: a combined
single limit of not less than $2,000,000 per occurrence and insuring Lessee
against liability for claims arising out of the ownership, maintenance, or use
of any owned, hired or non-owned automobiles; and (v) "all risk" property
insurance if applicable, covering damage to or loss of any personal property,
fixtures and equipment, including, without limitation, electronic data
processing equipment, of Lessee (and coverage for the full replacement cost
thereof including business interruption of Lessee), together with, if the
property of Lessee's invitees is to be kept in the Premises, warehouser's legal
liability or bailee customers insurance for the full replacement cost of the
property belonging to invitees and located in the Premises.
Insurance required to be maintained by Lessee shall be written by companies
licensed to do business in the State of California and having a "General
Policyholders Rating" of at least A/VII as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall deliver to Lessor certificates of
insurance for all insurance required to be maintained by Lessee hereunder at the
time of execution of this Lease by Lessee. Lessee shall, at least thirty (30)
days prior to expiration of each policy, furnish Lessor with certificates of
renewal or "binders" thereof. Each certificate shall expressly provide that such
policies shall not be cancelable or otherwise subject to modification except
after thirty (30) days prior written notice to the parties named as additional
insureds as required in this Lease (except for cancellation for nonpayment of
premium, in which event cancellation shall not take effect until at least ten
(10) days' notice has been given to Lessor). If Lessee fails to maintain any
insurance required in this Lease, Lessee shall be liable for all losses and
costs resulting from such failure.
Lessor, any property management company of Lessor for the Premises, any
lender(s) of Lessor having a lien against the Premises, the Building, the Lot or
the Park, and any joint venture partners of Lessor shall be named as additional
insureds under all of the policies required in Paragraph 12(iii) above.
Additionally, such policies shall provide for severability of interest. All
insurance to be maintained by Lessee shall, except for workers' compensation and
employer's liability insurance, be primary, without right of contribution from
insurance maintained by Lessor. Any umbrella liability policy or excess
liability policy (which shall be in "following form") shall provide that if the
underlying aggregate is exhausted, the excess coverage will drop down as primary
insurance. The limits of insurance maintained
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by Lessee shall not limit Lessee's liability under this Lease. Lessee shall have
the right to provide the insurance coverages which it is obligated to carry
pursuant to the terms of this Lease under a blanket insurance policy, provided
such blanket policy expressly affords coverage for the Premises and for Lessor
as required by this Lease.
The coverage and amounts of insurance carried by Lessor in connection with the
Park shall at a minimum be comparable to the coverage and amounts of insurance
which are carried by reasonably prudent landlords of comparable buildings
located in the vicinity of the Park and shall insure the Building for one
hundred percent (100%) of its actual replacement cost. Upon inquiry by Lessee,
from time to time, Lessor shall inform Lessee of such coverage carried by
Lessor.
13. LIMITATION OF LIABILITY AND INDEMNITY: Except for damage resulting from
the gross negligence or willful misconduct of Lessor or its authorized
representatives, Lessee agrees to protect, defend (with counsel reasonably
acceptable to Lessor) and hold Lessor and Lessor's lender(s), partners,
employees, representatives, legal representatives, successors and assigns
(collectively, the "Indemnitees") harmless and indemnify the Indemnitees from
and against all liabilities, damages, claims, losses, judgments, charges and
expenses (including reasonable attorneys' fees, costs of court and expenses
necessary in the prosecution or defense of any litigation including the
enforcement of this provision) (collectively "Costs") arising from or in any way
related to, directly or indirectly, Lessee's use of the Premises and/or the
Park, or the conduct of Lessee's business, or from any activity, work or thing
done, permitted or suffered by Lessee in or about the Premises, or in any way
connected with the Premises or with the improvements or personal property
therein, including, but not limited to, any liability for injury to person or
property of Lessee, Lessee's Agents or third party persons. Lessee agrees that
the obligations of Lessee herein shall survive the expiration or earlier
termination of this Lease.
Except for damage resulting from the gross negligence or willful misconduct
of Lessor or its authorized representatives, Lessor shall not be liable to
Lessee for any loss or damage to Lessee or Lessee's property, for any injury to
or loss of Lessee's business or for any damage or injury to any person from any
cause whatsoever, including, but not limited to, any acts, errors or omissions
by or on behalf of any other tenants or occupants of the Building and/or the
Park; Lessee shall not, in any event or circumstance, be permitted to offset or
otherwise credit against any payments of Rent required herein for matters for
which Lessor may be liable hereunder, except as expressly otherwise provided
herein. Lessor and its authorized representatives shall not be liable for any
interference with light or air, or for any latent defect in the Premises or the
Building, subject to Lessor's obligations to maintain pursuant to Paragraph 11
above. Except as otherwise expressly provided herein, to the fullest extent
permitted by law, but subject to Paragraph 31 (iv) below, Lessee agrees that
neither Lessor nor any of Lessor's lender(s), partners, employees,
representatives, legal representatives, successors and assigns shall at any time
or to any extent whatsoever be liable, responsible or in any way accountable for
any loss, liability, injury, death or damage to persons or property which at any
time may be suffered or sustained by Lessee or by any person(s) whomsoever who
may at any time be using or occupying or visiting the Premises, the Building or
the Park.
14. ASSIGNMENT AND SUBLEASING:
A. PROHIBITION: Lessee shall not assign, mortgage, hypothecate,
encumber, grant any license or concession, pledge or otherwise transfer this
Lease (collectively, "assignment"), in whole or in part, whether voluntarily or
involuntarily or by operation of law, nor sublet or permit occupancy by any
person other than Lessee of all or any portion of the Premises without first
obtaining the prior written consent of Lessor, which shall not be unreasonably
withheld; provided, however, that Lessee may sublet portions of the Premises
that are not, in the aggregate, greater than 5,000 square feet, as long as the
subtenant's use is consistent with the terms of the Lease and Lessor has been
notified in writing not less than 30 days prior to the effective date of such
sublease. If Lessee seeks to sublet or assign all or any portion of the
Premises, Lessee shall deliver to Lessor at least thirty (30) days prior to the
proposed commencement of the sublease or assignment (the "Proposed Effective
Date") the following: (i) the name of the proposed assignee or sublessee; (ii)
such information as to such assignee's or sublessee's financial responsibility
and standing as Lessor may reasonably require; and (iii) a copy of the proposed
sublease or assignment agreement and all agreements collateral thereto, which
shall include a provision whereby the assignee or sublessee assumes all of
Lessee's obligations (pro-rata in the case of a sublease) and agrees to be bound
by the terms hereof. As additional rent hereunder, Lessee shall reimburse Lessor
for actual legal and other expenses incurred by Lessor in connection with any
request by Lessee for Lessor's consent to assignment or subletting; provided,
however, Lessee may sublet portions of the Premises that are not, in the
aggregate, greater than 5,000 square feet, so long as the subtenant's use is
consistent with the terms of the Lease, and Lessor has been notified in writing
not less than (30) days prior to the effective date of such subleasing. Each
permitted assignee or sublessee shall assume and be deemed to assume this Lease
(pro-rata in the case of a sublease) and shall be and remain liable jointly and
severally with Lessee for payment of Rent and for the due performance of, and
compliance with all the terms, covenants, conditions
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and agreements herein contained on Lessee's part to be performed or complied
with, for the term of this Lease. No assignment or subletting shall affect the
continuing primary liability of Lessee (which, following assignment, shall be
joint and several with the assignee), and Lessee shall not be released from
performing any of the terms, covenants and conditions of this Lease. For
purposes hereof, in the event Lessee is a corporation, partnership, joint
venture, trust or other entity other than a natural person, any change in the
direct or indirect ownership of Lessee (whether pursuant to one or more
transfers) which results in a change of more than fifty percent (50%) in the
direct or indirect ownership of Lessee shall be deemed to be an assignment
within the meaning of this Paragraph 14 and shall be subject to all the
provisions hereof. Any and all options, first rights of refusal, tenant
improvement allowances and other similar rights granted to Lessee in this Lease,
if any, shall not be assignable by Lessee unless expressly authorized in writing
by Lessor. Notwithstanding anything to the contrary set forth in the Lease,
Lessee may assign the Lease at any time, or sublease all or part of the
Premises, without the receipt of Lessor's consent, to (i) an entity which is
controlled by, controls, or is under common control with, Lessee (an
"Affiliate"), or which owns or is owned by an Affiliate, (ii) an entity with
which Lessee merges or consolidates, or (iii) a purchaser of all or
substantially all of Lessee's stock or assets, so long as such transaction was
not entered into as a subterfuge to avoid the obligations and restrictions of
the Lease; provided, any such Affiliate, purchaser or other entity shall have a
net worth equal to or greater than the greater of Lessee's net worth at the time
the assignment or sublease is to be effective or Lessee's net worth as of the
Commencement Date. The term "control," as used in this Paragraph 14, shall mean
the ownership, direct or indirect, of the power to direct or cause the direction
of the management and policies of a person or entity, whether through the
ownership of voting securities, by contract or otherwise.
B. EXCESS SUBLEASE RENTAL OR ASSIGNMENT CONSIDERATION: In the event of
any sublease or assignment of all or any portion of the Premises where the rent
or other consideration provided for in the sublease or assignment either
initially or over the term of the sublease or assignment, less all of Lessee's
actual costs and expenses in connection with such sublease or assignment exceeds
the Rent or pro rata portion of the Rent, as the case may be, for such space
reserved in the Lease, Lessee shall pay the Lessor monthly, as additional rent,
at the same time as the monthly installments of Rent are payable hereunder,
fifty percent (50%) of the excess of each such payment of rent or other
consideration in excess of the Rent called for hereunder.
C. WAIVER: Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Lessor to any assignee or
sublessee, or failure by Lessor to take action against any assignee or
sublessee, Lessee waives notice of any default of any assignee or sublessee and
agrees that Lessor may, at its option, proceed against Lessee without having
taken action against or joined such assignee or sublessee, except that Lessee
shall have the benefit of any indulgences, waivers and extensions of time
granted to any such assignee or sublessee. Notwithstanding the foregoing, Lessor
shall, as a courtesy, provide copies to Lessee of any notice of default provided
to any assignee and Lessee shall have a period of time to cure any default
identified in such notice, equal to the cure period provided in this Lease, such
cure period to be measured from the date such notice is provided to Lessee.
15. WAIVER OF SUBROGATION: Each of Lessor and Lessee waives any right to
recover against the other for damages to property, including, but not limited
to, personal property, fixtures and equipment, covered by insurance. This
provision is intended to waive fully, and for the benefit of Lessor and Lessee,
any rights and/or claims which might give rise to a right of subrogation in
favor of any insurance carrier. The coverage obtained by Lessee pursuant to this
Lease shall include, without limitation, a waiver of subrogation endorsement
attached to the certificate of insurance. The foregoing waiver of subrogation
shall not extend to criminal acts.
16. AD VALOREM TAXES: Prior to delinquency, Lessee shall pay all taxes and
assessments levied upon trade fixtures, alterations, additions, improvements,
inventories and personal property located and/or installed on or in the Premises
by, or on behalf of, Lessee; and if requested by Lessor, Lessee shall promptly
deliver to Lessor copies of receipts for payment of all such taxes and
assessments. To the extent any such taxes are not separately assessed or billed
to Lessee, Lessee shall pay the amount thereof as reasonably invoiced by Lessor.
17. SUBORDINATION: Without the necessity of any additional document being
executed by Lessee for the purpose of effecting a subordination, and at the
election of Lessor or any bona fide mortgagee or deed of trust beneficiary with
a lien on all or any portion of the Premises or any ground lessor with respect
to the land of which the Premises are a part, this Lease shall be subject and
subordinate at all times to: (i) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Building or the land upon
which the Building is situated or both, and (ii) the lien of any mortgage or
deed of trust which may now exist or hereafter be executed in any amount for
which the Building, the Lot, ground leases or underlying leases, or Lessor's
interest or estate in any of said items is specified as security; provided,
however, with respect to ground leases, mortgages or deeds of trust not
currently affecting the Park, the foregoing subordination shall be contingent
upon Lessee's receipt from the ground lessor,
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mortgagee or beneficiary of an executed Nondisturbance Agreement (as defined
below). Notwithstanding the foregoing, Lessor or any such ground lessor,
mortgagee, or any beneficiary shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease. If any ground lease or underlying lease terminates for any reason or
any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Lessee shall, notwithstanding any
subordination and upon the request of such successor to Lessor, attorn to and
become the Lessee of the successor in interest to Lessor, provided such
successor in interest will not disturb Lessee's use, occupancy or quiet
enjoyment of the Premises so long as Lessee is not in default of the terms and
provisions of this Lease. The successor in interest to Lessor following
foreclosure, sale or deed in lieu thereof shall not be (a) liable for any act or
omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership; (b) subject to any offsets or defenses which Lessee
might have against any prior lessor; (c) bound by prepayment of more than one
(1) month's Rent; or (d) liable to Lessee for any Security Deposit not actually
received by such successor in interest. Lessee covenants and agrees to execute
(and acknowledge if required by Lessor, any lender or ground lessor) and
deliver, within ten (10) business days of a demand or request by Lessor a
subordination, nondisturbance and attornment agreement in substantially the form
of Exhibit E hereto ("Nondisturbance Agreement") to Lessor, or any ground
lessor, or, mortgagee or beneficiary. Lessee's failure to timely execute and
deliver such agreement shall, at Lessor's option, constitute a material default
hereunder. It is further agreed that Lessee shall be liable to Lessor, and shall
indemnify Lessor from and against any loss, cost, damage or expense, incidental,
consequential, or otherwise, arising or accruing directly or indirectly, from
any failure of Lessee to execute or deliver to Lessor any such agreement. Lessee
hereby irrevocably appoints Lessor as attorney-in-fact of Lessee, which
appointment is coupled with an interest, to execute, deliver and record any such
agreement in the name and on behalf of Lessee.
Lessor shall use commercially reasonable efforts to cause the existing
lender with regard to the Park (the "Existing Lender") to provide to Lessee a
Subordination, Non-Disturbance and Attornment Agreement, in recordable form and,
in such form as is reasonably acceptable to Lessor, Lessee and the Existing
Lender (the "SNDA") within sixty (60) days after the execution and delivery of
this Lease by Lessor and Lessee. Lessor hereby further agrees to use
commercially reasonable efforts to cause the SNDA to be substantially similar to
the Non-Disturbance Agreement attached hereto as Exhibit E. Lessee shall
cooperate and act reasonably and in an expeditious manner with respect to the
negotiation, execution and delivery of the SNDA.
18. RIGHT OF ENTRY: Lessee grants Lessor or its agents the right to enter the
Premises at all reasonable times, upon 48 hours prior written notice, for
purposes of inspection, exhibition, posting of notices, repair or alteration
provided all such actions must be taken in a manner designed to minimize
interference to Lessee's business. At Lessor's option, Lessor shall at all times
have and retain a key with which to unlock all the doors in, upon and about the
Premises, excluding Lessee's vaults and safes. It is further agreed that Lessor
shall have the right to use any and all means Lessor deems necessary to enter
the Premises in an emergency. Lessor shall also have the right to place "for
rent" (during the last six (6) months of the term), and/or "for sale" signs on
the outside of the Premises. Except as expressly provided otherwise herein,
Lessee hereby waives any claim from damages or for any injury or inconvenience
to or interference with Lessee's business, or any other loss occasioned thereby
except for any claim for any of the foregoing arising out of the gross active
negligent acts or willful misconduct of Lessor or its authorized
representatives.
19. ESTOPPEL CERTIFICATE: Lessee shall execute (and acknowledge if required by
any lender or ground lessor) and deliver to Lessor, within not less than ten
(10) business days after Lessor provides such to Lessee, a statement in writing
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification), the date to which the Rent
and other charges are paid in advance, if any, acknowledging that there are not,
to Lessee's actual knowledge, any uncured defaults on the part of Lessor
hereunder or specifying such defaults as are claimed, and such other matters as
Lessor may reasonably require. Any such statement may be conclusively relied
upon by Lessor and any prospective purchaser or encumbrancer of the Premises.
Lessee's failure to deliver such statement within such time shall be conclusive
upon the Lessee that (a) this Lease is in full force and effect, without
modification except as may be represented by Lessor; (b) there are no uncured
defaults in Lessor's performance; and (c) not more than one month's Rent has
been paid in advance. Failure by Lessee to so deliver such certified estoppel
certificate shall be a default of the provisions of this Lease. Lessee shall be
liable to Lessor, and shall indemnify Lessor from and against any loss, cost,
damage or expense, incidental, consequential, or otherwise, arising or accruing
directly or indirectly, from any failure of Lessee to execute or deliver to
Lessor any such certified estoppel certificate.
Lessee hereby irrevocably appoints Lessor as attorney-in-fact of Lessee,
which appointment is, coupled with an interest, to act in Lessee's name, place
and stead to execute and deliver such estoppel certificate on behalf of Lessee.
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Lessor hereby agrees to provide to Lessee an estoppel certificate signed by
Lessor, containing the same types of information, and within the same period of
time as set forth above, with such changes as are reasonably necessary to
reflect that the estoppel certificate is being granted and signed by Lessor to
Lessee, rather than from Lessee to Lessor or a lender.
20. LESSEE'S DEFAULT: The occurrence of any one or more of the following
events shall, at Lessor's option, constitute a default and breach of this Lease
by Lessee:
(i) The failure by Lessee to make any payment of Base Rent or any
other payment required hereunder on the date said payment is due, or the
failure by Lessee to make any other payment required hereunder by the later
of the date such payment or ten (10) days after written notice, provided
delivery of the normal monthly billing statements shall, without
limitation, be deemed adequate written notice;
(ii) The failure by Lessee to observe, perform or comply with any of
the conditions, covenants or provisions of this Lease within twenty (20)
days after receipt of written notice of such failure (except default in the
payment of Rent); provided, if such default is susceptible of cure and
Lessee has promptly commenced the cure of such default within such
twenty-day period and is diligently prosecuting such cure to completion,
then the same shall not be a default unless it remains uncured for a period
of sixty (60) days after notice;
(iii) The making of a general assignment by Lessee for the benefit of
creditors, the filing of a voluntary petition by Lessee or the filing of an
involuntary petition by any of Lessee's creditors seeking the
rehabilitation, liquidation, or reorganization of Lessee under any law
relating to bankruptcy, insolvency or other relief of debtors and, in the
case of an involuntary action, the failure to remove or discharge the same
within sixty (60) days of such filing, the appointment of a receiver or
other custodian to take possession of substantially all of Lessee's assets
or this leasehold, Lessee's insolvency or inability to pay Lessee's debts
or failure generally to pay Lessee's debts when due, any court entering a
decree or order directing the winding up or liquidation of Lessee or of
substantially all of Lessee's assets, Lessee taking any action toward the
dissolution or winding up of Lessee's affairs, the cessation or suspension
of Lessee's use of the Premises, or the attachment, execution or other
judicial seizure of substantially all of Lessee's assets or this leasehold;
(iv) Lessee's use or storage of Hazardous Materials on the Premises
other than as permitted by the provisions of Paragraph 29 below; or
(v) The making of any material misrepresentation or omission by
Lessee in any materials delivered by or on behalf of Lessee to Lessor
pursuant to this Lease.
21. REMEDIES FOR LESSEE'S DEFAULT: In the event of Lessee's default and breach
of the Lease, Lessor may terminate Lessee's right to possession of the Premises
by any lawful means in which case upon delivery of written notice by Lessor this
Lease shall terminate on the date specified by Lessor in such notice and Lessee
shall immediately surrender possession of the Premises to Lessor. In addition,
the Lessor shall have the immediate right of re-entry whether or not this Lease
is terminated. No re-entry or taking possession of the Premises by Lessor
pursuant to this Paragraph 21 shall be construed as an election to terminate
this Lease unless a written notice of such intention is given to Lessee. If
Lessor relets the Premises or any portion thereof, (i) Lessee shall be liable
immediately to Lessor for all costs Lessor incurs in reletting the Premises or
any part thereof, including, without limitation, broker's commissions, expenses
of cleaning, and other similar costs, and (ii) the rent received by Lessor from
such reletting shall be applied to the payment of, first, any indebtedness from
Lessee to Lessor other than Base Rent, Operating Expenses, Tax Expenses, Common
Area Utility Costs, and Utility Expenses; second, all costs including
maintenance, incurred by Lessor in reletting; and, third, Base Rent, Operating
Expenses, Tax Expenses, Common Area Utility Costs, and Utility Expenses due
under this Lease. After deducting the payments referred to above, any sum
remaining from the rental Lessor receives from reletting shall be held by Lessor
and applied in payment of future Rent as Rent becomes due under this Lease. In
no event shall Lessee be entitled to any excess rent received by Lessor.
Reletting may be for a period shorter or longer than the remaining term of this
Lease. No act by Lessor other than giving written notice to Lessee shall
terminate this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Lessor's initiative to protect Lessor's interest
under this Lease shall not constitute a termination of Lessee's right to
possession. So long as this Lease is not terminated, Lessor shall have the right
to remedy any default of Lessee, to maintain or improve the Premises, to cause a
receiver to be appointed to administer the Premises and new or existing
subleases and to add to the Rent payable hereunder all of Lessor's reasonable
costs in so doing, with interest at the prime rate plus two percent (2%) from
the date of such expenditure.
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If Lessee's right to possession is terminated by Lessor because of a breach
and default of the Lease, then in either such case, Lessor may recover from
Lessee all damages suffered by Lessor as a result of Lessee's failure to perform
its obligations hereunder, including, but not limited to, the cost of any tenant
improvements, and all costs Lessor incurs in reletting the Premises or any part
thereof, including without limitation, brokerage or leasing commissions,
expenses of cleaning, and like costs, and the worth at the time of the award
(computed in accordance with paragraph (3) of Subdivision (a) of Section 1951.2
of the California Civil Code) of the amount by which the Rent then unpaid
hereunder for the balance of the Lease term exceeds the amount of such loss of
Rent for the same period which Lessee proves could be reasonably avoided by
Lessor and in such case, Lessor prior to the award, may relet the Premises for
the purpose of mitigating damages suffered by Lessor because of Lessee's failure
to perform its obligations hereunder; provided, however, that even though Lessee
has abandoned the Premises following such breach, this Lease shall nevertheless
continue in full force and effect for as long as Lessor does not terminate
Lessee's right of possession, and until such termination, Lessor shall have the
remedy described in Section 1951.4 of the California Civil Code (Lessor may
continue this Lease in effect after Lessee's breach and abandonment and recover
Rent as it becomes due, if Lessee has the right to sublet or assign, subject
only to reasonable limitations) and may enforce all its rights and remedies
under this Lease, including the right to recover the Rent from Lessee as it
becomes due hereunder. The "worth at the time of the award" within the meaning
of Subparagraphs (a)(1) and (a)(2) of Section 1951.2 of the California Civil
Code shall be computed by allowing interest at the rate of ten percent (10%) per
annum. Lessee waives redemption or relief from forfeiture under California Code
of Civil Procedure Sections 1174 and 1179, or under any other present or future
law, in the event Lessee is evicted or Lessor takes possession of the Premises
by reason of any default of Lessee hereunder.
The foregoing rights and remedies of Lessor are not exclusive; they are
cumulative in addition to any rights and remedies now or hereafter existing at
law, in equity by statute or otherwise, or to any equitable remedies Lessor may
have, and to any remedies Lessor may have under bankruptcy laws or laws
affecting creditor's rights generally. In addition to all remedies set forth
above, if a default or breach of this Lease (as set forth in Paragraph 20 above)
occurs, any and all Base Rent waived by Lessor under Paragraph 3 above shall be
immediately due and payable to Lessor and, if more than three (3) such defaults
or breaches occur in any consecutive twelve (12) month period, all options
granted to Lessee hereunder shall automatically terminate, unless otherwise
expressly agreed to in writing by Lessor.
The waiver by Lessor of any default or breach of any provision of this
Lease shall not be deemed or construed a waiver of any other breach or default
by Lessee hereunder or of any subsequent breach or default of this Lease, except
for the default specified in the waiver.
22. HOLDING OVER: If Lessee holds possession of the Premises after the
expiration of the term of this Lease with Lessor's consent, unless otherwise
agreed to by the parties hereto, Lessee shall become a tenant from
month-to-month upon the terms and provisions of this Lease, provided the monthly
Base Rent during such hold over period shall be 150% of the Base Rent due on the
last month of the Lease term, payable in advance on or before the first day of
each month. Such month-to-month tenancy shall not constitute a renewal or
extension for any further term. All options, if any, granted under the terms of
this Lease shall be deemed automatically terminated and be of no force or effect
during said month-to-month tenancy. Lessee shall continue in possession until
such tenancy shall be terminated by either Lessor or Lessee giving written
notice of termination to the other party at least thirty (30) days prior to the
effective date of termination. If Lessee continues to hold over after such
notice, Lessor may exercise all remedies available to it to remove Lessee from
the Premises. This paragraph shall not be construed as Lessor's permission for
Lessee to hold over. Acceptance of Base Rent by Lessor following expiration or
termination of this Lease shall not constitute a renewal of this Lease.
23. LESSOR'S DEFAULT: Lessor shall not be deemed in breach or default of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor hereunder. For purposes of this provision, a
reasonable time shall be thirty (30) days after receipt by Lessor of written
notice specifying the nature of the obligation Lessor has not performed;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days, after receipt of written notice, is reasonably necessary
for its performance, then Lessor shall not be in breach or default of this Lease
if performance of such obligation is commenced within such thirty (30) day
period, thereafter diligently pursued to completion, and the completion of same
is accomplished within one hundred twenty (120) days (subject to force majeure
delays) after Lessor's receipt of the written notice from Lessee.
Notwithstanding the foregoing, if due to the nature of the actions to be
undertaken by Lessor to complete the cure of any failure of Lessor hereunder a
period of more than 120 days (as extended due to force majeure events) is
reasonably necessary to complete such cure, Lessee shall give Lessor such
additional time as may be reasonably necessary to allow Lessor to complete such
cure.
24. PARKING: Lessee shall have a license to use the number of undesignated and
nonexclusive parking spaces set forth on the Basic Lease Information.
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25. SALE OF PREMISES: In the event of any sale of the Premises by Lessor,
Lessor shall be and is hereby entirely released from any and all of its
obligations to perform or further perform under this Lease and from all
liability hereunder accruing from and after the date of such sale; and the
purchaser, at such sale or any subsequent sale of the Premises shall be deemed,
without any further agreement between the parties or their successors in
interest or between the parties and any such purchaser, to have assumed and
agreed to carry out any and all of the covenants and obligations of the Lessor
under this Lease. Lessee agrees to attorn to such new owner provided such new
owner does not disturb Lessee's use, occupancy or quiet enjoyment of the
Premises so long as Lessee is not in default of any of the provisions of this
Lease.
26. WAIVER: No delay or omission in the exercise of any right or remedy of
Lessor or Lessee on any default by the other party shall impair such a right or
remedy or be construed as a waiver.
The subsequent acceptance of Rent by Lessor after breach by Lessee of any
covenant or term of this Lease shall not be deemed a waiver of such breach,
other than a waiver of timely payment for the particular Rent payment involved,
and shall not prevent Lessor from maintaining an unlawful detainer or other
action based on such breach.
No payment by Lessee or receipt by Lessor of a lesser amount than the
monthly Rent and other sums due hereunder shall be deemed to be other than on
account of the earliest Rent or other sums due, nor shall any endorsement or
statement on any check or accompanying any check or payment be deemed an accord
and satisfaction; and Lessor may accept such check or payment without prejudice
to Lessor's right to recover the balance of such Rent or other sum or pursue any
other remedy provided in this Lease.
27. CASUALTY DAMAGE: If the Premises or any part thereof shall be damaged by
fire or other casualty, Lessee shall give prompt written notice thereof to
Lessor. In case the Premises or the Building shall be substantially damaged by
fire or other casualty, Lessor may, at its option, terminate this Lease by
notifying Lessee in writing of such termination within sixty (60) days after the
date of such damage, in which event the Rent shall be abated as of the date of
such damage. If Lessor does not elect to terminate this Lease and provided
insurance proceeds (plus applicable deductibles) and any contributions from
Lessee, if necessary, are available to fully repair the damage, Lessor shall
within ninety (90) days after the date of such damage commence to repair and
restore the Building and/or Premises, as applicable, and shall proceed with
reasonable diligence to restore the Building and/or Premises (except that Lessor
shall not be responsible for delays outside its control) to substantially the
same condition in which it was immediately prior to the happening of the
casualty; provided, Lessor shall not be required to rebuild, repair, or replace
any part of Lessee's furniture, furnishings or fixtures and equipment removable
by Lessee or any improvements, alterations or additions installed by or for the
benefit of Lessee under the provisions of this Lease. Lessor shall not in any
event be required to spend for such work an amount in excess of the insurance
proceeds (plus applicable deductibles) and any contributions from Lessee, if
necessary, actually received by Lessor as a result of the fire or other
casualty. Lessor shall not be liable for any inconvenience or annoyance to
Lessee, injury to the business of Lessee, loss of use of any part of the
Premises by the Lessee or loss of Lessee's personal property resulting in any
way from such damage or the repair thereof, except that, subject to the
provisions of the next sentence, Lessor shall allow Lessee a fair diminution of
Rent during the time and to the extent the Premises are unfit for occupancy. If
the Premises or any other portion of the Building is damaged by fire or other
casualty resulting from the gross negligence or willful misconduct of Lessee or
any of Lessee's Agents, the Rent shall not be diminished during the repair of
such damage except to the extent covered by Lessor's insurance and Lessee shall
be liable to Lessor for the cost and expense of the repair and restoration of
the Building caused thereby to the extent such cost and expense is not covered
by insurance proceeds provided Lessor carries insurance on the Building in
keeping with standard coverages carried by owners of comparable buildings in the
area. In the event the holder of any indebtedness secured by the Premises
requires that the insurance proceeds be applied to such indebtedness, then
Lessor shall have the right to terminate this Lease by delivering written notice
of termination to Lessee within thirty (30) days after the date of notice to
Lessee of any such event, whereupon all rights and obligations shall cease and
terminate hereunder.
In the event the Premises or the Building is destroyed or substantially damaged
during the last twelve (12) months of the Term of this Lease or in the event
Lessor elects to repair the Premises and/or the Building, as applicable and such
repairs have not been substantially completed within one year following the date
of the damage or destruction, then notwithstanding anything to the contrary
contained in the Lease, Lessor and Lessee shall each have the right to terminate
the Lease by giving written notice to the other party hereto of its election to
so terminate, in which event this Lease shall cease and terminate as of the date
of such notice or as of the date of termination set forth in such notice, as the
case may be, and Lessee shall pay Rent, properly apportioned through the date
the Lease so terminates, and both parties hereto shall thereafter be freed and
discharged of all further obligations hereunder, except for obligations accrued
prior to the date of such termination or as provided for in provisions of this
Lease which by their term survive the expiration or earlier termination of the
Term.
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Except as otherwise provided in this Paragraph 27, Lessee hereby waives the
provisions of Sections 1932(2), 1933(4), 1941 and 1942 of the California Civil
Code.
28. CONDEMNATION: If a substantial portion of the Premises is condemned by
eminent domain, inversely condemned or sold in lieu of condemnation for any
public or quasi-public use or purpose ("Condemned"), then Lessee or Lessor may
terminate this Lease as of the date when physical possession of the Premises is
taken and title vests in such condemning authority, and Rent shall be adjusted
to the date of termination. Lessee shall not because of such condemnation assert
any claim against Lessor or the condemning authority for any compensation
because of such condemnation, and Lessor shall be entitled to receive the entire
amount of any award without deduction for any estate or interest of Lessee
provided, however, Lessee shall be entitled to claim separately an award for
moving expenses, goodwill and fixtures. If a substantial portion of the Building
or the Lot is so Condemned, Lessor at its option may terminate this Lease. If
Lessor does not elect to terminate this Lease, Lessor shall, if necessary,
promptly proceed to restore the Premises or the Building to substantially its
same condition prior to such partial condemnation, allowing for the reasonable
effects of such partial condemnation, and a proportionate allowance shall be
made to Lessee for the Rent corresponding to the time during which, and to the
part of the Premises of which, Lessee is deprived on account of such partial
condemnation and restoration. Lessor shall not be required to spend funds for
restoration in excess of the amount received by Lessor as compensation awarded.
For purposes of this Section 28, the term a "substantial portion" shall mean and
refer to twenty-five percent (25%) or more of the Premises, or a portion of the
Premises less than twenty-five percent (25%) which effectively prohibits
Lessee's ability to conduct its operations in and from the Premises.
29. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS: Concurrently with executing
this Lease, and within thirty (30) days of each anniversary of the Commencement
Date during the term of this Lease, following Lessor's written request therefor
Lessee shall execute, and deliver to Lessor, the Hazardous Materials Disclosure
Certificate in substantially the form attached as Exhibit F, and any other
reasonably necessary documents as requested by Lessor. Subject to the remaining
provisions of this paragraph, Lessee shall be entitled to use and store only
those Hazardous Materials (defined below), that are necessary for Lessee's
business and to the extent disclosed in the Hazardous Materials Disclosure
Certificate (and approved by Lessor), provided that such usage and storage is in
full compliance with any and all local, state and federal environmental, health
and/or safety-related laws, statutes, orders, standards, courts' decisions,
ordinances, rules and regulations (as interpreted by judicial and administrative
decisions), decrees, directives, guidelines, permits or permit conditions,
currently existing and as amended, enacted, issued or adopted in the future
which are or become applicable to Lessee or the Premises (collectively, the
"Environmental Laws"). Lessor shall have the right at all times during the term
of this Lease, upon 48 hours prior written notice and during normal business
hours, except in the event of emergency, in which case no notice or hour
restriction shall apply, to (i) inspect the Premises, (ii) conduct tests and
investigations to determine whether Lessee is in compliance with the provisions
of this paragraph, and (iii) request lists of all Hazardous Materials used,
stored or located on, under or about the Premises; the cost of all such
inspections, tests and investigations to be borne by Lessee, if Lessor
reasonably believes they are necessary because of an actual or suspected
release, spill or discharge of Hazardous Materials or other violation of
Environmental Laws. All such inspections, tests and investigations shall be
conducted so as to minimize interference with the business of Lessee. Lessee
shall give to Lessor immediate verbal and follow-up written notice of any
spills, releases or discharges of Hazardous Materials on, under or about the
Premises, or in any Common Areas (if not considered part of the Premises).
Lessee covenants to promptly investigate, clean up and otherwise remediate any
spill, release or discharge of Hazardous Materials caused by the acts (active or
passive) or omissions of Lessee, or Lessee's Agents, at Lessee's sole cost and
expense; such investigation, clean up and remediation to be performed after
Lessee has obtained Lessor's written consent, which shall not be unreasonably
withheld; provided, however, that Lessee shall be entitled to respond
immediately to an emergency without first obtaining Lessor's written consent. If
Lessee fails to so promptly investigate, clean up or otherwise remediate, Lessor
may, but without obligation to do so, following twenty (20) days prior written
notice except in the event of an emergency, in which case notice will not be
required, take any and all steps necessary to rectify the same and Lessee shall
promptly reimburse Lessor, upon demand, for all actual out-of-pocket costs and
expenses to Lessor of performing investigation and remediation work. Lessee
shall indemnify, defend (with counsel acceptable to Lessor) and hold Lessor and
Lessor's lenders, partners, property management company (if other than Lessor),
directors, officers, employees, representatives, contractors and shareholders
and each of their respective successors and assigns harmless from and against
any and all costs arising at any time during or after the term of this Lease in
connection with or related to the use, presence, transportation, storage,
disposal, spill, release or discharge of Hazardous Materials on, in or about the
Premises as a result (directly or indirectly) of the acts (active or passive) or
omissions of Lessee, or Lessee's Agents. Lessee shall not be entitled to install
any tanks under, on or about the Premises for the storage of Hazardous Materials
without the express written consent of Lessor, which may be given or withheld in
Lessor's sole discretion. Neither the written consent of Lessor to the presence
of Hazardous Materials on, under or about the Premises nor the strict compliance
by Lessee with all Environmental Laws shall excuse Lessee
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from its obligation of indemnification pursuant hereto. As used herein, the term
"Hazardous Materials" shall mean (i) any hazardous or toxic wastes, materials or
substances, and other pollutants or contaminants, which are or become regulated
by any Environmental Laws; (ii) petroleum and petroleum by products; (iii)
asbestos; (iv) polychlorinated biphenyls; and (v) radioactive materials. The
provisions of this paragraph shall survive the termination of this Lease. If it
is determined by Lessor that Lessee, its use of the Premises, Building and/or
Park, or the condition of the Premises, Building and/or Park is not in
compliance with all Environmental Laws at the expiration or termination of this
Lease as a result of Lessee's or Lessee's Agents occupancy, acts, or omissions,
then at Lessor's sole option, Lessor may require Lessee to hold over possession
of the Premises until Lessee can surrender the Premises to Lessor in compliance
with all Environmental Laws. Any such holdover by Lessee will be with Lessor's
consent, will not be terminable by Lessee in any event or circumstance and will
otherwise be subject to the provisions of Paragraph 22 of this Lease.
Notwithstanding anything to the contrary herein, Lessee shall not be responsible
nor liable for any investigation costs, penalties, remediation, closures, fines,
costs or expenses to the extent directly resulting from the contamination of the
Premises, the Building or the Park with Hazardous Materials to the extent such
environmental contamination: (a) was present before the date of January 29,
1995; (b) is directly caused by Lessor or Lessor's authorized agents,
representatives or contractors; or (c) emanates from off-site sources.
30. FINANCIAL STATEMENTS: Lessee, for the reliance of Lessor, any lender
holding or anticipated to acquire a lien upon the Premises, the Building or the
Park or any portion thereof, or any prospective purchaser of the Building or the
Park or any portion thereof, within ten (10) business days after Lessor's
request therefor, but not more often than once annually so long as Lessee is not
in default of this Lease, shall deliver to Lessor the then current financial
statements of Lessee, certified by a financial officer of Lessee (including
interim periods following the end of the last fiscal year for which annual
statements are available) which statements shall be prepared or compiled by a
certified public accountant and shall present fairly the financial condition of
Lessee at such dates and the result of its operations and changes in its
financial positions for the periods ended on such dates.
31. GENERAL PROVISIONS:
(i) TIME. Time is of the essence in this Lease and with respect to
each and all of its provisions in which performance is a factor.
(ii) SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
(iii) RECORDATION. Lessee shall not record this Lease or a short form
memorandum hereof without the prior written consent of the Lessor.
(iv) LESSOR'S PERSONAL LIABILITY. The liability of Lessor (which, for
purposes of this Lease, shall include Lessor and the owner of the Building if
other than Lessor) to Lessee for any default by Lessor under the terms of this
Lease shall be limited to the actual interest of Lessor and its present or
future partners in the Premises and the Building, including any insurance and
condemnation proceeds, and Lessee agrees to look solely to the Building,
including any insurance and condemnation proceeds, for satisfaction of any
liability and shall not look to other assets of Lessor nor seek any recourse
against the assets of the individual partners, directors, officers,
shareholders, agents or employees of Lessor; it being intended that Lessor and
the individual partners, directors, officers, shareholders, agents or employees
of Lessor shall not be personally liable in any manner whatsoever for any
judgment or deficiency. The liability of Lessor under this Lease is limited to
its actual period of ownership of title to the Building, and Lessor shall be
automatically released from further performance under this Lease and from all
further liabilities and expenses hereunder upon transfer of Lessor's interest in
the Premises or the Building. Lessee agrees to attorn to any entity purchasing
or otherwise acquiring the Premises.
(v) SEPARABILITY. Any provisions of this Lease which shall prove to
be invalid, void or illegal shall in no way affect, impair or invalidate any
other provisions hereof and such other provision shall remain in full force and
effect.
(vi) CHOICE OF LAW. This Lease shall be governed by the laws of the
State of California.
(vii) ATTORNEYS' FEES. In the event any legal action is brought to
enforce or interpret the provisions of this Lease, the prevailing party therein
shall be entitled to recover all costs and expenses including reasonable
attorneys' fees. Any such attorneys' fees and other expenses incurred by either
party in enforcing a judgment in its favor under this Lease shall be recoverable
separately from and in addition to any other amount included in such judgment,
and such attorneys' fees obligation is intended to be severable from the other
provisions of this Lease and to survive and not be merged into any such
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judgment.
(viii) ENTIRE AGREEMENT. This Lease supersedes any prior agreements,
representations, negotiations or correspondence between the parties, and
contains the entire agreement of the parties on matters covered. No other
agreement, statement or promise made by any party that is not in writing and
signed by all parties to this Lease shall be binding.
(ix) WARRANTY OF AUTHORITY. Each person executing this Lease on
behalf of a party represents and warrants that (1) such person is duly and
validly authorized to do so on behalf of the entity it purports to so bind, and
(2) if such party is a partnership, corporation or trustee, that such
partnership, corporation or trustee has full right and authority to enter into
this Lease and perform all of its obligations hereunder.
(x) NOTICES. All notices and demands required or permitted to be
sent to Lessor or Lessee shall be in writing and shall be sent by United States
mail, certified and postage prepaid, or by personal delivery or by overnight
courier, addressed to Lessor at 30 Executive Park, Suite 100, Irvine, California
92714, or to Lessee at the Premises, or to such other place as such party may
designate in a notice to the other party given as provided herein. Notice shall
be deemed given upon the earlier of actual receipt or the third day following
deposit in the United States mail.
(xi) JOINT AND SEVERAL. If Lessee consists of more than one person or
entity, the obligations of all such persons or entities shall be joint and
several.
(xii) COVENANTS AND CONDITIONS. Each provision to be performed by
Lessee hereunder shall be deemed to be both a covenant and a condition.
(xiii) WAIVER OF JURY TRIAL. The parties hereto shall and they hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties hereto against the other on any matters whatsoever arising
out of or in any way related to this Lease, the relationship of Lessor and
Lessee, Lessee's use or occupancy of the Premises, the Building or the Park,
and/or any claim of injury, loss or damage.
(xiv) COUNTERCLAIMS. In the event Lessor commences any unlawful
detainer proceedings, Lessee shall not interpose any counterclaim of whatever
nature or description in any such proceedings, provided, however, nothing
contained herein shall be deemed or construed as a waiver of the Lessee's right
to assert such claims in any separate action brought by Lessee or the right to
offset the amount of any final judgment owed by Lessor to Lessee.
32. SIGNS: All signs and graphics of every kind visible in or from public view
or corridors or the exterior of the Premises shall be subject to Lessor's prior
written approval, which shall not be unreasonably withheld or delayed, and shall
be subject to any applicable governmental laws, ordinances, and regulations.
Lessee shall remove all such signs and graphics prior to the termination of this
Lease. Such installations and removals shall be made in a manner as to avoid
damage or defacement of the Premises; and Lessee shall repair any damage or
defacement, including without limitation, discoloration caused by such
installation or removal. Lessor shall have the right, at its option, to deduct
from the Security Deposit such sums as are reasonably necessary to remove such
signs, including, but not limited to, the costs and expenses associated with any
repairs necessitated by such removal. Lessee further agrees to maintain any such
sign, awning, canopy, advertising matter, lettering, decoration or other thing
as may be approved in good condition and repair at all times.
33. MORTGAGEE PROTECTION: Upon any breach or default on the part of Lessor,
Lessee will give written notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises
who has provided Lessee with notice of their interest together with an address
for receiving notice, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default (which, in no event shall be more than ninety
(90) days), including time to obtain possession of the Premises by power of sale
or a judicial foreclosure, if such should prove necessary to effect a cure. If
such breach or default cannot be cured within such time period, then such
additional time as may be necessary will be given to such beneficiary or
mortgagee to effect such cure so long as such beneficiary or mortgagee has
commenced the cure within the original time period and thereafter diligently
pursues such cure to completion, in which event this Lease shall not be
terminated while such cure is being diligently pursued. Lessee agrees that each
lender to whom this Lease has been assigned by Lessor is an express third party
beneficiary hereof. Lessee shall not make any prepayment of Rent more than one
(1) month in advance without the prior written consent of each such lender.
Lessee waives the collection of any deposit from such lender(s) or any purchaser
at a foreclosure sale of such lender(s)' deed of trust. unless the lender(s) or
such purchaser shall have actually received and not refunded the deposit. Lessee
agrees to make all payments under this Lease to the lender with the most senior
encumbrance upon receiving a direction, in writing, to pay said amounts to such
lender. Lessee shall comply with such
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written direction to pay without determining whether an event of default exists
under such lender's loan to Lessor and Lessor hereby instructs Lessee to do so.
34. QUITCLAIM: Upon any termination of this Lease, Lessee shall, at Lessor's
request, execute, have acknowledged and deliver to Lessor a quitclaim deed of
Lessee's interest in and to the Premises.
35. MODIFICATIONS FOR LENDER: If, in connection with obtaining financing for
the Premises or any portion thereof, Lessor's lender shall request reasonable
modification(s) to this Lease as a condition to such financing, Lessee shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially adversely affect Lessee's rights hereunder or
the use, occupancy or quiet enjoyment of Lessee hereunder or increase Lessee's
monetary obligations hereunder.
36. WARRANTIES OF LESSEE: Lessee hereby warrants and represents to Lessor, for
the express benefit of Lessor, that Lessee has undertaken a complete and
independent evaluation of the risks inherent in the execution of this Lease and
the operation of the Premises for the use permitted hereby, and that, based upon
said independent evaluation, Lessee has elected to enter into this Lease and
hereby assumes all risks with respect thereto. Lessee hereby further warrants
and represents to Lessor, for the express benefit of Lessor, that in entering
into this Lease, Lessee has not relied upon any statement, fact, promise or
representation (whether express or implied, written or oral) not specifically
set forth herein in writing and that any statement, fact, promise or
representation (whether express or implied, written or oral) made at any time to
Lessee, which is not expressly incorporated herein in writing, is hereby waived
by Lessee.
37. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT: Lessor and Lessee hereby
agree and acknowledge that the Premises, the Building and/or the Park may be
subject to the requirements of the Americans with Disabilities Act (the "ADA"),
a federal law codified at 42 U.S.C. 12101 et seq, including, but not limited to
Title III thereof, all regulations and guidelines related thereto, and any
amendments thereof. Any Tenant Improvements to be constructed hereunder shall be
in compliance with the requirements of the ADA, and all costs incurred for
purposes of compliance therewith shall be a part of and included in the costs of
the Tenant Improvements. Lessee is responsible for conducting its own
independent investigation of this matter. Except for the construction of any
Tenant Improvements, for which Lessee shall be solely responsible for compliance
with the ADA, if any barrier removal work or other work is required to the
Building, the Common Area or the Park under Title III of the ADA, then such work
shall be performed by Lessor at Lessor's sole cost and expense; provided, if
such work is required under the ADA as a result of Lessee's use of the Premises
or any work or alteration made to the Premises by or on behalf of Lessee, then
such work shall be performed by Lessor at the sole cost and expense of Lessee.
Except as otherwise provided in this provision, Lessee shall be responsible at
its sole cost and expense for fully and faithfully complying with all applicable
requirements of the ADA.
38. BROKERAGE COMMISSION: Each of Lessor and Lessee hereby represents and
warrants to the other that such party's sole contact in connection with this
Lease has been directly with the other party, and that no other broker or finder
can properly claim a right to a commission or a finder's fee based upon contacts
between the claimant and such party. Each party shall indemnify, defend by
counsel acceptable to the other, protect and hold the other harmless from and
against any costs arising from or relating to any claim for a fee or commission
by any broker or finder in connection with the Premises and this Lease other
than Broker, if any arising out of the actions of such party.
39. ABATEMENT OF RENT: In the event Lessee is prevented from using, and
actually does not use, the Premises or any portion thereof for a period of three
(3) consecutive business days as a result of
(i) a casualty to the Premises or Building, not caused or contributed
to by Lessee or any of Lessee's Agents which substantially interferes with
Lessee's use of the Premises, then the Rent hereunder shall be equitably abated
after the end of such three-day period for such time as Lessee is prevented from
using the Premises or prevented from using the Premises or portion thereof as a
result of such casualty; or
(ii) a civil authority shutdown, then the Rent hereunder shall be
equitably abated after the end of such three-day period for the lesser of (A)
such time as Lessee is prevented from using the Premises or portion thereof as a
result of such shutdown or (B) thirty (30) days; or
(iii) any other reason to the extent Lessor recovers rent loss
insurance proceeds. Lessor shall use reasonable efforts to obtain such recovery.
The foregoing Rent abatement shall be equitable, and the Base Rent
abatement shall be in the proportion that the rentable area of the portion of
the Premises that Lessee is prevented from using bears to the total rentable
area of the Premises.
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40. LESSOR'S ABILITY TO PERFORM LESSEE'S UNPERFORMED OBLIGATIONS:
Notwithstanding anything to the contrary contained in this Lease, if Lessee
shall fail to perform any of the terms, provisions, covenants or conditions to
be performed or complied with by Lessee pursuant to this Lease, and provided
Lessor has provided Lessee with a twenty (20) day written notice to perform,
except in the event of an emergency in which case notice is not required, and/or
if the failure of Lessee relates to a matter which in Lessor's judgement
reasonably exercised is of an emergency nature and such failure shall remain
uncured for a period of time commensurate with such emergency, then Lessor may,
at Lessor's option without any obligation to do so, and in its sole discretion
as to the necessity therefor, perform any such term, provision, covenant, or
condition, or make any such payment and Lessor by reason of so doing shall not
be liable or responsible for any loss or damage thereby sustained by Lessee or
anyone holding under or through Lessee, except any loss resulting from Lessor's
gross negligence. If Lessor so performs any of Lessee's obligations hereunder,
the full amount of the cost and expense entailed or the payment so made or the
amount of the loss so sustained, shall immediately be owing by Lessee to Lessor,
and Lessee shall promptly pay to Lessor upon demand, as Additional Rent, the
full amount thereof with interest thereon from the date of payment at the rate
of ten percent (10%) per annum.
41. LESSEE'S ABILITY TO PERFORM LESSOR'S UNPERFORMED OBLIGATIONS:
Notwithstanding anything to the contrary contained in this Lease, if Lessor
shall fail to perform any of the terms, provisions, covenants or conditions to
be performed or complied with by Lessor pursuant to this Lease, and/or if the
failure of Lessor relates to a matter which in Lessee's judgement reasonably
exercised is of an emergency nature and such failure shall remain uncured for a
period of time commensurate with such emergency, after expiration of all
applicable notice and cure periods for Lessor's and any mortgagee's benefit as
set forth in Paragraphs 23 and 33, respectively, then after the delivery by
Lessee to Lessor of at least twenty (20) days advance written notice (not
applicable if such notice already provided) for any failure not considered to be
an emergency, and at least two (2) business days advance written notice (which
may be given by facsimile) for any failure considered to be an emergency. Lessee
may, at Lessee's option without any obligation to do so, perform any such term,
provision, covenant, or condition. If Lessee so performs any of Lessor's
obligations hereunder, the full amount of the reasonable and actual cost and
expense incurred shall immediately be owing by Lessor to Lessee, and Lessor
shall promptly pay to Lessee upon demand the full amount thereof with interest
thereon from the date of payment at the rate of ten percent (10%) per annum. The
foregoing rights and remedies of Lessee are not exclusive; they are cumulative
in addition to any rights and remedies now or hereafter existing at law, in
equity by statute or otherwise, or to any equitable remedies Lessee may have
generally.
IN WITNESS WHEREOF, this Lease is executed on the date and year first
written above.
LESSOR:
LINCOLN PROPER COMPANY NO. 2106 LIMITED PARTNERSHIP, a California
Limited Partnership
By: /s/ Erik M. Hansen
-------------------------------------------
Erik M. Hansen, a Managing General Partner
Date: 11/29/95
-----------------------------------------
LESSEE:
BURKE INDUSTRIES, INC., a California corporation
By: /s/ Reed Wolthausen
-------------------------------------------
Title: Senior VP - CFO
----------------------------------------
Date: 11/21/95
-----------------------------------------
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<PAGE>
EXHIBIT A
PREMISES, BUILDING, LOT AND/OR PARK
[MAP]
PREMISES
BUILDING
LOT/PARK
<PAGE>
EXHIBIT B
TENANT IMPROVEMENT AGREEMENT
LEASE DATE FOR REFERENCE PURPOSES: October 20, 1995
LESSOR: Lincoln Property Company
No. 2106 Limited Partnership
LESSEE: Burke Industries, Inc.
a California Corporation
The terms, provisions and conditions of this Exhibit B are hereby
incorporated into the Lease between the parties named above. Any capitalized
terms used herein and not otherwise defined herein shall have the meaning
ascribed to such terms as set forth in the Lease.
A. TENANT IMPROVEMENTS
l. TENANT IMPROVEMENTS. Lessor agrees to construct or cause construction of,
certain improvements ("Tenant Improvements") in the Building of which the
Premises are a part pursuant to the terms of this Tenant Improvement
Agreement (the "Agreement") subject to the conditions set forth herein.
This Agreement shall become and be defined as "Exhibit B" of the Lease
provided that the Lease is executed.
2. DEFINITION. The Tenant Improvements shall consist of two separate
components of work as defined below in Section 5, Scope of Work. The Tenant
Improvements shall specifically not include any alterations, additions or
improvements installed or constructed by Lessee (the "Lessee's
Improvements"), nor any of Lessee's trade fixtures, equipment, furniture,
furnishings, telephone equipment or other personal property (collectively,
"Lessee's Personal Property").
3. LESSOR'S CONTRIBUTION; CONSTRUCTION AGREEMENT. Lessor shall provide a
maximum contribution of $121,083 toward the costs for substantial
completion of the Component #1 Work as defined herein ("Contribution #1").
Lessor shall provide a maximum contribution of $100,000 toward the costs
for substantial completion of the Component #2 Work as defined herein
("Contribution #2"). All costs associated with the Tenant Improvements
which exceed the Lessor's Maximum Contribution required hereunder shall be
paid by Lessee (the "Excess TI Costs"). The term "Lessor's Maximum
Contribution" shall mean and refer to the aggregate of Contribution #1 and
Contribution #2. Lessee shall not be entitled to any credit, abatement or
payment from Lessor if the amount of the Lessor's Maximum Contribution
specified above exceeds the actual amount of the costs associated with the
Tenant Improvements. The Lessor's Maximum Contribution shall be the maximum
contribution by Lessor for the costs associated with the Tenant
Improvements as such contribution is allocated between the Component #1
Work and the Component #2 Work as set forth above. In no event or
circumstance shall any portion of the Lessor's Maximum Contribution be used
for the payment of any costs associated with Lessee's Improvements and/or
Lessee's Personal Property. Lessee shall have the opportunity to review and
reasonably approve the budget for the Component #1 Work prior to Lessor's
causing such work to be completed. Within twenty (20) days of Lessor's
delivery to Lessee of a written demand therefor together with invoices,
receipts and other reasonably requested back up information, Lessee shall
pay to Lessor, in cash, the Excess TI Costs with respect only to the
Component #1 Work either in a lump sum or in progress payments as
reasonably required by Lessor. The parties hereby acknowledge and agree
that Lessee shall be the only party which will enter into and execute an
agreement with the contractor (which contractor has already been approved
by Lessor) for the work associated with the construction of the Component
#2 Work (the "Construction Agreement"). Lessor acknowledges that the scope
of work under the Construction Agreement will include the work associated
with the Component #2 Work as well as the work associated with the Lessee's
Improvements. Lessee hereby covenants, represents and warrants to Lessor
that Lessee shall include a provision in the Construction Agreement which
shall provide that any and all warranties and indemnities in favor of
Lessee under the Construction Agreement shall also be made for the direct
benefit of Lessor such that Lessor shall expressly be a third party
beneficiary thereof with the absolute right to directly enforce such
provisions against the contractor, as Lessor may deem such enforcement
reasonably necessary or desirable.
Exhibit B Page 1
<PAGE>
4. LESSOR TO CONSTRUCT. Lessor shall complete construction of the Component
#1 Work, in a good and workmanlike manner, and in accordance with all
applicable codes, regulations and ordinances, and will use due diligence to
complete as soon as reasonably possible.
5. SCOPE OF WORK.
COMPONENT #1 WORK
a. Roof Repairs and IRC Roof Consultant fee.
b. Carpet replacement in all common areas, document control and
engineering. Lessee may use flooring products procured by Lessee if
approved by Lessor.
c. Interior Painting: remove damaged wall paper, prep walls and paint to
match existing.
d. Parking lot striping: restripe parking lot to provide approximately
25-30 additional stalls. If deemed necessary, and if so approved by
the appropriate governmental agencies, the front entrance lawn area
may be converted for Lessee's parking, the cost of which would be
included as a cost of the Component #1 Work.
e. Repair exterior fence in front of lobby area.
f. Repair existing automatic gate.
g. Repair existing plumbing serving the Premises and replace fixtures as
needed.
h. Reinforce structural beams in lobby area. If it is determined by
Lessor that the existing beams are not able to be adequately
reinforced, replacement may be required.
i. Warehouse lighting retrofit to T8/Metal Halide fixtures.
The costs associated with the planning, construction and installation of
the Component #1 Work shall include, but not be limited to, all contractor,
engineering and architectural fees and costs and all permit fees related to such
work. The amount of Contribution #1 shall be the maximum contribution by Lessor
for the costs associated with the Component #1 Work. Lessee shall have ninety
(90) days from the date of substantial completion of the Component #1 Work to
notify Lessor, in writing, if any of the items comprising such work is defective
or is otherwise not in good working condition, and Lessor shall commence and
undertake the repairs of same, at Lessor's cost. However, if Lessee or any of
Lessee's Agents have directly or indirectly caused any damage to such items such
that any such item is defective or no longer is in good working condition, then
Lessor shall not be required to commence nor undertake any such repairs at
Lessor's cost.
COMPONENT #2 WORK
a. Electrical Service Upgrade
b. Electrical Distribution
c. Additional Building Ventilation
d. Hydraulics, air, water and steam piping
e. Infrared inspection of electrical distribution system
Lessee, at Lessee's sole cost, shall promptly provide to Lessor (i) a true
and complete copy of the plans and specifications for the Component #2 Work, and
(ii) a true and complete copy of the Construction Agreement. The other costs
associated with the construction and installation of the Component #2 Work shall
include, but not be limited to, all consultants' and engineering fees and costs
and all permit fees related to such work. The amount of Contribution #2 shall be
the maximum contribution by Lessor for the costs associated with the Component
#2 Work. Lessor shall pay to Lessee the costs of the Component #2 Work, up to
the maximum amount of Contribution #2, in the following described manner. Within
twenty (20) days after Lessee delivers to Lessor the following described
documents and information, Lessor shall pay to Lessee, in a lump
Exhibit B Page 2
<PAGE>
sum or in progress payments, as the case may be, the actual costs of the
Component #2 Work up to the maximum amount of Contribution #2: (i) a true and
complete copy of the invoice requested to be paid; (ii) a conditional lien
waiver and release for each such requested payment; (iii) an unconditional
lien waiver and release for any previously requested progress payment already
paid by Lessor; and (iv) a written demand from Lessee specifying in
reasonable detail the work for which such demand is being made.
Notwithstanding the foregoing, if Lessor reasonably disputes any such demand,
then the aforementioned 20-day period shall be extended by the period of time
commensurate with the time period during which the parties attempt to, and
ultimately do, resolve any such dispute.
6. Other than the items included in the Scope of Work described herein and as
set forth in the Lease, Lessor shall have no obligation to complete any
additional improvements or repair work pertaining to Lessee's occupancy of the
Premises.
7. SUBSTANTIAL COMPLETION. The Tenant Improvements shall be deems
substantially complete on the date that the building officials of the applicable
governmental agency(s) issues its final approval of the construction of the
Tenant Improvements whether in the form of the issuance of a final permit,
certificate of occupancy or the written approval evidencing its final inspection
on the building permit(s), or alternatively, the date on which Lessor's and
Lessee's contractors/engineers deliver to Lessor a certificate that the Tenant
Improvements have been completed in accordance with any plans and specifications
with regard to such work and the provisions of the Construction Agreement,
whichever first occurs ("substantial completion", or "substantially completed",
or "substantially complete").
8. LESSEE'S IMPROVEMENTS. The parties acknowledge and agree that Lessee, at
Lessee's sole cost and expense, shall also plan, construct and install the
Lessee's Improvements in and about the Premises in accordance with the
provisions of the Construction Agreement. Lessee shall construct the Lessee's
Improvements in a good and workmanlike manner and shall use high quality
materials. The provisions of Paragraph 10 of the Lease shall be applicable to
Lessee's construction of the Lessee's Improvements. Lessee shall notify Lessor
in writing at least ten (10) days prior to commencing the work associated with
the Lessee's Improvements. Lessee shall also promptly deliver to Lessor the
following items with respect to the Lessee's Improvements: (i) a true and
complete copy of all plans, specifications, drawings and permits; (ii) a
complete set of as-built plans and drawings; (iii) mechanic's and material
suppliers' unconditional lien waivers and releases; and (iv) certificates of
insurance (in amounts reasonably acceptable to Lessor and with the parties
identified in, or required by, the Lease named as additional insured(s) from
Lessee's general contractor and/or architect). The parties acknowledge that
items (i) and (iv) herein are to be provided prior to the commencement of
Lessee's improvements, with items (ii) and (iii) to be provided to Lessor as
soon as reasonably available. Lessor shall not be required to contribute to nor
otherwise pay for any costs associated with the Lessee's Improvements. Lessee
shall be fully and completely responsible for the payment of all costs, expenses
and fees in connection with the planning, construction and installation of the
Lessee's Improvements. Lessee shall cooperate with Lessor and Lessor's
contractor, engineer and consultants in the performance of the work associated
with the Lessee's Improvements so as not to interfere with Lessor's performance
of the work associated with the Component #l Work.
9. LEASE PROVISIONS; CONFLICT. The terms and provisions of the Lease, insofar
as they are applicable, in whole or in part, to this Exhibit B, are hereby
incorporated herein by reference, and specifically including all of the
provisions of Section 31 of the Lease. In the event of any conflict between the
terms of the Lease and this Exhibit B, the terms of this Exhibit B shall
prevail. Any amounts payable by Lessee to Lessor hereunder shall be deemed to be
Additional Rent under the Lease and, upon any default in the payment of same,
Lessor shall have all rights and remedies available to it as provided for in the
Lease.
Exhibit B Page 3
<PAGE>
LESSOR:
LINCOLN PROPERTY COMPANY NO. 2106 LIMITED PARTNERSHIP, A CALIFORNIA LIMITED
PARTNERSHIP
By: /s/ Erik M. Hansen
--------------------------------------------
Erik M. Hansen, a Managing General Partner
Date: 11/29/95
--------------------------------------------
LESSEE:
BURKE INDUSTRIES, INC., A CALIFORNIA CORPORATION
By: /s/ Reed Wolthausen
--------------------------------------------
Title: Senior V.P. - CFO
--------------------------------------------
Date: 11/21/95
--------------------------------------------
Exhibit B Page 4
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the
Project and its occupants.
2. Lessee shall not keep animals or birds within the Project, and shall not
bring bicycles, motorcycles or other vehicles into areas not designated as
authorized for the same.
3. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
4. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
5. Lessee shall not deface the walls, partitions or other surfaces of the
premises of the Project.
6. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of
the Project.
7. Lessee shall return all keys at the termination of its tenancy.
8. No window coverings, shades or awnings shall be installed or used by
Lessee, without Lessor's written prior consent, subject to the provisions
of the Lease.
9. No Lessee, employee or Invitee shall go upon the roof of the Building
without Lessor's written prior consent.
10. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
11. Lessee shall not use any method of heating or air conditioning other than
as reasonably approved by Lessor.
12. The Premises shall not be used for lodging.
13. Lessee shall comply with all safety, fire protection and evacuation
regulations reasonably established by Lessor or any applicable governmental
agency.
14. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
15. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Project and its occupants. Lessee agrees to
abide by these and such rules and regulations.
PARKING RULES
l. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
2. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible
for any damage to vehicles, injury to persons or loss of property, all of
which risks are assumed by the party using the parking area.
3. The maintenance, washing, waxing or cleaning of vehicles in the Common Area
is prohibited.
4. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws
and agreements.
5. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking area.
1
<PAGE>
EXHIBIT E
RECORDING REQUESTED BY AND
WHEN RECORDED RETURN TO:
- --------------------------
- --------------------------
- --------------------------
---------------------------------------------
(Space above this line for Recorder's use only)
SUBORDINATION. NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made of this ________ day of ________________ by and
between _________________________________________, having its principal office
and place of business at __________________________________________("Lender")
and BURKE INDUSTRIES INC., whose address is 13767 Freeway Drive, Santa Fe
Springs, California 90670 ("Lessee").
RECITALS
WHEREAS, Lincoln Property Company No. 2106 Limited Partnership
("Lessor") and Lessee have entered into that certain lease dated October 20,
1995 (the "Lease") covering premises (the "Premises") on the real property (the
"Property") more particularly described in EXHIBIT A attached hereto and
incorporated herein; and
WHEREAS, Lender has agreed to make a loan (the "Loan") to Lessor to be
evidenced by a certain Promissory Note issued by Lessor to Lender (the "Note");
and
WHEREAS, the Note is to by secured by a certain Deed of Trust and
Security Agreement (the "Deed of Trust") and by a certain Assignment of Leases
and Rents (the "Assignment") encumbering, inter alia, the Premises; and
WHEREAS, it is a condition precedent to obtaining the Loan that the
Deed of Trust be a lien or charge upon the Premises unconditionally prior and
superior to the Lease and the leasehold interest of Lessee thereunder; and
WHEREAS, Lessee is willing to unconditionally subordinate the Lease to
the Deed of Trust on the terms and conditions set forth herein; and
WHEREAS, Lender has been requested by Lessee and by Lessor to enter
into a non-disturbance agreement with Lessee;
NOW THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. The Lease and any extensions, renewals, replacements or
modifications thereof, and all of the right, title and interest of Lessee
thereunder in and to the Premises, are and shall be subject and subordinate to
the Deed of Trust and to all of the terms and conditions contained therein, and
to any renewals, modifications, replacements, consolidations and extensions
thereof.
1
<PAGE>
2. Lender consents to the Lease and, in the event Lender comes into
possession of or acquires title to the Premises as a result of the foreclosure
or other enforcement of the Deed of Trust or the Note, or as a result of any
other means, Lender agrees that, so long as Lessee is not then in default under
the Lease beyond any applicable notice and cure period, Lender will recognize
Lessee and all of its rights under the Lease and will not disturb Lessee in its
possession of the Premises for any reason other than one which would entitle
Lessor to terminate the Lease under its terms or would cause, without any
further action by Lessor to terminate Lease under its terms or would cause,
without any further action by Lessor, the termination of the Lease or would
entitle Lessor to dispossess Lessee from the Premises.
3. Lessee agrees with Lender that if the interests of Lessor in the
Premises shall be transferred to and owned by Lender by reason of foreclosure or
other proceedings brought by it, or any other manner, or shall be conveyed
thereafter by Lender or shall be conveyed pursuant to a foreclosure sale of the
Premises, and if in connection therewith Lender assumes the executory
obligations of Lessor under the Lease, Lessee shall be bound to Lender under all
of the terms, covenants and conditions of the Lease for the balance of the term
thereof remaining and any extensions or renewals thereof which may be effected
in accordance with any option contained in the Lease, with the same force and
effect as if Lender were the Lessor under the Lease, and Lessee does hereby
attorn to Lender as its Lessor, said attornment to be effective and
self-operative without the execution of any further instrument on the part of
any of the parties hereto immediately upon Lender succeeding to the interest of
Lessor in the Premises.
4. In the event that Lessor shall default in the performance or
observance of any of the terms, conditions or agreements in the Lease, Lessee
shall give written notice thereof to Lender and Lender shall have the right (but
not the obligation) to cure such default. Lessee shall not take any action with
respect to such default under the Lease, including any action in order to
terminate, rescind or void the Lease or to withhold any rental thereunder, for
sixty (60) days after Lender's receipt of such written notice (the "Cure
Period"), such Cure Period to continue for an additional period (i) if Lender
has commenced and is diligently pursuing the remedies necessary to cure any such
act or omission (including, without limitation, commencement of foreclosure
proceedings, if necessary to cure any such act or omission); and (ii) for any
period of time during which Lender is prevented from commencing or pursuing such
foreclosure proceedings because of bankruptcy or other judicial proceedings
initiated by pursuing such foreclosure proceedings because of bankruptcy or
other judicial proceedings initiated by Lessor or any other party.
5. Lessor has agreed in the Deed of Trust and in the Assignment that
the rentals payable under the Lease shall be paid directly by Lessee to Lender
upon the occurrence of a default by Lessor under the Deed of Trust beyond any
applicable notice and cure period. Accordingly, after notice is given by Lender
to Lessee that the rentals under the Lease should be paid to or on the
directions of Lender, Lessee shall pay to Lender, or in accordance with the
directions of Lender, all rentals and other moneys due and to become due to
Lessor under the Lease. Lessee shall have no responsibility to ascertain whether
such demand by Lender is permitted under the Deed of Trust or the Assignment.
6. This Agreement shall bind and inure to the benefit of the parties
hereto and their successors and assigns. As used herein the term "Lessee", shall
include Lessee and its successors and assigns; the words "foreclosure" and
"foreclosure sale" as used herein shall be deemed to include the acquisition of
Lessor's estate in the Premises by voluntary deed (or assignment) in lieu of
foreclosure; and the word "Lender" shall include the Lender herein specifically
named and any of its successors, participants and assigns, including anyone who
shall have succeeded to Lessor's interest in the Premises by, through or under
foreclosure of the Deed of Trust.
7. All notices and other communications pursuant to the provisions
of this Agreement shall be in writing and shall be sent by registered or
certified mail, return receipt requested, or by a reputable commercial overnight
carrier that provides a receipt, such as Federal Express or Airborne, and shall
be deemed given when postmarked (or deposited with such carrier, as the case may
be) and addressed as follows:
2
<PAGE>
If to Lessee: Burke Industries, Inc. Attn: Dave Worthington
--------------------------
2250 So. 10th Street
--------------------------
San Jose, CA 95112
--------------------------
with a copy to: Burke Industries, Inc. Attn: Reed Wolthausen
--------------------------
13767 Freeway Dr.
--------------------------
Santa Fe Springs, CA 90670
--------------------------
If to Lender:
--------------------------
--------------------------
--------------------------
with a copy to:
--------------------------
--------------------------
--------------------------
or to such other address as shall from time to time have been designated by
written notice by such party to the other parties as herein provided.
8. This Agreement, together with the provisions of the Lease
addressing the liability of any successor in interest to Lessor following
foreclosure sale or deed in lieu thereof, shall constitute the whole and only
agreement between the parties hereto with regard to the subordination of the
Lease and the leasehold interest of Lessee thereunder to the lien or charge of
the Deed of Trust in favor of Lender, and shall supersede and control any prior
agreements as to such, and shall not be modified or amended and no provision
herein shall be waived except i writing signed by the party against whom
enforcement of any such modification or amendment is sought.
9. This Agreement shall be governed by and construed in accordance
with the law of the State of California.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the day and year first above written.
LESSEE: BURKE INDUSTRIES, INC.
By: /s/ Reed Wolthausen
-------------------
Name: Reed Wolthausen
-------------------
Title: Sr VP - CFO
-------------------
LENDER:
-------------------
By:
-------------------
Name:
-------------------
Title:
-------------------
(ADD NOTARY ACKNOWLEDGMENTS)
3
<PAGE>
EXHIBIT F
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Lessor (identified below) to evaluate and finalize a lease agreement
with you as lessee. After a lease agreement is signed by you and the Lessor (the
"Lease Agreement"), on an annual basis in accordance with the provisions of
Paragraph 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Lessor subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Lessor to defend itself or its lenders, partners or
representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:
Lessor:
-------------------------------------------------
-------------------------------------------------
c/o Lincoln Property Company Management Services, Inc.
P.O. Box 19693
30 Executive Park, Suite 100
Irvine, California 92713-9693
Attn:
------------------------------
Phone: (714) 261-2100
Name of Lessee:
-----------------------------------------------------------
Mailing Address:
-----------------------------------------------------------
Contact Person, Title and Telephone Number(s):
-----------------------------
-----------------------------------------------------------
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):
- -------------------------------------------------------------------------------
Address of Premises:
---------------------------------------------------------
---------------------------------------------------------
Length of Initial Term:
------------------------------------------------------
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or about the
Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or
otherwise conducted. Existing lessees should describe any proposed changes
to on-going operations.
-----------------------------------------------------------
-----------------------------------------------------------
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, generated, stored or disposed of
in, on or about the Premises? Existing lessees should describe any
Hazardous Materials which continue to be used, generated, stored or
disposed of in, on or about the Premises.
Wastes Yes / / No / /
Chemical Products Yes / / No / /
Other Yes / / No / /
If Yes is marked, please explain:
----------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
1
<PAGE>
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or about
the Premises, including the applicable hazard class and an estimate of
the quantities of such Hazardous Materials at any given time;
estimated annual throughput; the proposed location(s) and method of
storage (excluding nominal amounts of ordinary household cleaners and
janitorial supplies which are not regulated by any Environmental
Laws); and the proposed location(s) and method of disposal for each
Hazardous Material, including, the estimated frequency, and the
proposed contractors or subcontractors. Existing lessees should attach
a list setting forth the information requested above and such list
should include actual data from on-going operations and the
identification of any variations in such information from the prior
year's certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel, petroleum,
or other Hazardous Materials in tanks or sumps proposed in, on or
about the Premises? Existing lessees should describe any such actual
or proposed activities.
Yes / / No / /
If Yes is marked, please explain:
----------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing lessees should describe any additional identification
numbers issued since the previous certificate.
Yes / / No / /
4.2 Has your company filed a biennial or quarterly reports as a hazardous
waste generator? Existing lessees should describe any new reports
filed.
Yes / / No / /
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
storm drain? sewer?
-------- --------
surface water? no wastewater or other wastes
-------- -------- discharged.
Existing lessees should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
---------------------------------------------------------------------
---------------------------------------------------------------------
5.2 Will any such wastewater or waste be treated before discharge?
Yes / / No / /
If yes, describe the type of treatment proposed to be conducted.
Existing lessees should describe the actual treatment conducted.
---------------------------------------------------------------------
---------------------------------------------------------------------
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will
discharge into the air; and will such air emissions be monitored?
Existing lessees should indicate whether or not there are any such air
filtration systems or stacks in use in, on or about the Premises which
discharge into the air and whether such air emissions are being
monitored.
Yes / / No / /
If yes, please describe:
---------------------------------------------------------------------
---------------------------------------------------------------------
2
<PAGE>
6.2 Do you propose to operate any of the following types of equipment, or
any other equipment requiring an air emissions permit? Existing
lessees should specify any such equipment being operated in, on or
about the Premises.
Spray booth(s) Incinerator(s)
-------- --------
Dip tank(s) Other (Please describe)
-------- --------
Drying oven(s) No Equipment Requiring Air
-------- -------- Permits
If yes, please describe:
---------------------------------------------------------------------
---------------------------------------------------------------------
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to
Fire Department or other governmental or regulatory agencies'
requirements? Existing lessees should indicate whether or not a
Management Plan is required and has been prepared.
Yes / / No / /
If yes, attach a copy of the Management Plan. Existing lessees should
attach a copy of any required updates to the Management Plan.
7.2 Are any of the Hazardous Materials, and in particular chemicals,
proposed to be used in your operations in, on or about the Premises
regulated under Proposition 65? Existing lessees should indicate
whether or not there are any new Hazardous Materials being so used
which are regulated under Proposition 65.
Yes / / No / /
If yes, please explain:
---------------------------------------------------------------------
---------------------------------------------------------------------
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees or has your company received
requests for information, notice or demand letters, or any other
inquiries regarding its operations? Existing lessees should indicate
whether or not any such actions, orders or decrees have been, or are
in the process of being, undertaken or if any such requests have been
received.
Yes / / No / /
If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders or
decrees and also describe any requests, notices or demands, and attach
a copy of all such documents. Existing lessees should describe and
attach a copy of any new actions, orders, decrees, requests, notices
or demands not already delivered to Lessor pursuant to the provisions
of Paragraph 29 of the signed Lease Agreement.
---------------------------------------------------------------------
---------------------------------------------------------------------
8.2 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety
concerns?
Yes / / No / /
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents
related thereto as requested by Lessor. Existing lessees should
describe and attach a copy of any new complaint(s),
cross-complaint(s), pleadings and other related documents not already
delivered to Lessor pursuant to the provisions of Paragraph 29 of the
signed Lease Agreement.
---------------------------------------------------------------------
---------------------------------------------------------------------
3
<PAGE>
8.3 Have there been any problems or complaints from adjacent tenants,
owners or other neighbors at your company's current facility with
regard to environmental or health and safety concerns? Existing
lessees should indicate whether or not there have been any such
problems or complaints from adjacent tenants, owners or other
neighbors at, about or near the Premises.
Yes / / No / /
If yes, please describe. Existing lessees should describe any such
problems or complaints not already disclosed to Lessor under the
provisions of the signed Lease Agreement.
---------------------------------------------------------------------
---------------------------------------------------------------------
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses issued
to your company with respect to its proposed operations in, on or
about the Premises, including, without limitation, any wastewater
discharge permits, air emissions permits, and use permits or
approvals. Existing lessees should attach copies of any new permits
and licenses as well as any renewals of permits or licenses previously
issued.
The undersigned hereby acknowledges and agrees that this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Lessor in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit. The undersigned further
acknowledges and agrees that this Hazardous Materials Disclosure Certificate is
being delivered in accordance with, and as required by, the provisions of
Paragraph 29 of the Lease Agreement. The undersigned further acknowledges and
agrees that the Lessor and its partners, lenders and representatives may, and
will, rely upon the statements, representations, warranties, and certifications
made herein and the truthfulness thereof in entering into the Lease Agreement
and the continuance thereof throughout the term, and any renewals thereof, of
the Lease Agreement. I (print name)____________________________, acting with
full authority to bind the (proposed) Lessee and on behalf of the (proposed)
Lessee, certify, represent and warrant that the information contained in this
certificate is true and correct.
LESSEE:
By: /s/ Reed Wolthausen
-----------------------
Its: Sr. VP - CFO
-----------------------
Date: 11/21/95
-----------------------
4
<PAGE>
ADDENDUM I
OPTION TO EXTEND THE LEASE
Reference is made to that certain Lease Agreement dated for reference purposes
as of October 20, 1995 (the "Lease") by and between Lincoln Property Company No.
2106 Limited Partnership, a California limited partnership ("Lessor"), and Burke
Industries, Inc., a California corporation ("Lessee"), of approximately 80,722
rentable square feet of space located at 13767 Freeway Drive, Santa Fe Springs,
California (the "Premises"). Any capitalized terms used herein and not otherwise
defined herein shall have the meaning ascribed to such terms as set forth in the
Lease.
1. GRANT OF OPTION: EXERCISE. If Lessee is not in default in the performance
of any of its obligations under this Lease beyond all applicable notice and cure
periods at the time of delivery to Lessor of the Option Notice and contingent
upon review and approval of Lessee's then current financial condition by Lessor,
Lessee shall have the right as its option to extend the term of the Lease for
five (5) years (the "Extended Term"). Notwithstanding the foregoing, so long as
Lessee's financial condition at the time of delivery of the Option Notice is
substantially the same as Lessee's financial condition as of the Lease Date,
then such financial condition of Lessee at the time of delivery of the Option
Notice shall be acceptable to Lessor. The Lease of the Premises during the
Extended Term shall be upon the same terms, covenants and conditions as are set
forth in this Lease, other than the monthly Base Rent, the amount of the
Security Deposit, this extension option and the term of the Lease. If Lessor
does not receive from Lessee written notice of Lessee's exercise of this option
by 5:00 p.m. Pacific Time on a date which is not more than nine (9) months nor
less than six (6) months prior to the end of the initial term of the Lease (the
"Option Notice"), all rights under this option shall automatically lapse and
terminate and shall be of no further force and effect. Time is of the essence
herein.
2. INITIAL BASE RENT DURING EXTENDED TERM. In the event Lessee duly exercises
its rights under this option, the monthly Base Rent commencing on the first day
of the Extended Term shall be an amount which is the greater of (i) the then
current market rent for similar space (the "Fair Rental Value") agreed upon
solely by and between Lessor and Lessee and their agents appointed for this
purpose, or (ii) the monthly Base Rent in effect on the last day of the initial
term of the Lease less $2,202.00. Neither Lessor nor Lessee shall have the right
to have a court establish the Fair Rental Value. If Lessor and Lessee are unable
to agree on the Fair Rental Value for the Extended Term within ten (10) business
days after receipt by Lessor of the Option Notice, Lessor and Lessee being
obligated only to act in good faith, then Lessor and Lessee shall follow the
procedures set forth in Section 3, below.
3. DETERMINATION OF FAIR RENTAL VALUE. The "Fair Rental Value" of the
Premises shall be defined to mean the fair market rental value of the Premises
as of the commencement of the Extended Term, taking into consideration all
relevant factors, including length of term, the uses permitted under the Lease,
the quality, size, design and location of the Premises, including the condition
and value of existing tenant improvements, and the monthly base rent paid by
tenants for premises comparable to the Premises, and located in the same market
area as the Premises. If the parties are unable to agree on the Fair Rental
Value for the Extended Term within ten (10) business days after receipt by
Lessor of the Option Notice, Lessor and Lessee each, at its cost and by giving
notice to the other party, shall appoint a competent and disinterested real
estate appraiser with at least five (5) years' full-time commercial appraisal
experience in the geographical area of the Premises to appraise and set the Fair
Rental Value for the Extended Term. If either Lessor or Lessee does not appoint
an appraiser within ten (10) days after the other party has given notice of the
name of its appraiser, the single appraiser appointed shall be the sole
appraiser and shall set the Fair Rental Value for the Extended Term. If two (2)
appraisers are appointed by Lessor and Lessee as stated in this paragraph, they
shall meet promptly and attempt to set the Fair Rental Value. If the two (2)
appraisers are unable to agree within ten (10) days after the second appraiser
has been appointed, they shall attempt to select a third appraiser meeting the
qualifications stated in this paragraph within ten (10) days after the last day
the two (2) appraisers are given to set the Fair Rental Value. If they are
unable to agree on the third appraiser, either Lessor or Lessee by giving ten
(10) days' notice to the other party, can apply to the Presiding Judge of the
Superior Court of the county in which the Premises is located for the selection
of a third appraiser who meets the qualifications stated in this paragraph.
Lessor and Lessee each shall bear one-half (1/2) of the cost
1
<PAGE>
of appointing the third appraiser and of paying the third appraiser's fee. The
third appraiser, however selected, shall be a person who has not previously
acted in any capacity for either Lessor or Lessee. Within fifteen (15) days
after the selection of the third appraiser, the third appraiser shall select one
of the two Fair Rental Values submitted by the first two appraisers as the Fair
Rental Value for the Extended Term. If either of the first two appraisers fails
to submit their opinion of the Fair Rental Value, then the single Fair Rental
Value submitted shall automatically be the monthly Base Rent for the Extended
Term.
4. Notwithstanding any provision to the contrary contained herein, in no event
shall the minimum monthly Base Rent for the Extended Term as determined pursuant
to this Addendum I, be less than the highest monthly Base Rent charged during
the initial term of the Lease less $2,202.00. Upon determination of the monthly
Base Rent for the Extended Term, pursuant to the terms outlined above, Lessor
and Lessee shall promptly execute an amendment to the Lease stating the minimum
monthly Base Rent for the Extended Term, the amount of the Security Deposit for
the Extended Term, and confirming the expiration date of the Extended Term.
Lessee shall have no other right to extend the term of the Lease under this
Addendum I unless Lessor and Lessee otherwise agree in writing.
5. If Lessee duly and timely exercises this option in accordance with the
terms contained herein, the following shall apply: (a) Lessee shall accept the
Premises in its then "As-Is" condition and accordingly, Lessor shall not be
required to perform any additional improvements to the Premises; (b) Lessee
hereby agrees that it will solely be responsible for any and all brokerage
commissions and finder's fees payable to any broker engaged by Lessee, in
connection with the option described herein, and Lessee hereby further agrees
that Lessor shall in no event or circumstance be responsible for the payment of
any such commissions and fees other than any broker specifically engaged by
Lessor; and (c) Lessee shall deliver to Lessor, concurrently with the delivery
of the Option Notice, a non-refundable deposit in the amount of the monthly Base
Rent in effect as of the last month of the initial term of the Lease (the
"Option Deposit"). If, after the delivery to Lessor of the Option Notice, Lessee
fails to actually lease the Premises during the Extended Term, then Lessor shall
retain the Option Deposit. If, after the delivery to Lessor of the Option
Notice, Lessee does actually lease the Premises during the Extended Term, then
Lessor shall apply the Option Deposit against any increase in the amount of the
Security Deposit required during the Extended Term and the balance of the Option
Deposit shall be applied against the monthly Base Rent payable by Tenant during
the first month of the Extended Term.
6. This option is personal to Lessee or any Affiliate and may not be assigned,
voluntarily or involuntarily, separate from or as part of the Lease. At Lessor's
option, all rights of Lessee under this option shall terminate and be of no
force and effect if any of the following individual events occur or any
combination thereof occur: (1) Lessee is in default of any provision of the
Lease beyond any notice and cure period at the time of delivery to Lessor of the
Option Notice; and/or (2) Lessee has assigned its rights and obligations in
whole or in part under the Lease to a party other than an Affiliate of Lessee;
and/or (3) Lessees or Lessee's Affiliate's (as the case may be) financial
condition is unacceptable to Lessor at the time the Option Notice is delivered
to Lessor. Notwithstanding the foregoing so long as Lessee's financial condition
at the time of delivery of the Option Notice is substantially the same as
Lessee's financial condition as of the Lease Date, then such financial condition
of Lessee at the time of delivery of the Option Notice shall be acceptable to
Lessor; and/or (4) Lessee has failed to exercise this option in a timely manner
in strict accordance with the provisions of this Addendum I; and/or (5) if the
Lease has been terminated earlier, pursuant to the terms of the Lease.
2
<PAGE>
ADDENDUM II
CPI CALCULATION AND ADJUSTMENTS
This Addendum II to Lease Agreement (the "Addendum") is made by and between
Lincoln Property Company No. 2106 Limited Partnership, a California Limited
Partnership ("Lessor"), and Burke Industries, Inc. ("Lessee"), with reference to
that certain Lease Agreement (the "Lease"), dated for reference purposes as of
October 20, 1995, by and between Lessor and Lessee for the leasing of certain
premises (the "Premises") located at 13767 Freeway Drive, Santa Fe Springs,
California.
The terms and provisions of his Addendum shall be added to and incorporated in
the above-referenced Lease. Any capitalized terms used herein, and not otherwise
defined herein, shall have the meaning ascribed to such terms as set forth in
the Lease. In the event of any inconsistencies between the terms and provisions
of this Addendum II and the Lease, the terms and provisions of this Addendum
shall control.
The monthly Base Rent payable by Lessee to Lessor, as set forth in Section
3 of this Lease, shall be adjusted on March 1, 1997, September 1, 1998 and March
1, 2000 (individually, an "Adjustment Date", and collectively, the "Adjustment
Dates") in accordance with the percentage increase, if any, in the "Consumer
Price Index for All Urban Wage Consumers for Los Angeles-Anaheim-Riverside,
California" (Base: 1982-1984=100), as published by the United States Department
of Labor, Bureau of Labor Statistics ("Index").
The monthly Base Rent payable on each Adjustment Date shall be the product of
the monthly Base Rent in effect on the last day preceding each Adjustment Date
and ninety-two and one half percent (92.5%) of the fraction described below. The
denominator of such fraction shall be the Index in effect three (3) months prior
to the first day of the initial term of the Lease or the last Adjustment Date,
as the case may be ("Base Index"). The numerator of such fraction shall be the
Index in effect three (3) months prior to the last day preceding each Adjustment
Date ("Adjustment Index"). The monthly Base Rent shall be increased and paid
thereafter in accordance with ninety-two and one half percent (92.5%) of the
percentage increase, if any, between such Indices.
In no event, however, shall the monthly Base Rent calculated as aforesaid be
less than 103.7% or more than 106.5% of the monthly Base Rent in effect for the
immediately preceding eighteen (18) month period of the term of the Lease.
Should said Bureau discontinue the publication of the above Index, or if the
compilation of the Index is materially altered or published less frequently, or
if the Bureau should vary the method of calculation of same or alter the same in
some other manner, then Lessor shall adopt, at its sole discretion, a substitute
index which is most nearly the same or substitute procedure which reasonably
reflects and monitors consumer prices, and such substitute shall be used to make
such calculation. If the Index is changed so that the base year differs from
that in effect when the term commences, the Index shall be converted in
accordance with the conversion factor published by the United States Department
of Labor, Bureau of Labor Statistics, or, if said Bureau shall not publish the
same, then with the use of such conversion factor, formula or table as may be
published by Prentice Hall, Inc. or by any other nationally recognized publisher
of similar statistical information. In the event the compilation and/or
publication of the Index shall be discontinued or materially altered, then the
index most nearly the same as the Index shall be used to make such calculation.
In the event Lessor and Lessee cannot agree on such alternative Index, then the
matter shall be submitted for decision to the American Arbitration Association
in accordance with the then rules of the said Association and a decision of the
arbitrators as to the applicable Index shall be binding upon the parties. The
cost of said arbitrator shall be paid equally by the Lessor and Lessee.
Example:
<TABLE>
<S> <C>
HYPOTHETICAL FACTS:
Lease Commencement Date
or Last Adjustment Date: 9/1/95
Adjustment Date: 3/1/97
Monthly Base Rent in effect: 2/28/97 - $28,033.00
Base Index: June, 1995 - 410.0
Adjustment Index: December, 1996 - 430.0
ADJUSTED BASE RENT CALCULATION:
Ratio of Indices: 430.0 = 1.0488 or 4.88% x 92.5% = 4.5%
-----
410.0
Adjusted monthly Base Rent: ($28,033 x 4.5%) + $28,033 = $29,294.49
</TABLE>
<PAGE>
TENANT'S ESTOPPEL CERTIFICATE
PREMISES: 13767 FREEWAY DRIVE, SANTA FE SPRINGS, CA 90670
LANDLORD: LINCOLN-WHITEHALL REALTY, L.L.C
LEASE DATED: OCTOBER 20, 1995 ("LEASE")
DATE: NOVEMBER 6, 1996
The undersigned, Tenant, in recognition that LINCOLN-WHITEHALL REALTY,
L.L.C. or its successor and assign ("Landlord") is considering obtaining
financing from General Electric Capital Corporation ("GECC") and that GECC is
considering providing said financing, hereby certifies to Landlord and GECC
that:
1. Tenant has accepted possession of the Premises pursuant to the Lease.
A true and accurate copy of the Lease is attached hereto. The Lease term
commenced on SEPTEMBER 1, 1995. The termination date of the Lease term,
excluding renewals and extensions, is JANUARY 31, 2001. Tenant has not assigned
its rights under the Lease or sublet any portion of the leased premises. The
Lease is dated OCTOBER 20, 1995 and has not been amended except as follows: ONE
5-YEAR OPTION TO EXTEND AT FAIR MARKET VALUE WITH 6 MONTHS PRIOR WRITTEN NOTICE.
2. Any improvements required by the terms of the Lease to be made by
Landlord have been completed to the satisfaction of Tenant in all respects, and
Landlord has fulfilled all of its duties under the Lease, WITH THE EXCEPTION OF
FINAL COMPLETION OF FRONT LOBBY RE-ROOFING LOCALIZED ROOF REPAIRS IN OFFICE AREA
AND OTHER ROOF MAINTENANCE REQUIRED UNDER THE TERMS OF THE LEASE.
3. Except as disclosed in Paragraph l above, the Lease has not been
assigned, modified, supplemented or amended in any way. The Lease constitutes
the entire agreement between the parties and there are no other agreements or
understandings between Landlord and Tenant concerning the Premises. The
undersigned does not have any option or preferential right to purchase all or
any part of the Premises or the building of which the Premises are a part or any
right, title or interest with respect to the Premises or such Building other
than as Lessee under the Lease.
4. The Lease is valid and in full force and effect, and to the best of
Tenant's knowledge, neither Landlord nor Tenant is in default thereunder. Tenant
has no defense, setoff or counterclaim against Landlord arising out of the Lease
or against the payment of rent or other charges under the Lease or in any way
relating thereto, or arising out of any other transaction between Tenant and
Landlord, and no event has occurred and no condition exists, which with the
giving of notice or the passage of time, or both, will constitute a default
under the Lease. Tenant is current in the payment of any taxes, utilities,
common area maintenance or other charges to be paid by Tenant.
5. There are no actions, whether voluntary or involuntary, pending
against Tenant under any insolvency, bankruptcy or other debtor relief laws of
the United States of America or California.
-1-
<PAGE>
6. The minimum monthly rent presently payable under the Lease is
$28,033.00 Landlord is holding a security deposit of $28,033.00. Landlord holds
no other funds for Tenant's account. No rent or other sum payable under the
Lease has been paid more than one month in advance.
7. Tenant acknowledges that the Lease will be assigned to GECC as the
lender, and Tenant has received no notice of a prior assignment, hypothecation
or pledge of the Lease or the rents; under the provisions of the assignment, the
Lease cannot be terminated (either directly or by the exercise of any option
which could lead to termination) or modified in any of its terms, or consent be
given to the release of any party having liability thereunder, without the prior
written consent of GECC; that without such consent, no rent may be collected or
accepted more than one month in advance; and that the interest of the Landlord
in the Lease shall be assigned to GECC solely as security for the purposes
specified in the assignment and GECC shall assume no duty, liability or
obligations whatever under the Lease or any extension or renewal thereof.
8. Tenant acknowledges and agrees that if GECC shall succeed to the
interest of Landlord under the Lease, GECC shall assume and perform (only while
owner of and in possession or control of the building of which the Premises are
a part) all of the Landlord's obligations under the Lease, but shall not be
liable for any act or omission of any prior landlord (including the present
Landlord), liable for the return of any security deposit, subject to any offset
or defense which Tenant may have against any such prior landlord, bound by any
rent or additional rent Tenant may have paid for more than the current month to
any such prior landlord or bound by any assignment, surrender, termination,
cancellation, waiver, release, amendment or modification of the Lease made
without its express written consent.
9. Tenant shall give GECC prompt written notice of any default of
Landlord under the Lease, if such default entitles Tenant, under law or
otherwise, to terminate the Lease, reduce rent or credit or offset any amounts
against future rents and shall give GECC reasonable time (but in no event less
than 90 days after receipt of such notice) to cure or commence curing such
default prior to exercising (and as a condition precedent to its right to
exercise) any right Tenant may have to terminate the Lease, reduce rent or
credit or offset any amounts against the rent. Tenant shall give written notice
to any successor in interest of GECC, any transferee who acquires the property
by deed in lieu of foreclosure, or any successor or assign thereof
(collectively, the "Mortgagee").
10. Tenant shall not look to the Mortgagee, as mortgagee in possession, or
successor in title to the Premises, in connection with the return of or
accountability with respect to any security deposit required by Landlord, unless
said sum has actually been received by Mortgagee as security for Tenant's
performance under the Lease.
11. TENANT SHALL COMPLY WITH ALL LEASE PROVISIONS REGARDING HAZARDOUS
MATERIALS.
-2-
<PAGE>
12. All notices and other communications from Tenant to Landlord or GECC
shall be in writing and shall be delivered or mailed by registered mail, postage
paid, return receipt requested, addressed to:
Landlord at: Lincoln Property Company Management Services, Inc.
101 Lincoln Centre Drive, 4th Floor
Foster City, California 94404
Attention: Asset Manager
GECC at: General Electric Capital Corporation
c/o GE Capital Realty Group, Inc.
16479 Dallas Parkway, Suite 400
Dallas, Texas 75248-2661
Attention: Asset Manager
Or at such other address as Landlord or GECC or their respective successors,
assigns or transferees shall furnish to Tenant in writing.
13. As used in this paragraph, (i) "Deeds of Trust" means any one or more
deeds of trust encumbering the Premises in favor of GECC or any affiliate
thereof, and (ii) "Transferee" means GECC, or any other person or entity, who
acquires title to the Premises pursuant to foreclosure of, or deed in lieu of
foreclosure of, any Deed of Trust, and their respective successors and assigns.
Tenant shall attorn to any Transferee and pay all rent and perform all
obligations under the Lease to such Transferee. Such attornment shall be
effective and self-operative without notice and without the execution of any
further documents, provided that Tenant shall, upon the written request of such
Transferee, promptly confirm such attornment in writing and, if requested by
such Transferee, shall enter into a new lease with such Transferee for the
balance of the term remaining under the Lease on the same terms and conditions
as are contained in the Lease.
Provided that this Certificate is signed by Tenant and returned to
GECC, GECC agrees (for itself and any other Transferee) that so long as there
shall not then exist any breach or default on the part of Tenant under the
Lease, or any event or condition which, with the giving of notice and/or the
passage of time, could become such a breach or default, and subject to
compliance by Tenant with the terms hereof, (a) Tenant's right to possession of
the Premises and leasehold interest under the Lease shall not be disturbed and
shall continue in effect, and (b) the Transferee shall recognize and accept
Tenant as tenant under the terms of the Lease, in each case subject to the
terms, requirements and provisions of the Lease and those set forth herein.
TENANT
BURKE INDUSTRIES, INC.
-----------------------
By: /s/ Rocky Genovese
-------------------
Date: Nov 13, 1996
------------------
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<PAGE>
EXHIBIT 10.15
INDUSTRIAL/COMMERCIAL SINGLE TENANT LEASE
for
14910 Carmenita Road
Norwalk, California
1. PARTIES.
THIS INDUSTRIAL/COMMERCIAL SINGLE TENANT LEASE ("Lease") is entered
into this 17th day of November, 1995 (the "Execution Date") by and between
DONALD M. HYPES, Trustee under that certain Declaration of Trust dated
April 25, 1983, as amended ("Landlord") and BURKE INDUSTRIES, INC., a
California corporation ("Tenant").
2. LEASED PREMISES.
2.1. DESCRIPTION OF PREMISES. Landlord is the owner of certain
real property commonly known by the street address of 14910 Carmenita Road,
Norwalk, California, which real property contains a building (the "Building")
and certain exterior real property improved with parking and other
improvements associated with the operation of the Building. As used herein,
"Premises" means and includes, without limitation, the Building and any and
all interior and exterior improvements to the Building, paving, driveways,
entryways and exits and other physical structures and improvements located
in, on or about the real property, all landscaping, excavations, planting on
the Property, and all interior and exterior fixtures and also includes all
trade fixtures of Tenant, and assignees and sublessees that cannot be
removed from the Premises without causing structural damage. The
Premises are more particularly described on Exhibit "A" attached hereto and
incorporated herein by this reference.
2.2. LEASE OF PREMISES. Landlord hereby leases to Tenant and
Tenant hereby hires from Landlord, for the term, at the rental and upon the
conditions in this Lease, the Premises. Tenant accepts the Premises subject
to those existing liens, encumbrances, charges, conditions, covenants,
easements, restrictions and rights-of-way.
2.3. CONDITION OF PREMISES/WARRANTY. Tenant acknowledges that
the Premises need certain repair work (the "Repair Work") described on
Exhibit "B" attached hereto and incorporated herein by this reference and
Tenant agrees to perform at its sole cost and expense the Repair Work on or
prior to June 30, 1996. Tenant acknowledges that it has been in possession
of the Premises prior to the commencement of this Lease, and accepts the
Premises and the improvements that are currently located in, on and about the
Premises in a strictly "AS IS" condition, despite the need to complete the
Repair Work, provided that, Landlord shall repair and maintain the Building's
roof and skylights located thereon (hereinafter "Landlord's Work").
Landlord's contractors shall commence Landlord's Work within thirty (30)
days of the Execution Date and such work shall be performed in a good
workmanlike manner and Tenant shall permit Landlord's contractors with
reasonable access to the Premises to conduct Landlord's Work. Landlord shall
use reasonable efforts to minimize inconvenience to Tenant and shall
reasonably schedule Landlord's Work with Tenant. Exclusive of the Repair
Work and Landlord's Work, Tenant hereby acknowledges that it has conducted an
inspection of the Premises and has found the Premises and all systems on the
Premises to be in good operating condition, including without limitation the
heating, air-conditioning, plumbing and electrical systems. In no event
shall Landlord be obligated to make any repairs to the Premises or
improvements, including the air-conditioning system, and any and all repairs
or replacements shall be at the sole cost and expense of Tenant, provided
that, Landlord shall be responsible for the maintenance and repair of
Landlord's Work. Except for Landlord's Work, Tenant's taking possession of
the Premises constitutes an acceptance of the Premises and constitutes a
waiver of any warranty of any defect
<PAGE>
in regard to workmanship or material of the Premises and other improvements
that are a part of the Premises. Landlord shall have no obligation to
maintain or repair the Premises nor any of the leasehold improvements
currently and/or subsequently located in and about the Premises, provided
that, Landlord shall be responsible for the maintenance and repair of
Landlord's Work.
3. TERM OF LEASE.
3.1. ORIGINAL TERM. The original term of the Lease shall be for
a period of five (5) years.
3.2. OPTION TO EXTEND TERM. Tenant is given the option to extend
the term on all the provisions contained in this Lease for a five (5) year
period ("extended term-1") following expiration of the original term by giving
written notice of exercise of the option ("option notice-1") to Landlord not
less than sixty (60) days prior to the expiration of the original term; provided
that, if Tenant is in default on the date of giving any option notice provided
herein above beyond all applicable notice and cure periods, then such option
notice shall be totally ineffective, or if Tenant is in default beyond all
applicable notice and cure periods on the date any extended term provided herein
above is to commence, then such extended term shall not commence and this Lease
shall expire at the end of such current term; and provided further that, upon
giving any effective option notice provided herein above, Tenant shall be
bound by all the provisions contained in this Lease through the expiration
of such extended term except that monthly rental for the extended term shall be
calculated as provided in Section 4.3 below subject to adjustment as provided in
Section 4.2 below. For purposes of this Lease, "Term" shall be defined
as the original term plus any appropriately exercised extended term
provided under this Lease.
3.3. COMMENCEMENT OF TERM. The term "Commencement Date", as
used in this Lease, shall be July 26, 1995.
3.4. HOLDING OVER. This Lease shall terminate without further
notice at expiration of the original term or at the end of the particular
extended term to the extent the Tenant properly exercised its option to
extend the term of this Lease. Any holding over by Tenant after expiration
shall not constitute a renewal or extension or give Tenant any rights
in or to the Premises. If, after expiration of the Term, Tenant remains in
possession of the Premises with Landlord's permission (express or implied),
Tenant shall become a tenant from month to month only, upon all the
provisions of this Lease (except as to term and rent), but the monthly rent
payable by Tenant shall be increased to one hundred fifty percent (150%)
of the monthly rent payable by Tenant immediately preceding the expiration
of the Term then in effect. Such held over monthly rate shall be payable in
advance on or before the first day of each month. If either party desires to
terminate such month-to-month tenancy, it shall give the other party not less
than thirty (30) days advance written notice of the date of termination.
4. RENT.
4.1. RENT. During the Term of this Lease, Tenant shall pay to
Landlord as monthly rent (sometimes hereinafter referred to as "monthly rent" or
"monthly rental"), without deduction, set off, prior notice, or demand, the sum
of Eight Thousand Dollars ($8,000.00) per month, which sum is subject
to adjustment as provided in Section 4.2 herein. Rent for any period during the
Term of this Lease which is for less than one month shall be a prorated portion
of the monthly rent, based upon a thirty (30) day month. Monthly rent shall be
paid in advance on the first day of each month, during the Term of this Lease,
except that monthly rent for the last six days of July and for the entire month
of August and September, 1995, shall be paid to Landlord on the Execution Date.
4.2. ADJUSTMENT OF MONTHLY RENT. The monthly rent provided for in
Section 4.1 shall be increased two and one-half (2 1/2) years after the
Commencement Date and two and one-half (2 1/2) years after the commencement of
any extension or renewal hereof (the "Increase Date"). The monthly rent shall
increase on each
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<PAGE>
Increase Date by the same percentage as the Consumer Price Index (hereafter,
"CPI") for all Urban Consumers in the Los Angeles-Anaheim-Riverside
Areas (1982-1984 = 100) published by the United States Bureau of Labor
Statistics and determined two (2) months prior to the Effective Date or two (2)
months prior to the commencement of the Extended Term as the case may be, has
increased during the thirty (30) month period prior to the date that is two (2)
months before the applicable Increase Date; provided, however, that in no event
shall the amount of the monthly rent as adjusted be less than the monthly rent
immediately preceding the Increase Date plus seven and one-half percent (7 1/2%)
thereof, nor more than the monthly rent immediately preceding the Increase Date
plus fifteen percent (15%) thereof. If the CPI specified herein is discontinued
or revised during the term of this Lease such other government index or
computation with which it is replaced shall be used in order to obtain
substantially the same result as would have been obtained if the CPI had not
been discontinued. Increases to the monthly rent shall be due upon written
notice or demand from Landlord setting forth the new monthly rental
calculation, provided that, any failure on the part of Landlord to demand such
increases shall not result in any waiver of Landlord's right to collect such
increases for the year.
4.3. EXTENDED TERM MONTHLY RENT. The parties shall have ten (10)
days after Landlord receives the option notice in which to agree on monthly rent
at the commencement of the extended term. If the parties agree on the monthly
rent for the extended term then during said ten (10) day period they shall
immediately execute an amendment to this Lease, stating the monthly rent.
If the parties are unable to agree on the monthly rent for the
extended term within that period, then within ten (10) days after expiration
of that period each party, at its cost and by giving notice to the other
party, shall appoint a real estate appraiser with at least five years'
full-time commercial appraisal experience in the area in which the Premises
are located to appraise and set the monthly rent for the extended term. The
appraisers shall base their appraisals on the assumptions that the rental
shall be that amount at which tenants are leasing space comparable in size,
location and quality to the Premises which comparable space is located in
commercial/industrial buildings in the Norwalk area and which are comparable
to the Premises in age and location and shall take into account the following
factors: length of lease term, and all monetary and non-monetary concessions
being quoted such tenants except rental abatement and leasehold improvement
allowance concessions shall only apply if such concessions are being granted
to tenants that are in the position of renewing an existing lease. If a party
does not appoint an appraiser within ten (10) days after the other party has
given notice of the name of its appraiser, the single appraiser appointed
shall be the sole appraiser and shall set the monthly rent for the extended
term. If the two (2) appraisers are appointed by the parties as stated in
this paragraph, they shall meet promptly and attempt to set the monthly rent
for the extended term. If they are unable to agree within twenty (20) days
after the second appraiser has been appointed they shall attempt to select a
third appraiser meeting the qualifications stated in this paragraph within
ten (10) days after the last day the two appraisers are given to set the
monthly rent. If they are unable to agree on the third appraiser, either of
the parties to this lease by giving ten (10) days' prior written notice to
the other party can file a petition with the American Arbitration Association
solely for the purpose of selecting a third appraiser who meets the
qualifications stated in this paragraph. Each party shall bear half the cost
of the American Arbitration Association's appointing the third appraiser and
of paying the third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either
party.
Within twenty (20) days after the selection of this third appraiser,
a majority of the appraisers shall set the monthly rent for the extended term.
If a majority of the appraisers are unable to set the monthly rent within the
stipulated period of time, the three appraisals shall be added together and
their total divided by three; the resulting quotient shall be the monthly rent
for the Premises during the extended term.
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<PAGE>
If, however, the low appraisal and/or the high appraisal are/is more
than ten percent (10%) lower and/or higher than the middle appraisal, the low
appraisal and/or the high appraisal shall be disregarded. If only one appraisal
is disregarded, the remaining two appraisals shall be added together and their
total divided by two; the resulting quotient shall be the monthly rent for the
Premises during the extended term. If both the low appraisal and the high
appraisal are disregarded as stated in this paragraph, the middle appraisal
shall be the monthly rent for the Premises during the extended term.
Notwithstanding anything contained herein to the contrary, in no event shall the
monthly rent for the extended term be less than the monthly rent payable during
the last month of the original term of the Lease. If the monthly rent for the
extended term is not set prior to commencement of the extended term, then Tenant
shall pay monthly rent at the monthly rent rate payable during the last month of
the original term of the Lease with any shortfall to be paid within ten (10)
days of receipt of notice from the appraisers setting forth the determination of
the monthly rent for the extended term. After the monthly rent for the extended
term has been set, the appraisers shall immediately notify the parties in
writing.
4.4. ABATEMENT OF MONTHLY RENT. Notwithstanding anything
contained in this Lease to the contrary, the monthly rent during the original
term shall be abated for a total period of three (3) calendar months
commencing on the first full calendar month (the "Abatement Commencement
Month") after Tenant or its contractor(s) in a good workmanlike manner
completes all of the Repair Work set forth on Exhibit "B" attached hereto,
but in no event shall the Abatement Commencement Month be prior to January
1996. Tenant shall notify Landlord in writing immediately upon completion of
all Repair Work and shall concurrently provide Landlord copies of all
invoices for such repair work and copies of canceled checks for such invoices
except to the extent the repair work is conducted by Tenant in which case
Tenant shall certify to Landlord in writing that such work was completed by
Tenant. The monthly rent shall be abated for a total abatement of three (3)
consecutive calendar months including the Abatement Commencement Month. In
the event Tenant or its contractor(s) fail to complete in a good workmanlike
manner, all of the Repair Work on or before June 30, 1996, then Tenant shall
not be entitled to any abatement of monthly rent under this Section 4.4 and
such event shall be deemed a default by Tenant under this Lease.
4.5. LATE CHARGE. Tenant acknowledges that the late payment of any
monthly rent will cause Landlord to lose the use of that money and incur costs
and expenses not contemplated under this Lease, including, without limitation,
administration and collection costs and processing and accounting expenses, the
exact amount of which is extremely difficult to ascertain. Therefore, if any
such installment is not received by Landlord within ten (10) days from the date
it is due, Tenant shall pay Landlord a late charge equal to six percent (6%) of
the delinquent portion of such installment. Landlord and Tenant agree that this
late charge represents a reasonable estimate of such costs and expenses and is
fair compensation to Landlord for the loss suffered from such nonpayment by
Tenant. Acceptance of any late charge shall neither constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
4.6. NET LEASE/WAIVER. This Lease shall be deemed and construed
to be an absolute net lease. The obligation of Tenant to pay the monthly rent
and all other amounts payable by Tenant to Landlord hereunder when due shall
be without abatement, deduction or set-off except as otherwise provided
herein, and, except as otherwise provided herein, Tenant hereby waives all
rights now and hereafter conferred by law to quit, terminate or surrender
this Lease or the Premises, or any part thereof, and to receive any
abatement, suspension, deferment or reduction of, or relief from, the rent
under section 1932 and subsection 1933(4) of the California Civil Code, and
any amendment thereof or any law of similar import that may hereafter be
enacted.
4.7. WHERE TO PAY RENT. All rent shall be paid to Landlord at 363
Bouquet Canyon Drive, Palm Desert, California 92211, or at such other address as
Landlord may direct in writing from time to time.
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<PAGE>
4.8. SECURITY DEPOSIT. Tenant shall, upon execution of this
Lease, deposit with Landlord the sum of Eight Thousand Dollars ($8,000.00) as
a security deposit. This security deposit shall be held by Landlord as
security for the faithful performance by Tenant of all the terms, covenants,
and conditions of this Lease to be kept and performed by Tenant. If Tenant
defaults with respect to any provisions of this Lease, including but not
limited to, the provisions relating to the payment of rent, Landlord may (but
shall not be required to) use, apply or retain all or any part of the
security deposit for the payment of any rent or any other sum in default, or
for the payment of any amount which Landlord may spend or become obligated to
spend by reason of Tenant's default, or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's default. If
any portion of said deposit is so used or applied, Tenant shall, within ten
(10) days after written demand therefor, deposit cash with Landlord in an
amount sufficient to restore the security deposit to its original amount and
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep this security deposit separate from its general
funds, and Tenant shall not be entitled to interest on such deposit. If
Tenant shall fully and faithfully perform every provision of this Lease to be
performed by it, the security deposit or any balance thereof shall be
returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) within ten (10) days after the expiration of the
Lease term. In the event of termination of Landlord's interest in this Lease,
Landlord shall transfer said deposit to Landlord's successor in interest.
4.9. TAXES AND OTHER GOVERNMENTAL CHARGES. Landlord shall furnish
Tenant with all tax bills immediately upon receipt thereof. Tenant shall pay in
addition to monthly rent Impositions, as hereinafter defined, accruing during
the Term of this Lease. Impositions shall be defined as all personal and real
property taxes, assessments, levies and other governmental charges of every
description, whether general, special, ordinary, extraordinary or otherwise
(individually "Imposition" and collectively "Impositions") levied on or assessed
against the Premises, improvements and personal property located on or in, on
and about the Premises or any improvements, the leasehold estate, or any
subleasehold estate, whether belonging to or chargeable against Landlord or
Tenant.
Tenant shall pay the Impositions shown on the real property tax
bill and unsecured property tax and all other Impositions directly to the
taxing or levying authority at least three (3) days before the date upon
which such Impositions become delinquent. Any penalties assessed for failure
to timely pay Impositions that Tenant is required to pay directly to the
taxing or levying authority shall be at Tenant's sole cost and expense.
Tenant shall forward to Landlord a copy of the canceled checks and/or
receipts from the taxing or levying authorities promptly upon written request
of Landlord. In the event Tenant fails to pay any Impositions required to be
paid by Tenant directly to the taxing or levying authority, Landlord shall
have the right to pay such Impositions on behalf of Tenant with the right of
reimbursement as provided hereinafter.
If during the Term of this Lease any governmental subdivision or
agency shall undertake to create an improvement or special assessment
district, the proposed boundaries of which include the Premises, Landlord
shall be entitled to support or oppose the creation of such district or
inclusion of the Premises therein or both, and to appear in any proceeding
relating thereto. There shall be included in the definition of "Impositions"
with respect to any calendar year only the accrued amount currently payable
on any bonds and special assessments, including interest accrued for such tax
calendar year or the accrued portion of the current annual installment for
such calendar year. Tax refunds shall be credited against Impositions and
refunded to Tenant, regardless of when received, based on the year to which
the refund is applicable.
Tenant's obligation to pay Impositions levied or assessed against
the Premises or improvements thereon or personal property on or in the
Premises or such improvements shall not include the following: business,
income or profits taxes levied or assessed against Landlord by federal,
state, county, municipal or other governmental agencies; transfer taxes of
Landlord; franchise or other profits taxes imposed on the corporate owner of
the fee to the Premises; gift
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taxes, capital stock taxes, inheritance and succession taxes, estate taxes, and
other taxes to the extent applicable to Landlord's general or net income (as
opposed to rents or receipts. If, however, Impositions are levied or assessed
on the rents derived from the Premises in lieu of all or any part of real
property taxes, personal property taxes or real and personal property taxes that
Tenant would have been obligated to pay under the provisions hereof, and the
purpose of the new taxes is more closely akin to that of an ad valorem or use
tax than to an income or franchise tax on Landlord's income, Tenant shall pay
such Impositions as provided herein for property taxes and assessments.
After written request (the "Tax Notice") by Tenant, at Landlord's
option, either (i) Landlord shall diligently pursue claims for reduction in the
Impositions of the Premises or any part thereof, in which event Landlord shall
provide Tenant with detailed information as to how Landlord will pursue such
claims, (ii) Tenant may pursue such claims with Landlord's concurrence, in the
name of Landlord, or (iii) Tenant may pursue such claims in the name of Landlord
without Landlord's concurrence. In the event that Landlord does not elect either
item (i) or (ii) above, within thirty (30) days of receipt of the Tax Notice,
Tenant shall thereafter have the right to pursue such claims under item (iii)
above. The cost of any such proceedings shall be at the sole cost and expense
of Tenant. Tenant may give a Tax Notice prior to the issuance of the actual tax
bill by the taxing authority or receipt by Tenant of a billing from Landlord for
Tenant's share thereof, however, in no event shall Tenant be permitted to delay
payment of a contested tax bill if failure to pay would either cause interest
and/or penalties to accrue if Tenant's claims are rejected.
If Tenant fails or refuses to pay the amount of any Impositions when
due, and/or fails to reimburse Landlord for Impositions paid directly by
Landlord within ten (10) days after Landlord provides notice to Tenant of the
amount payable by Tenant, then the Impositions shall be treated as added rent
due from Tenant, with interest at the "Interest Rate" (as defined herein) to be
paid on demand by Landlord.
5. UTILITIES, MAINTENANCE AND REPAIR.
5.1. UTILITIES. Throughout the Term of this Lease Tenant shall
pay the appropriate suppliers for all water, gas, electricity, light, heat,
telephone, power, and other utilities and communications services used by
Tenant on the Premises during the Term, whether or not such services are
billed directly to Tenant. Tenant will also procure, or cause to be procured,
without cost to Landlord, any and all necessary permits, licenses, or other
authorizations required for the lawful and proper installation and
maintenance upon the Premises of wires, pipes, conduits, tubes, and other
equipment and appliances for use in supplying any such service to and upon
the Premises. Landlord, upon request of Tenant, and at the sole expense and
liability of Tenant, will join with Tenant in any application required for
obtaining or continuing any such services.
5.2 MAINTENANCE AND REPAIR. Throughout the Term of this Lease,
Tenant shall provide all interior and exterior maintenance and repair of the
Premises and grounds in the same condition and repair as when received and as
improved by the Repair work, ordinary wear and tear excepted. Tenant shall
further maintain the Premises so that the Premises remain in compliance with all
applicable laws, rules, ordinances, orders and regulations of any federal,
state, county, municipal or other governmental agency or body having or
claiming jurisdiction over the Premises except as otherwise required by Section
13.1.C. of this Lease. Tenant's obligations shall include, without
limitation, maintenance and repair of the parking lot, sidewalks, driveways,
interior and exterior walls, windows and glazing, temperature controlled water
and return, the Utility Systems including heating, air-conditioning, plumbing,
electrical, and other utility systems and all other items on the Premises it
being the intention of the parties that all obligations of repair and
maintenance be made by Tenant which are related to the Premises and/or necessary
for the continued operation of the Premises. Notwithstanding the foregoing,
except as provided hereinbelow, Landlord shall be responsible for the
maintenance and repair of the Building's roof and skylights, provided that,
Tenant shall not allow its
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employees, agents or contractors to walk over, on or across the Building's roof
except to the extent reasonable access thereto is necessary for the repair of
utility or other systems located thereon and Tenant shall not attempt to remove
or adjust the skylights. Tenant shall provide Landlord's contractor's with
reasonable access to the Premises during the Term to conduct any repairs
required by Landlord under this Lease. Furthermore, Tenant shall be responsible
for the repair of the Building's roof and/or skylights to the extent any damage
thereto is caused by Tenant or its agents willful misconduct or negligence, and
any damage resulting from Tenant's being on the roof and/or any damage resulting
from Tenant's attempt to remove or adjust the skylights shall be deemed caused
by Tenant's negligence. Tenant shall also provide gardening service,
trash collection and other services necessary to keep the Premises and grounds
in the same condition and repair as when received and as improved by the Repair
work, ordinary wear and tear excepted, all at the sole cost and expense of
Tenant. All maintenance and repairs shall be made in accordance with all
applicable laws, rules, ordinances, orders and regulations of any
federal, state, county, municipal or other governmental agency or body having
or claiming jurisdiction over the Premises. Tenant shall promptly and
diligently repair, restore, and replace as required to maintain or comply as
above, including the repair, restoration and replacement necessary to maintain
all or any part of the Premises and improvements ordinary wear and tear
excepted. Should Tenant fail to maintain the Premises and improvements or make
any repairs or replacements as required within thirty (30) days following
written request therefor, Landlord shall have the right to enter the Premises
and perform such maintenance or make such repairs or replacements for the
account of Tenant using third party contractors selected by Landlord,
provided that, in no event shall this right be deemed to be an obligation of
Landlord to conduct such maintenance and repairs. The cost of any maintenance,
repairs or replacements paid for by Landlord shall be treated as added rent due
from Tenant, with interest at the Interest Rate (as defined herein), to be paid
on demand by Landlord. Landlord shall give Tenant prompt notice of the
maintenance, repairs and replacements conducted, stating the amounts paid and
the names of the parties paid.
If Tenant provides written notice to Landlord of an event or
circumstance which requires the action of Landlord with respect to the
repairs and/or maintenance as set forth in this Section 5.2, and Landlord
fails to provide such action as required by the terms of this Lease, then
Tenant may proceed to take the required action upon delivery of an additional
ten (10) business days notice to Landlord specifying that Tenant is taking
such required action, and if such action was required under the terms of this
Lease to be taken by Landlord, then Tenant shall be entitled to prompt
reimbursement by Landlord of Tenant's reasonable costs and expenses in taking
such action plus interest at the Interest Rate. If Landlord does not deliver
a detailed written objection to Tenant, within thirty (30) days after receipt
of an invoice by Tenant of its costs of taking action which Tenant claims
should have been taken by Landlord, and if such invoice from Tenant sets
forth a reasonably particularized breakdown of its costs and expenses in
connection with taking such action on behalf of Landlord, then Tenant shall
be entitled to deduct from Rent payable by Tenant under this Lease, the
amount set forth in such invoice together with interest at the Interest Rate.
If, however, Landlord delivers to Tenant within thirty (30) days after
receipt of Tenant's invoice, a written objection to the payment of such
invoice, setting forth with reasonable particularity Landlord's reasons for
its claim that such action did not have to be taken by Landlord pursuant to
the terms of this Lease or that the charges are excessive (in which case
Landlord shall pay the amount it contends would not have been excessive),
then Tenant shall not be entitled to such deduction from Rent, but as
Tenant's sole remedy, Tenant may proceed to institute legal proceedings
against Landlord to collect the amount set forth in the subject invoice.
6. USE OF PREMISES.
Tenant shall use the Premises for the manufacture, warehouse, sales,
administration and distribution of rubber elastomeric products and compounds,
and for purposes reasonably incidental thereto, and shall not use or permit
the Premises to be used for any other purpose without the prior written
consent of
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Landlord. Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will cause cancellation of
any insurance policy covering said Building or any part thereof or any of its
contents. Tenant shall use the Premises in accordance with applicable zoning
ordinances and regulations, and shall not use or allow the Premises to be
used for any unlawful purpose. Tenant shall not cause, maintain or permit any
nuisance in, on or about the Premises, and shall not commit or suffer to be
committed any waste in or upon the Premises.
7. ASSIGNMENT, SUBLETTING AND ENCUMBRANCE.
7.1. NO TRANSFER. Tenant shall not, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, assign
or hypothecate this Lease or any interest in it, sublet the Premises or any
part of them, or permit the use of the Premises by anyone other than Tenant
(collectively, referred to herein as "transfer"). Landlord shall consent or
deny consent to a transfer within twenty (20) days from receipt of a (i)
written request therefor, and (ii) copies of audited financial statements, if
available. and if not, copies of financial statements certified by an officer
of the proposed assignee or sublessee for the last fiscal year of the
proposed assignee or sublessee and un-audited quarterly financial statements
for the three (3) immediately preceding calendar quarters (collectively, the
"Transferee Statements"); and the failure of Landlord to consent or deny
consent to any proposed transfer within such twenty (20) day period shall be
deemed to be Landlord's approval thereof. Tenant's interest in this Lease
shall not, nor shall any interest in it, be assignable by operation of law
without the consent of Landlord, which consent shall not be unreasonably
withheld. The change in ownership of fifty percent (50%) or more of the
equity ownership or voting stock of Tenant shall constitute an assignment
requiring the consent of Landlord. Any of the foregoing acts, without the
consent of Landlord, shall be void and shall, at the option of Landlord,
terminate this Lease. Notwithstanding anything to the contrary set forth in
this Lease, upon ten (10) days prior written notice from Tenant to Landlord,
Tenant may assign the Lease at any time, or sublease all or part of the
Premises, without the receipt of Landlord's consent to (i) an entity which is
controlled by, controls, or is under common control with Tenant (an
"Affiliate"), or which owns or is owned by an Affiliate, (ii) an entity with
which Tenant merges or consolidates, provided that, the surviving entity
holds substantially all of Tenants assets prior to the merger or
consolidation, or (ii) a purchaser of all or substantially all of Tenants
stock or assets, so long as such transaction was not entered into as a
subterfuge to avoid the obligations and restrictions of this Lease. The term
"control", as used in this Section 7.1 shall mean the ownership, direct or
indirect, of at least fifty percent (50%) of the voting securities. Tenant
shall immediately notify Landlord in writing of the name of the Affiliate to
which a sublease or assignment is made and provide Landlord with copies of
all agreements reflecting such sublease or assignment.
7.2. WITHHOLDING CONSENT. Without limiting the other instances in
which it may be reasonable for Landlord to withhold its consent to an assignment
or subletting, Landlord and Tenant acknowledge that it will be reasonable for
Landlord to withhold its consent in any of the following instances:
A. if at any time consent is requested or at any time prior
to the granting of consent, Tenant is in default under this Lease or would be in
default under this Lease beyond all applicable grace or cure periods; or
B. if, the financial condition of the proposed assignee or
subtenant as presented by the Transferee Statements does not meet commercially
reasonable credit standards within the reasonable judgment of Landlord.
7.3. SUBLETTING. If at any time, or from time to time during the
Term, Tenant desires to sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms of the proposed subletting and
the space so proposed to be sublet. Tenant shall be free to sublet the space to
any third party subject to obtaining Landlord's prior written consent which
consent shall not be unreasonably withheld. In connection with each consent
requested
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by Tenant, Tenant shall submit to Landlord the terms of the proposed
transaction, the identity of the parties to the transaction, the proposed
documentation for the transaction, the proposed assignee's or sublessee's
Transferee Statements and all other information reasonably requested by Landlord
concerning the proposed transaction and the parties involved in it. Landlord's
right to withhold consent shall be permitted under the same criteria set forth
in Section 7.2 of this Lease.
7.4. NO FURTHER SUBLETTING. Further subletting shall be
permitted in accordance with Section 7.3 above if the sublease is for the
entire Premises. No subtenant shall have a right further to sublet less than
the entire Premises without Landlord's prior written consent, which Tenant
acknowledges may be withheld in Landlord's absolute discretion, and any
assignment by a subtenant of its Sublease will be subject to Landlord's prior
written consent in the same manner as if Tenant were entering into a new
sublease. No sublease, once consented to by Landlord, will be modified or
terminated by Tenant without Landlord's prior written consent, which consent
shall not be unreasonably withheld.
7.5. NO RELEASE. Regardless of Landlord's consent, no
subletting or assignment will release Tenant from Tenant's obligation or
alter the primary liability of Tenant to pay the rental and to perform all
other obligations to be performed by Tenant under this Lease. The acceptance
of rental by Landlord from any other person will not be deemed to be a wavier
by Landlord of any provision of this Lease. Consent to one assignment or
subletting will not be deemed consent to any subsequent assignment or
subletting in the event of default by any assignee of Tenant or any successor
of Tenant in the performance of any of the terms of this Lease, Landlord may
proceed directly against Tenant without the necessity of exhausting remedies
against such assignee or successor.
7.6. COSTS. If Tenant assigns this Lease or sublets the
Premises or requests the consent of Landlord to any assignment, subletting,
hypothecation, or other action requiring Landlord's consent, then Tenant will
pay Landlord's reasonable out-of-pocket attorneys' fees incurred in
connection with it not to exceed $2,500.00.
8. INDEMNITY, CASUALTY AND INSURANCE.
8.1. TENANT'S INDEMNIFICATION. Except to the extent caused by
Landlord's gross negligence or willful misconduct, Tenant shall indemnify and
hold Landlord and its "Related Parties" (defined below) harmless against and
from liability and claims of any kind for loss or damage to property of
Tenant and/or its Related Parties, or for any injury to or death of any
person, arising out of (i) use and occupancy of the Premises or any work,
activity or other things allowed or suffered by Tenant and/or its Related
Parties to be done in, on or about the Premises; (ii) any breach or default
by Tenant and/or its Related Parties of any of Tenant's obligations under
this Lease; or (iii) any negligent or otherwise tortious act or omission of
Tenant and/or its Related Parties. Tenant shall, at Tenant's expense and by
counsel reasonably satisfactory to Landlord, defend Landlord in any action or
proceeding arising from any such claim and shall indemnify Landlord against
all costs, attorneys' fees, expert-witness fees and any other expenses
incurred in such action or proceeding. Except to the extent caused by
Landlord's gross negligence or willful misconduct, as a material part of the
consideration for Landlord's execution of this Lease, Tenant hereby assumes
all risk of damage or injury to any person, property in, or about the
Premises from any cause, and Tenant hereby waives all claims in respect
thereof against Landlord. Landlord shall indemnify and hold Tenant and its
Related parties harmless against and from liability and claims of any kind
for loss or damage to property of Tenant and/or its Related parties, or for
any injury to or death of any person, arising out of (i) any breach or
default of Landlord and/or its Related parties of any of Landlord's
obligation under this lease; or (ii) any grossly negligent act of Landlord
and/or its Related Parties. Landlord shall, at Landlord's expense and by
counsel reasonably satisfactory to Tenant, defend Tenant in any action or
proceeding arising from any such claim and shall
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indemnify Tenant against all costs, attorney's fees, expert witness fees and
any other expenses incurred in such action or proceeding.
8.2. LANDLORD'S LIABILITY LIMITATIONS. Except in cases of
Landlord's gross negligence or breach or default by Landlord and/or its
Related Parties, of any of Landlord's obligations under this Lease, Landlord
shall not be liable for injury or damage which may be sustained by the person
or property of Tenant, its Related Parties or any other person in or about
the Premises caused by or resulting from fire, steam, electricity, gas, water
or rain which may leak or flow from or into any part of the Premises or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers,
roof, wires, appliances, plumbing, air conditioning or lighting fixtures,
whether such damage or injury results from conditions arising upon the
Premises or from other sources.
8.3. RELATED PARTIES. The "Related Parties" of an entity or
individual (where appropriate) include, but are not limited to, all past,
present and future employees, officers, directors, shareholders, contractors,
subcontractors, invitees, customers, trust beneficiaries, partners, joint
venturers, agents, successors, assigns, heirs, personal representatives,
administrators, parent entities, subsidiaries and affiliates of that entity
or individual (where appropriate).
8.4. DAMAGE OR DESTRUCTION.
A. DEFINITIONS.
(1) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the improvements on the Premises, the repair cost of which
damage or destruction is less than 50% of the then Replacement Cost of the
Premises immediately prior to such damage or destruction, excluding from such
calculation the value of the land.
(2) "PREMISES TOTAL DESTRUCTION" shall mean damage
or destruction to Premises, the repair cost of which damage or destruction
is 50% or more of the then Replacement Cost of the Premises immediately prior
to such damage or destruction, excluding from such calculation the value of
the land.
(3) "INSURED LOSS" shall mean damage or destruction
to improvements on the Premises which was caused by an event required to be
covered by the insurance described in Section 8.5, irrespective of any
deductible amounts or coverage limits involved.
(4) "REPLACEMENT COST" shall mean the cost to repair
or rebuild the improvements owned by Landlord at the time of the occurrence
to their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
B. PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial
Damage that is an Insured Loss occurs, then Landlord shall, at Landlord's
expense, repair such damage (but not Tenant's trade fixtures or tenant owned
alterations and utility installations) as soon as reasonably possible and this
Lease shall continue in full force and effect; provided, however, that Tenant
shall, at Landlord's election, make the repair of any damage or destruction the
total cost to repair of which is $10,000 or less, and, in such event, Landlord
shall make the insurance proceeds available, to Tenant on a reasonable basis for
that purpose, provided that, Tenant shall only be obligated to repair to the
extent of the insurance proceeds plus any insurance deductible. Notwithstanding
the foregoing, if the required insurance was not in force or the insurance
proceeds are not sufficient to effect such repair, the Tenant shall promptly
contribute the shortage in proceeds as and when required to complete said
repairs.
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C. PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial
Damage that is not an Insured Loss occurs, Landlord may at Landlord's option,
either: (i) repair such damage as soon as reasonably possible at Landlord's
expense in which event this Lease shall continue in full force and effect, or
(ii) if the uninsured damage exceeds Twenty Five Thousand Dollars
($25,000.00), give notice to Tenant within thirty (30) days after receipt by
Landlord of knowledge of the occurrence of such damage of Landlord's
intention to terminate this Lease as of the date sixty (60) days following
the giving of such notice. In the event Landlord elects to give such notice
of Landlord's intention to terminate this Lease, Tenant shall have the right
within ten (10) days after the receipt of such notice to give written notice
to Landlord of Tenant's commitment to pay for the repair of such uninsured
damage totally at Tenant's expense and without reimbursement from Landlord.
Tenant shall provide Landlord with the required funds or satisfactory
assurance thereof within thirty (30) days following Tenant's said commitment.
In such event this Lease shall continue in full force and effect, and
Landlord shall proceed to make such repairs as soon as reasonably possible
and the required funds are available. If Tenant does not give such notice and
provide the funds or assurance thereof within the times specified above, this
Lease shall terminate as of the date specified in Landlord's notice of
termination.
D. TOTAL DESTRUCTION. Notwithstanding any other provision
hereof, if Premises Total Destruction occurs (including any destruction required
by any authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss.
E. DAMAGE NEAR END OF TERM. If at any time during the last
twelve (12) months of the term of this Lease there is damage for which the
cost to repair exceeds two (2) month's rent, whether or not an Insured Loss,
Landlord and Tenant may, at their option, terminate this Lease effective
sixty (60) days following the date of occurrence of such damage by giving
written notice to the other party of their election to do so within thirty
(30) days after the date of occurrence of such damage. Provided, however, if
Tenant at that time has an exercisable option to extend this Lease then
Tenant may preserve this Lease by, within twenty (20) days following the
receipt of the termination election by Landlord ("Exercise Period"),
(i) exercising such option and (ii) provide Landlord with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Tenant duly exercises such option during said Exercise Period and
provides Landlord with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Landlord shall, at Landlord's expense repair
such damage as soon as reasonably possible and this Lease shall continue in
full force and effect. If Tenant fails to exercise such option and provide
such funds or assurance during said Exercise Period, then if Landlord has
exercised its option to terminate this Lease, the Lease shall terminate as of
the expiration of said sixty (60) day period , notwithstanding any term or
provision in the grant of option to the contrary.
F. ABATEMENT OF RENT; TENANT'S REMEDIES.
(1) In the event of damage, whether or not Landlord
or Tenant repairs or restores the Premises, the monthly rent, real property
taxes, insurance premiums, and other charges, if any, payable by Tenant
hereunder for the period during which such damage, its repair or the
restoration continues shall be abated in proportion to the degree to which
Tenant's use of the Premises is impaired. Except for abatement of monthly
rent, real property taxes, insurance premiums, and other charges, if any, as
aforesaid, all other obligations of Tenant hereunder shall be performed by
Tenant, and Tenant shall have no claim against Landlord for any damage
suffered by reason of any such repair or restoration except negligence or
willful misconduct of Landlord or its agents.
(2) If Landlord shall be obligated to repair or
restore the Premises under the provisions of this Section 8.4 and shall not
commence, in a substantial and meaningful way, the repair or restoration of
the Premises within
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ninety (90) days after such obligation shall accrue, Tenant may, at any time
prior to the commencement of such repair or restoration, give written notice
to Landlord and to any lenders of which Tenant has actual notice of Tenant's
election and if such repair or restoration is not commenced within thirty
(30) days after receipt of such notice, this Lease shall terminate as of the
date specified in said notice. If Landlord or a lender commences the repair
or restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force and effect. "Commence" as
used in this Paragraph shall mean the beginning of the actual work on the
Premises, whichever first occurs. Notwithstanding the terms of Section 8.4 of
this Lease, in the event the Premises are damaged and Landlord is obligated
or has elected to repair the damage under Section 8.4, Landlord shall
reasonably and in good faith cause a mutually acceptable contractor to
estimate the amount of time required to rebuild and/or restore the Premises
within ninety (90) days of the date of such damage. In the event the repairs
cannot be completed within one hundred eighty (180) days after the date of
such damage, Landlord or Tenant may elect to terminate this Lease by written
notice to the other, such notice to include the termination date giving
Tenant thirty (30) days to vacate the Premises. Notwithstanding anything to
the contrary contained in this Lease, in the event that, for any reason, all
of the damage required or elected to be repaired or restored by Landlord is
not repaired or restored on or before the date occurring one hundred eighty
(180) days from the date of the damage, Tenant shall have the right to
terminate this Lease by irrevocable notice to Landlord at any time thereafter
until the repairs or restoration are completed, with thirty (30) days from
the giving of such notice to vacate the Premises.
G. TERMINATION - ADVANCE PAYMENTS. Upon termination of
this Lease pursuant to this Section 8.4, an equitable adjustment shall be
made concerning advance monthly rent and any other advance payments made by
Tenant to Landlord. Landlord shall, in addition, return to Tenant so much of
Tenant's Security Deposit as has not been, or is not then required to be used
by Landlord under the terms of this Lease.
H. WAIVE STATUTES. Landlord and Tenant agree that the
terms of this Lease shall govern the effect of any damage to or destruction
of the Premises with respect to the termination of this Lease and hereby
waive the provisions of any present or future statute to the extent
inconsistent herewith.
8.5. INSURANCE.
A. FIRE AND EXTENDED COVERAGE INSURANCE. Tenant shall at
its sole cost and expense keep or cause to be kept insured during the Term of
this Lease, the Premises and all improvements located on or appurtenant to
the Premises against loss or damage by fire and such other risks as are now
or hereafter included in an extended coverage endorsement in common use for
commercial structures, including vandalism, malicious mischief and special
extended perils (all risk). The amount of the insurance shall be sufficient
to prevent either Landlord or Tenant from becoming a co-insurer under the
provisions of the policies, but in no event shall the amount be less than one
hundred per cent (100%) of the then actual replacement cost, excluding costs
of replacing excavations and foundations, but without deduction for
depreciation (herein called "full insurable value") and in no event shall the
deductible exceed Ten Thousand Dollars ($10,000) per occurrence. If any
dispute whether the amount of insurance complies with the above cannot be
resolved by agreement, Landlord may, not more frequently than every two and
one-half (2 1/2) years during the Term, request the carrier of the insurance
then in force to determine the full insurable value as defined in this
provision and the resulting determination shall be conclusive between the
parties for the purpose of this Section.
B. PUBLIC LIABILITY INSURANCE. Tenant shall at its sole
cost and expense keep or cause to be kept in force during the Term of this
Lease, for the mutual benefit of Landlord and Tenant, comprehensive broad form
general public liability insurance against claims and liability for personal
injury, death or property damage arising from the use, occupancy, disuse or
condition of the Premises and adjoining areas or ways, providing protection of
at least One
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Million Dollars ($1,000,000) for bodily injury or death to any one person, at
least One Million Dollars ($1,000,000) for any one accident or occurrence and
at least Five Hundred Thousand Dollars ($500,000) for property damage. Not
more frequently than every two and one-half (2 1/2) years during the Term,
Landlord shall have the right to notify Tenant that Landlord elects to adjust
the amount of public liability, property damage and products liability
insurance required under this Section, based on the increase in the Consumer
Price Index all items for Urban Consumers in the Los Angeles - Anaheim -
Riverside Areas (1982 - 1984 = 100), published in the United States Bureau of
Labor Statistics. If such an election is made, the amount of insurance
required under this Section shall be increased by multiplying the insurance
amounts under this Section by a fraction, the numerator of which shall be the
Index most recently published preceding the date of notification of the
requested adjustment, and the denominator of which shall be the Index most
recently published preceding the Commencement Date of this Lease, provided
that, in no event shall the amount of insurance required herein be decreased.
C. INSURANCE POLICY FORM, CONTENT AND INSURER.
1. All insurance required by express provisions
hereof shall only be carried with responsible insurance companies licensed to
do business in California, and rated in Best's Insurance Guide, or any
successor thereto (or if there be none, an organization having a national
reputation) as having a "Best's Rating" of "A" and a "Financial Size
Category" of at least "IX" or if such rating or not then in effect the
equivalent thereof, shall name Landlord as insured, and shall be in a policy
reasonably acceptable to Landlord. All such policies shall be nonassessable
and shall contain language, to the extent obtainable, to the effect that (i)
any loss shall be payable notwithstanding any act or negligence of Landlord
that might otherwise result in the forfeiture of the insurance, (ii) the
insurer waives the right of subrogation against Landlord and against
Landlord's agents and representatives, (iii) policies are primary and
noncontributing with any insurance that may be carried by Landlord; and (iv)
they cannot be canceled or materially changed except after fifteen (15) days'
notice by the insurer to Landlord or Landlord's designated representative and
any trust deed holder on the Premises designated by Landlord from time to
time.
2. Tenant shall furnish Landlord with copies of all
such policies promptly on receipt of them, or with certificates evidencing
the insurance. Tenant shall furnish Landlord with binders representing all
insurance required by this Lease prior to the Commencement Date. Tenant may
effect for its own account any insurance not required under this Lease.
3. Landlord shall be named as an additional insured
on such policy. Unless otherwise waived by Landlord, any insurance proceeds
payable by an insurer with respect to Premises shall be payable solely to
Landlord. Any insurance proceeds remaining after compliance with the
provisions of this Lease relating to the maintenance, repair, and
reconstruction of the Premises shall be the Tenant's sole property.
4. Tenant may carry insurance under a so-called
"blanket" policy, provided that such policy otherwise complies with the terms
of this Section 8.5 and the amount of insurance required herein is not
prejudiced by any losses covered by such blanket policy.
D. FAILURE TO MAINTAIN INSURANCE AND PROOF OF COMPLIANCE.
Tenant shall deliver to Landlord, in the manner required for notices, copies
of certificates of all insurance policies required hereunder together with
evidence satisfactory to Landlord of payment required for procurement and
maintenance of the policy. If Tenant fails or refuses to procure or maintain
insurance as required hereby or fails or refuses to furnish Landlord with
required proof that the insurance has been procured and is in force and paid
for, Landlord shall have the right, at Landlord's election and on five (5)
days' prior written notice to Tenant, to procure and maintain such insurance.
The premiums paid by Landlord shall be treated as added rent due from Tenant,
with interest
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at the Interest Rate (defined herein), to be paid on demand by Landlord.
Landlord shall give Tenant prompt notice of the payment of premiums, stating
the amounts paid and the names of the insurer or insurers.
9. CONDEMNATION.
9.1. DEFINITIONS.
A. "Condemnation" means (a) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a condemnor
and (b) a voluntary sale or transfer by Landlord to any condemnor, either
under threat of condemnation or while legal proceedings for condemnation are
pending.
B. "Date of taking" means the date the condemnor has the
right to possession of the property being condemned.
C. "Award" means all compensation, sums, or anything of
value awarded, paid, or received on a total or partial condemnation.
D. "Condemnor" means any public or quasi-public authority,
or private corporation, or individual, having the power of condemnation.
E. "Total taking" means the taking of the entire Premises
under the power of condemnation.
F. "Partial taking" means the taking of only a portion of
the Premises under the power of condemnation which does not constitute a
"total taking" as defined above.
9.2. TOTAL TAKING. If, during the Term hereof, there shall be a
"total taking" under the power of condemnation, then the leasehold estate of
Tenant in the Premises shall cease and terminate as of the date of taking.
9.3. PARTIAL TAKING. If, during the Term hereof, there shall be a
partial taking of the Premises under the power of condemnation, this Lease
shall terminate as to the portion of the Premises taken upon the date of
taking, but this Lease shall continue in force and effect as to the remainder
of the Premises. The rent payable by Tenant for the balance of the Term,
shall be abated in the same ratio as the net leasable space of the Building
taken bears to the total net leasable space of the Building. Tenant may elect
to terminate this Lease if more than ten percent (10%) of the net leasable
space of the Building is taken by condemnation or if there is a partial
taking of a material portion of the Premises and the remaining portion of the
Premises is rendered unsuitable for Tenant's continued use of the Premises as
reasonably determined by Tenant. Tenant may also elect to terminate this
Lease if twenty five percent (25%) or more of the Premises are taken by
condemnation. Any election to terminate this Lease by Tenant under this
Section must be made by written notice to Landlord within thirty (30) days
before or thirty (30) days after the date of the condemnation.
Notwithstanding anything contained herein to the contrary, in the event
twenty five percent (25%) of the Premises are taken by condemnation, then
Landlord in its sole discretion may terminate this Lease by giving notice to
Tenant within thirty (30) days after the extent of the taking is determined.
If Tenant does not elect to terminate this Lease within the time limits
provided herein, then to the extent this Lease is not otherwise terminated by
Landlord, this Lease shall continue in full force and effect except to the
extent of any abatement of rent as provided hereinabove.
9.4. ALLOCATION OF AWARD. The award for the taking of the
Premises or any portion or portions thereof, shall, except as otherwise
herein provided, belong to and be the sole property of Landlord, and Tenant
shall not have any claim or be entitled to any award for diminution in value
of its leasehold hereunder or for the value of any unexpired Term of this
Lease; provided, however, Tenant shall be entitled to any award specifically
allocated by the taking authority that is made for the taking of or injury
to, or on account of
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any cost or loss Tenant may sustain in the removal and moving of Tenant's
merchandise, fixtures, equipment and furnishings.
9.5. EFFECT OF TERMINATION. If this Lease is terminated, in whole
or in part, pursuant to any of the provisions of this Section 9, all rentals
and other charges payable by Tenant to Landlord hereunder and attributable to
the Premises taken, shall be paid up to the date of taking and the parties
shall thereupon be released from all further liability in relation thereto.
10. DEFAULT AND REMEDIES.
10.1. TENANT'S DEFAULT. Each of the following events, subject to
notice and cure periods provided in Section 10.2 below, shall constitute an
event of default by Tenant and a breach of this Lease:
A. Tenant's failure or omission to pay any rent or other
sum payable hereunder on or before the same is due.
B. Tenant's failure or omission to observe, keep or perform
any of the other terms, agreements or conditions contained in this Lease to
be performed by Tenant.
C. Tenant's assignment or subletting contrary to the
provisions hereof.
D. The appointment of a receiver to take possession of the
Premises or of Tenant's operations on the Premises for any reason, including
but not limited to assignment for the benefit of creditors or voluntary or
involuntary bankruptcy proceedings, but not including receivership
(i) pursuant to the administration of the estate of any deceased or incompetent
Tenant or of any deceased or incompetent individual member of any Tenant, or
(ii) instituted by Landlord, the event of default being not the appointment
of a receiver at Landlord's instance but the event justifying the
receivership, if any.
E. An assignment by Tenant for the benefit of creditors or
the filing of a voluntary or involuntary petition by or against Tenant under
any law for the purpose of adjudicating Tenant a bankrupt; or for extending
time for payment, adjustment or satisfaction of Tenant's liabilities; or for
reorganization, dissolution or arrangement on account of or to prevent
bankruptcy or insolvency; unless the assignment or proceeding, and all
consequent orders, adjudications, custodies and supervisions are dismissed,
vacated or otherwise permanently stayed or terminated within 60 days after
the assignment, filing or other initial event.
10.2. NOTICE AND RIGHT TO CURE.
A. If the alleged default is nonpayment of rent, taxes or
other sums to be paid by Tenant to Landlord, Tenant shall have five (5) days
after written notice is given to cure the default. For the cure of any other
default, Tenant shall promptly and diligently after notice commence curing
the default and shall have twenty (20) days after written notice is given to
complete the cure or in the case of a failure or omission that cannot be
cured by the payment of money and cannot be cured within twenty (20) days,
such additional time as is reasonably required for the curing of the default.
B. If Tenant shall have failed to cure after expiration of
the applicable time for curing a particular default or before the expiration
of that time in the event of emergency, Landlord may, at Landlord's election,
but is not obligated to, make any payment required of Tenant under this
Lease, or perform or comply with any term, agreement or condition imposed on
Tenant hereunder or any such note or document, and the amount so paid plus
the reasonable cost of any such performance or compliance, plus interest on
such sum at the Interest Rate (defined below) from the date of payment,
performance or compliance shall be deemed to be additional rent payable by
Tenant on Landlord's demand. No such payment, performance or compliance shall
constitute a waiver of
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default or of any remedy for default or render Landlord liable for any loss
or damage resulting from the same.
10.3. LANDLORD'S REMEDIES. If any default by Tenant continues
uncured following notice of default for the period applicable to the default
under the provisions of this Lease, Landlord shall have the following
remedies in addition to all rights and remedies provided by law or equity to
which Landlord may resort cumulatively or in the alternative:
A. Terminate Tenant's right to possession of the Premises
by any lawful means, in which case this Lease and the term hereof shall
terminate and Tenant shall immediately surrender possession of the Premises
to Landlord. In such event Landlord shall be entitled to recover from Tenant:
(i) the worth at the time of the award of the unpaid rent which had been
earned at the time of termination; (ii) the worth at the time of award of the
amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that the Tenant proves could have been reasonably avoided; (iii) the worth at
the time of award of the amount by which the unpaid rent for the balance of
the term after the time of awards exceeds the amount of such rental loss that
the Tenant proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
the Tenant's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including
but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Landlord applicable to the unexpired term of this Lease.
The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%). Efforts by Landlord to mitigate damages is
obtained through the provisional remedy of unlawful detainer, Landlord shall
have the right to recover in such proceeding the unpaid rent and damages as
are recoverable therein, or Landlord may reserve therein the right to recover
all or any part thereof in a separate suit for such rent and/or damages. If a
notice and grace period are required under Section 10.2.A. or B. was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Tenant under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Section 10.2.A. or B. in such case, the
applicable grace period under Section 10.2.A. or B. and under the unlawful
detainer statute shall run concurrently after the one such statutory notice,
and the failure of Tenant to cure the Default within the greater of the two
such grace periods shall constitute both an unlawful detainer and a Breach of
this Lease entitling Landlord to the remedies provided for in this Lease
and/or by said statute.
B. Continue the Lease and Tenant's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Tenant's Breach and abandonment and recover the rent as it becomes due,
provided Tenant has the right to sublet or assign, subject only to reasonable
limitations. See Section 7 for the limitations on assignment and subletting
which limitations Tenant and Landlord agree are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Landlord's interest under the Lease,
shall not constitute a termination of the Tenant's right to possession.
C. Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state wherein the
Premises are located.
D. The expiration or termination of this Lease and/or the
termination of Tenant's right to possession shall not relieve Tenant from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Tenant's
occupancy of the Premises.
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10.4. SUBRENTS. The following terms and conditions shall apply to
any subletting by Tenant of all or any part of the Premises and shall be
deemed included in all subleases under this Lease whether or not expressly
incorporated therein:
A. Tenant hereby assigns and transfers to Landlord all of
Tenant's interest in all rentals and income arising from any sublease of all
or a portion of the Premises heretofore or hereafter made by Tenant, and
Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default shall
occur in the performance of Tenant's obligations under this Lease beyond all
notice and cure periods, Tenant may, except as otherwise provided in this
Lease, receive, collect and enjoy the rents accruing under such sublease.
Landlord shall not, by reason of this or any other assignment of such
sublease to Landlord, nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of the Tenant to
perform and comply with any of Tenant's obligations to the sublessee under
such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Landlord stating that a
default exists in the performance of Tenant's obligations under this Lease,
to pay to Landlord the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Landlord and shall pay such rents and other charges to Landlord without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Tenant to the contrary, Tenant
shall have no right or claim against said sublessee, or, until the default
has been cured, against Landlord, for any such rents and other charges so
paid by said sublessee to Landlord.
B. In the event of a default by Tenant in the performance
of its obligations under this Lease, Landlord, at its option and without
obligation to do so, may require any sublessee to attorn to Landlord, in
which event Landlord shall undertake the obligation of the sublessor under
such sublease from the time of exercise of said option to the expiration of
such sublease; provided, however, Landlord shall not be liable for any
prepaid rents or security deposit paid by such sublessee to such sublessor or
for any other prior defaults of such sublessor under such sublease.
C. Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Landlord herein.
D. Landlord shall deliver a copy of any notice of default
by Tenant to the sublessee, who shall have the right to cure the default of
Tenant within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Tenant for any such breach cured by sublessee.
10.5. LANDLORD'S DEFAULT. Landlord will be in default under this
Lease if it fails for thirty (30) days following receipt of written notice
from Tenant specifying a default to cure such default, if it is curable, or
to institute and diligently pursue reasonable corrective or ameliorative acts
for incurable defaults. Tenant's remedies shall be limited to an action for
damages, injunction or specific performance and Tenant shall not have the
right to withhold rent or terminate this Lease.
10.6. WAIVER AND VOLUNTARY ACTS. No waiver of any breach or
default shall constitute a waiver of any other breach or default, whether of
the same or any other term, agreement or condition. No waiver, benefit,
privilege or service voluntarily given or performed by either party shall
give the other any contractual right by custom, estoppel or otherwise. The
subsequent acceptance of rent pursuant to this Lease shall not constitute a
waiver of any preceding breach or default by Tenant other than default in the
payment of the particular rental payment so accepted regardless of Landlord's
knowledge of the preceding breach at the time of accepting the rent, nor
shall acceptance of rent or any other payment after termination constitute a
reinstatement, extension or renewal of the Lease or revocation of any notice
or other act by Landlord. The
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payment of rent or any other payment by Tenant shall not constitute a waiver
of Tenant's right to protest the payment of such amount.
11. EXPIRATION AND TERMINATION.
11.1. SURRENDER OF PREMISES AND OWNERSHIP OF IMPROVEMENTS. At the
expiration or earlier termination of the Lease, Tenant shall surrender
possession of the Premises to Landlord. Tenant shall leave the surrendered
Premises in the same condition and repair as when received and as improved by
the Repair work, ordinary wear and tear and casualty excepted. Ordinary wear
and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Tenant performing all of its
obligations under this Lease. All of Tenant's trade fixtures, furnishings,
furniture, signs and other personal property ("Tenant's Property") not
permanently affixed to the Premises shall remain the property of Tenant.
Tenant's Property shall mean Tenant's machinery and equipment that can be
removed without doing material damage to the Premises, provided that, the
Rotocure shall be Tenant's Property and Tenant shall be obligated to remove
the Rotocure and repair any damage to the Premises caused by its removal.
Tenant's Property shall not include carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
lighting fixtures, heating, ventilating, air conditioning equipment,
plumbing, and fencing (collectively, "Utility Property") on the Premises. All
improvements to the Premises made by Tenant, excluding Tenant's Property, but
including all Utility Property and partitions shall become the property of
Landlord upon expiration or earlier termination of this Lease. Not later than
the expiration of the time within which under any provision of this Lease,
Tenant is required to surrender possession of the Premises to Landlord,
Tenant shall remove all of Tenant's Property located in or about the
Premises. All of Tenant's Property not removed within such time shall become
and remain the property of Landlord. The removal of Tenant's Property whether
by Landlord or Tenant shall be effected solely at the expense of Tenant and
in a manner reasonably satisfactory to Landlord and without injury or damage
to the Premises and Tenant covenants to repair immediately, at Tenant's
expense, any injury or damage caused by such removal and leave the Premises
in a neat and clean condition, free of debris.
If Tenant fails to surrender the Premises at the expiration or
sooner termination of this Lease, Tenant indemnifies and shall defend and
hold Landlord harmless from all liability and expense resulting from the
delay or failure to surrender, including, without limitation, claims made by
any succeeding lessee founded on or resulting from Tenant's failure to
surrender.
12. COMPLIANCE WITH ENVIRONMENTAL LAWS.
12.1. TERMINATION, CANCELLATION, SURRENDER. At the end of this
Lease, Tenant will surrender the Premises to Landlord free of any and all
hazardous materials placed on or under the Premises by Tenant and/or Tenant's
agents, assigns, sublessees, contractors, invitees and guests.
12.2. HAZARDOUS MATERIALS. For the purpose of this Section 12,
the term "hazardous materials" includes, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, oil, gasoline, diesel fuel and other
hydrocarbon products, and related materials defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(42 U.S.C. Section 9601 ET SEQ.), the Hazardous Materials Transportation Act,
as amended (49 U.S.C. Section 1801 ET SEQ.), the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C. Section 6901 ET SEQ.), and in the
regulations adopted and publications promulgated pursuant to them, or any
other federal, state, or local environmental laws, ordinances, rules, or
regulations now enacted or enacted after this date (collectively, the
"environmental laws").
12.3. REMEDIES CUMULATIVE; SURVIVAL. The provisions of this
Section 12 shall be in addition to any and all obligations and liabilities
Tenant may have to Landlord at common law, and will survive this Lease.
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12.4. LANDLORD RESPONSIBILITIES. Landlord hereby agrees to
indemnify, hold harmless and defend (by counsel reasonably satisfactory to
Tenant), Tenant and its Related Parties from and against any and all claims,
lawsuits, damages, liabilities, fines, penalties, charges, administrative and
judicial proceedings and orders, judgments, remedial action requirements and
enforcement actions of any kind, and all costs and expenses in connection
therewith, arising out of (i) the presence on or under the Premises of any
hazardous materials or any releases or discharges of any hazardous materials
on, under or from the Premises and (ii) any activity carried on or undertaken
on or off the Premises in connection with the handling, treatment, removal,
storage, decontamination, clean-up, transport or disposal of any hazardous
materials located on or under the Premises and any such cost shall be at
Landlord's sole cost and expense; provided, however, the foregoing indemnity
shall not, however, apply to any costs and expenses associated with hazardous
materials placed on or under the Premises by Tenant and/or Tenant's agents,
assigns, sublessees, contractors, invitees and guests. Notwithstanding
anything to the contrary set forth in this Lease, the provisions of this
Section 12.4 shall survive the expiration or earlier termination of this
Lease.
12.5. TENANT RESPONSIBILITIES. Tenant hereby agrees to indemnify,
hold harmless and defend (by counsel reasonably satisfactory to Landlord),
Landlord and its Related Parties from and against any and all claims,
lawsuits, damages, liabilities, fines, penalties, charges, administrative and
judicial proceedings and orders, judgments, remedial action requirements and
enforcement actions of any kind, and all costs and expenses in connection
therewith, arising out of (i) the presence on or under the Premises of any
hazardous materials or any releases or discharges of any hazardous materials
on, under or from the Premises and (ii) any activity carried on or undertaken
on or off the Premises in connection with the handling, treatment, removal,
storage, decontamination, clean-up, transport or disposal of any hazardous
materials located on or under the Premises and any such cost shall be at
Tenant's sole cost and expense; provided, however, the foregoing indemnity
shall not, however, apply to any costs and expenses associated with hazardous
materials placed on or under the Premises by a party other than Tenant and/or
Tenant's agents, assigns, sublessees, contractors, invitees and guests.
Notwithstanding anything to the contrary set forth in this Lease, the
provisions of this Section 12.5 shall survive the expiration or earlier
termination of this Lease.
13. ALTERATIONS.
13.1. ALTERATIONS.
A. CONSENT OF LANDLORD TO ALTERATIONS. Tenant may make any
improvements, alterations, additions or changes to the Premises
(collectively, the "Alterations") which do not affect the Utility Property
(other than the carpeting, window coverings, power panels and lighting
fixtures), exterior appearance of the Building, or structural aspects of the
Building, by providing Landlord with notice ("Nonstructural Notice") not less
than twenty (20) days prior to the commencement thereof. Tenant may not make
any Alterations which may affect the Utility Property, exterior appearance of
the Building, or structural aspects of the Building without first procuring
the prior written consent of Landlord to such Alterations, which consent
shall be requested by Tenant's written notice ("Request for Approval")
delivered to Landlord not less than twenty (20) days prior to commencement
thereof, and which consent may be withheld by Landlord in its reasonable
discretion. Any time Tenant proposes to make Alterations whether or not the
consent of Landlord is required pursuant to this Section, Tenant's
Nonstructural Notice and/or Request for Approval regarding proposed
Alterations shall be delivered together with reasonable detailed final plans
and specifications and working drawings (the "Plans") for the Alterations,
and Landlord shall approve or disapprove the Request for Approval and
applicable Plans within twenty (20) days after its receipt of the same.
Tenant shall notify Landlord at least ten (10) business days before the date
it intends to commence the Alterations and the Alterations shall not be
commenced until ten (10) business days after Landlord has received notice
from Tenant stating the date the installation of the Alterations is to
commence so that Landlord can post and
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record an appropriate notice of non-responsibility. The Alterations shall be
approved by all appropriate government agencies, and all applicable permits
and authorizations shall be obtained before commencement of the Alterations.
All Alterations shall be completed with due diligence in substantial
compliance with the Plans.
B. TENANT TO PAY ALTERATION COST. All installations,
additions or improvements, and alterations and changes made, with the consent
of Landlord, after Tenant occupies the Premises, shall be made at the sole
cost and expense of Tenant.
C. ALTERATIONS REQUIRED BY LAW. If, during the Term of this
Lease, any additions, alterations or improvements in or to the Premises, as
distinguished from repairs, are required by governmental regulations because of
the use to which the Premises are put by Tenant and not by reason of the
character or structure of the Premises, they shall be made and paid for by
Tenant, pursuant to the procedure set forth at Section 13.1.A above. Any other
additions, alterations or improvements in or to the Premises required by any
governmental laws, rules or regulations shall be at Landlord's sole cost and
expense, provided that, Tenant shall be obligated at Tenant's sole cost and
expense to make any additions, alterations or improvements required at any time
under the American Disabilities Act.
D. SURRENDER OR REMOVAL OF IMPROVEMENTS. All alterations,
additions or improvements which are made in or to the Premises shall be the
property of Landlord upon the termination of this Lease, unless within twenty
(20) days following Landlord's receipt of the Nonstructural Notice and/or the
Request for Approval and the Plans, Landlord gives Tenant written notice that
the alterations, additions or improvements must be removed upon termination
of the Lease, in which case Tenant shall cause the items so designated to be
removed and the Premises to be restored to their condition at the
commencement of Tenant's business, normal wear and tear excepted, all at the
expense of Tenant.
E. MECHANIC'S LIENS. Tenant agrees to pay promptly for all
labor done or materials furnished for any work of repair, maintenance,
improvements, alterations, or additions done by Tenant, in connection with
the Premises, and to keep and to hold the Premises free, clear, and harmless
of and from all liens that could arise by reason of any such work. If any
such lien shall at any time be filed against the Premises, Tenant shall
either cause the same to be discharged of record within twenty (20) days
after the date of filing the same, or if Tenant in its discretion and in good
faith, determines that such lien should be contested, Tenant shall furnish
such security as may be necessary or required to prevent any foreclosure
proceedings against the Premises during the pendency of such contest. If
Tenant shall fail to discharge such lien within such period or fail to
furnish such security, then, in addition to any other right or remedy,
Landlord may, but shall not be obligated to, discharge the same, either by
paying the amount claimed to be due or by procuring the discharge of such
lien by deposit in court or by giving security or in such other manner as is
or may be prescribed by law. Tenant shall repay to Landlord on demand all
sums disbursed or deposited by Landlord pursuant to the foregoing provisions
hereof, including Landlord's costs, expenses, and reasonable attorney's fees
incurred by Landlord in connection therewith. Nothing contained herein shall
imply any consent or agreement on the part of the Landlord to subject
Landlord's interest in the property of which the Premises are a part to
liability under any mechanic's lien law.
F. NOTICE OF NON-RESPONSIBILITY. Landlord shall at all
times have the right to post and to keep posted on the Premises such notices
provided for under the laws of the State of California for the protection of
the Premises from mechanic's liens or liens of a similar nature.
14. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE.
14.1. SUBORDINATION. This Lease granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
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hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Landlord upon the real property of which the Premises are
a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Tenant agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Landlord
under this Lease, but that in the event of Landlord's default with respect to
any such obligation, Tenant will give any Lender whose name and address have
been furnished Tenant in writing for such purpose notice of Landlord's
default and allow such Lender thirty (30) days following receipt of such
notice for the cure of said default before invoking any remedies Tenant may
have by reason thereof. If any Lender shall elect to have this Lease and/or
any Option granted hereby superior to the lien of its Security device and
shall give written notice thereof to Tenant, this Lease and such Options
shall be deemed prior to such Security Device, notwithstanding the relative
dates of the documentation or recordation thereof.
14.2. ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 14.3, Tenant agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Tenant might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
14.3. NON-DISTURBANCE. With respect to Security Devices entered
into by Landlord after the execution of this Lease, Tenant's subordination of
this Lease shall be subject to receiving assurance (a "non-disturbance
agreement") from the Lender that Tenant's possession and this Lease,
including any options to extend the term hereof, will not be disturbed so
long as Tenant is not in default of the Lease and attorns to the record owner
of the Premises.
14.4 SELF-EXECUTING. The agreements contained in this Paragraph
14 shall be effective without the execution of any further documents;
provided, however, that, upon written request from Landlord, Tenant or a
Lender in connection with a sale, financing or refinancing of the Premises,
Tenant and Landlord shall execute such further writings as may be reasonably
required to separately document any such subordination or non-subordination,
attornment and/or non-disturbance agreement as is provided for herein.
15. GENERAL CONDITIONS AND MISCELLANEOUS PROVISIONS.
15.1. NOTICES.
A. As used in this Lease "notice" includes but is not
limited to the communication of notice, request, demand, approval, statement,
report, acceptance, consent, waiver, appointment and other communication
required or permitted hereunder. No notice of the exercise of any option or
election is required unless the provision giving the election or option
expressly requires notice. Unless the provisions of this Lease regarding rent
direct otherwise, rent shall be sent in the manner provided for giving notice.
B. All notices shall be in writing and shall be considered
given either (i) when delivered in person to the recipient named as below, or
(ii) on the date of delivery shown on the return receipt, after deposit in
the United States mail in a sealed envelope or other container, either
registered or certified mail, return receipt requested, postage and postal
charges prepaid, addressed to the party intended as below, or (iii) on the
date of delivery shown in the records of the telegraph company after
transmission by telegraph to the party intended as follows or (iv) on the
date of delivery by reputable overnight courier, or (v) by facsimile
transmission upon telephone confirmation of receipt of the transmission
thereof, provided a copy is also delivered via delivery or first class United
States mail. If notice is received on a Saturday, Sunday or legal holiday, it
shall be deemed received on the next business day.
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Notice to Landlord:
Donald M. Hypes
363 Bouquet Canyon Drive
Palm Desert, CA 92211
With a copy to:
Best, Best & Krieger
39700 Bob Hope Drive, Suite 312
Rancho Mirage, CA 92270
Attn: Brian M. Lewis, Esq.
Notice to Tenant:
Burke Industries, Inc.
2250 South Tenth Street
San Jose, California 95112
Attn: Mr. Reed C. Wolthausen
With copy to:
Richard L. Miller, Esq.
Stern, Neubauer, Greenwald & Pauly
1299 Ocean Avenue, Tenth Floor
Santa Monica, CA 90401-1007
C. Either party may, by notice given at any time or from
time to time, require subsequent notices to be given to another individual
person, whether a party or an officer or representative, or to a different
address, or both. Notices given before actual receipt of notice of change
shall not be invalidated by the change.
15.2. INTERPRETATION AND CONSTRUCTION OF LEASE.
A. The captions of the various articles and sections of
this Lease are for convenience and ease of reference only and do not define,
limit, augment or describe the scope, content or intent of this Lease or any
part or parts of this Lease.
B. All sections, paragraphs and articles referred to herein
are sections, paragraphs and articles of this Lease unless otherwise
specified and all exhibits referred to herein are exhibits attached to this
Lease unless otherwise specified.
C. Exhibits attached hereto and to which references are
made in this Lease, are incorporated herein by the respective references to
them. References to "this Lease" or "the Lease" include matters incorporated
herein by reference.
D. The neuter gender includes the feminine and masculine,
the masculine includes the feminine and the neuter, and the feminine includes
the neuter, and each includes corporation, partnership or other legal entity
when the context so requires.
E. The singular number includes the plural whenever the
context so requires.
F. Each party has relied on its own examination of this
Lease, the counsel of his own advisors and warranties, representations and
agreements in the Lease itself. The failure or refusal of Tenant to inspect
the Premises or improvements, or the failure of either party to read the
Lease or other documents or to obtain legal or other advice relevant to the
transaction constitutes a waiver of any objection, contention, or claim that
might have been based on such reading, inspection or advice.
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G. The invalidity or illegality of any provision of this
Lease shall not affect the remainder of the Lease.
H. Time is of the essence of each provision of this Lease.
I. All the undertakings of Tenant hereunder shall be deemed
and construed to be "conditions" as well as undertakings as though the words
specifically expressing or imparting conditions and undertakings were used in
each separate instance.
J. This Lease may only be modified in writing, signed by
the parties in interest at the time of the modification.
K. This Lease shall be interpreted, construed and enforced
in accordance with laws of the State of California.
15.3. SUCCESSORS. Subject to the provisions of this Lease on
transfers, each and all the terms, agreements and conditions to this Lease
shall be binding on and shall inure to the benefit of the heirs, successors,
executors, administrators, assigns and personal representatives of the
respective parties.
15.4. LANDLORD'S RIGHT OF INSPECTION AND LANDLORD'S AGENTS.
Landlord and Landlord's agents may, at any reasonable time during business
hours, upon twenty-four (24) hours prior written notice and from time to time
during the Term, enter upon the Premises for the purpose of inspecting any
improvements which may be constructed or placed thereon by Tenant, and making
such alterations, repairs, improvements or additions to the Premises or to
the Building, and otherwise for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and for such other purposes as
may be necessary or proper for the reasonable protection of Landlord's
interest. Landlord may at any time place on or about the Premises and/or to
the Building any ordinary "For Sale" signs and Landlord may at any time
during the last one hundred twenty (120) days of the then applicable Term
place on the or about the Premises and/or to the Building any ordinary "For
Lease" signs. All such activities of Landlord shall be without abatement of
rent or liability to Landlord.
15.5. ESTOPPEL CERTIFICATES.
A. Tenant shall, at any time and from time to time during
the Term and upon not less than ten (10) days' prior written request by
Landlord, execute, acknowledge and deliver to Landlord and any trust deed
holder on the Premises designated by Landlord from time to time, a statement
in writing certifying that this Lease is unmodified and in full force and
effect (or if there have been any modifications that the same is in full
force and effect as modified and stating the modifications). The statement
shall also state the dates to which the rent and any other charges have been
paid in advance, that, to Tenant's actual knowledge, there are no defaults
existing or that defaults exist and the nature of such defaults. It is
intended that such statement as provided in this Section 15.5.A may be relied
upon by any prospective purchaser, encumbrancer or assignee of the Premises
or all or any part of Landlord's interest under this Lease.
B. Tenant's failure to execute, acknowledge and deliver on
request the certified statement described above within the specified time
shall constitute acknowledgment by Tenant to all persons entitled to rely on
the statement that this Lease is unmodified and in full force and effect and
that the rent and other charges have been duly and fully paid to and
including the respective due dates immediately preceding the date of the
notice of request and shall constitute a waiver, with respect to all persons
entitled to rely on the statement, of any defaults that may exist before the
date of the notice.
C. Landlord hereby agrees to provide to Tenant an estoppel
certificate signed by Landlord, containing the same types of information, and
within the same period of time, as set forth above, with such changes as are
reasonably necessary to reflect that the estoppel certificate is being granted
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and signed by Landlord to Tenant, rather than from Tenant to Landlord or a
lender.
15.6. COVENANTS RUN WITH LAND. The provisions hereof are and shall
be deemed to be covenants running with the land and shall be binding upon and
inure to the benefit of the successors and assigns of the parties hereto and
also the successors and assigns of all subsequent landlords and tenants,
respectively, hereunder.
15.7. COVENANTS AND CONDITIONS. All provisions of this Lease,
whether covenants or conditions, on the part of Tenant shall be deemed to be
both covenants and conditions.
15.8. ATTORNEYS' FEES AND COSTS. If either party brings an action
or proceeding to enforce, protect or establish any right or remedy, the
prevailing party shall be entitled to recover from the other party its costs
of suit and reasonable attorneys' fees which shall be fixed by the court.
Arbitration is not an action or proceeding for the purpose of this provision
unless this Lease otherwise provides for the payment of attorneys' fees in
connection with an arbitration.
15.9. EXECUTION IN COUNTERPARTS. This Lease may be executed in two
or more counterparts, each of which shall be an original, but all of which
shall constitute one and the same instrument.
15.10. ENTIRE AGREEMENT. This Lease contains the entire agreement
of the parties with respect to the matters covered by this Lease, and no
other agreements, statements, or promise made by any party, or to any
employees, officer, or agent of any party, which is not contained in this
Lease shall be binding or valid.
15.11. INTEREST RATE. "Interest Rate" shall mean the rate equal to
the floating commercial loan rate announced from time to time by Bank of
America, a national banking association, or its successor, as its prime rate,
plus two percent (2%) per annum.
15.12. BROKERS. Landlord and Tenant hereby warrant to each other
that they have had no dealings with any real estate broker or agent in
connection with the negotiation of this Lease and that they know of no real
estate broker or agent who is entitled to a commission in connection with
this Lease. Each party agrees to indemnify and defend the other party against
and hold the other party harmless from any and all claims, demands, losses,
liabilities, lawsuits, judgements, and costs and expenses (including, without
limitations, reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of the
indemnifying party's dealings with any real estate broker or agent. The terms
of this Section 15.12 shall survive the expiration and termination of the
Lease.
15.13. SIGNAGE. Tenant shall have the right to install, affix and
maintain any signs that are reasonably required to advertise Tenant's
business on the exterior of the Building (but not on the roof) so long as the
same comply with all applicable laws. Except as provided by Section 15.4, no
other signs shall be permitted.
15.14. TERMINATION; MERGER. Unless specifically stated otherwise
in writing by Landlord, the voluntary or other surrender of this Lease by
Tenant, the mutual termination or cancellation hereof, or a termination
hereof by Landlord for default by Tenant, shall automatically terminate any
sublease or lesser estate in the Premises; provided, however, Landlord shall,
in the event of any such surrender, termination or cancellation, have the
option to continue any one or all of any existing subtenancies. Landlord's
failure within ten (10) business days following any such event to make a
written election to the contrary by written notice to the holder of any such
lesser interest, shall constitute Landlord's election to have such event
constitute the termination of such interest.
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15.15. AUTHORITY. If either Party hereto is a corporation,
trust, or general or limited partnership, each individual executing this
Lease on behalf of such entity represents and warrants that he or she is duly
authorized to execute and deliver this Lease on its behalf. If Tenant is a
corporation, trust or partnership, Tenant shall, within thirty (30) days
after request by Landlord, deliver to Landlord evidence satisfactory to
Landlord of such authority.
15.16. WAIVERS. No waiver by Landlord of the default or breach
of any term, covenant or condition hereof by Tenant, shall be deemed a waiver
of any other term, covenant or condition hereof, or of any subsequent default
or breach by Tenant of the same or of any other term, covenant or condition
hereof, Landlord's consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of Landlord's consent to, or approval of,
any subsequent or similar act by Tenant, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Landlord's knowledge of a default or breach at the
time of accepting monthly rent, the acceptance of monthly rent by Landlord
shall not be a waiver of any preceding default or breach by Tenant of any
provisions hereof, other than the failure of Tenant to pay the particular
rent so accepted. Any payment given Landlord by Tenant may be accepted by
Landlord on account of moneys or damages due Landlord, notwithstanding any
qualifying statements or conditions made by Tenant in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Landlord at or before
the time of deposit of such payment.
15.17. SEVERABILITY. The invalidity of any provision of this
Lease, as determined by a court of competent jurisdiction, shall in no way
affect the validity of any other provision hereof.
15.18. RIGHT OF FIRST REFUSAL. If during the term of this Lease,
Landlord elects to sell the Premises to an unrelated third party, then
Landlord shall provide Tenant with written notice (the "Sale Notice") which
shall include the exact and complete terms of the proposed sale duly executed
by Landlord and the prospective purchaser. For a period of fifteen (15) days
(the "Notice Period") after receipt by Tenant of the Sale Notice, Tenant
shall have the right (the "right of first refusal") to enter into an
agreement with Landlord on the same terms, price and conditions set forth in
the Sale Notice. To exercise Tenant's right of first refusal, Tenant shall
deliver written notice (the "Exercise Notice") to Landlord of Tenant's
exercise within the Notice Period and shall concurrently deliver to Landlord
funds payable by cashier's check in the same amount of the initial deposit
(the "Deposit") required in the Sales Notice made payable to the escrow
holder provided therein. Tenant's timely delivery to Landlord of the Exercise
Notice and the Deposit shall be deemed to be a binding contract for the
purchase of the Premises in accordance with the terms of the Sale Notice,
provided that, the sales price shall not be reduced whether or not Landlord
is obligated to pay a sales commission upon a sale to Tenant. In the event
Tenant fails to exercise its right of first refusal within the Notice Period
it shall be conclusively presumed that Tenant has elected not to exercise its
right of first refusal and Landlord may enter into the agreement with the
prospective purchase or its nominee on the same terms and conditions set
forth in the Sale Notice. In the event Tenant declines to exercise its right
of first refusal after receipt of the Sale Notice, and, thereafter, Landlord
and the prospective purchaser or its nominee do not enter into the agreement
in strict accordance with the terms set forth in the Sale Notice within
thirty (30) days following the expiration of the Notice Period, or otherwise
fail to close the purchase and sale transaction contemplated thereunder in
strict accordance with the terms and escrow closing period set forth in the
Sale Notice, then Tenant's right of first refusal shall reapply in accordance
with the provisions hereinabove to any sale transaction of the Premises to an
unrelated third party that is entered into by Landlord. Notwithstanding
anything contained herein to the contrary, upon the occurrence of any default
under this Lease by Tenant beyond all applicable grace or cure periods
provided that Landlord in its default notice to Tenant states that a failure
to cure such default will result in a termination of this right of first
refusal, or in the event of termination of this Lease by either party due to
damage or condemnation as provided in Sections
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8.4 and 9, then the right of first refusal provided in this Section 15.18
shall automatically be deemed deleted from this Lease and of no further force
or effect. Furthermore, this right of first refusal shall automatically and
irrevocably terminate without notice immediately upon expiration of the Term
or at any time the Premises are sold by Landlord to an unrelated third party
in accordance with the right of first refusal provisions herein.
This right of first refusal is personal to the original Tenant named
in Section 1 of this Lease and any Affiliate of Tenant and/or TIM HOWARD
and/or DAN FLAMEN, and cannot be voluntarily or involuntarily assigned or
exercised by any person or entity other than said original Tenant and any
Affiliate of Tenant and/or TIM HOWARD and/or DAN FLAMEN. The right of first
refusal is not assignable either as part of an assignment of this Lease or
separately or apart therefrom, and it may not be separated from this Lease in
any manner, by reservation or otherwise.
IN WITNESS WHEREOF, this Lease has been executed as of the day and
year first above written.
LANDLORD:
/s/ Donald M. Hypes
---------------------------------
Donald M. Hypes, Trustee of the
Declaration of Trust dated
April 25, 1983, as amended.
TENANT:
---------------------------------
BURKE INDUSTRIES, INC., a
California Corporation
By: /s/ Reed Wolthausen
----------------------------
Reed C. Wolthausen,
Senior Vice President
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EXHIBIT "A"
DESCRIPTION OF THE PREMISES
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EXHIBIT "B"
REPAIR WORK
TO BE COMPLETED BY TENANT BY JUNE 30, 1996
1. Asphalt: remove and replace approximately seven hundred fifty (750)
square feet of asphalt. Patch all other damaged areas. Apply slurry coat
to all asphalt repaired areas and to driveway and existing parking lot.
Paint and mark parking spaces in front, side and back of Building.
2. Painting: Repaint exterior of front of building. Repaint inside of front
offices. Spot paint inside of Building as required. Paint lunch room
interior.
3. Flooring: Remove existing flooring in entry, secretary work area, lab,
bathrooms, lunch room and main office area and install new flooring. Install
wall to wall carpeting in one existing private office.
4. Plumbing: Repair plumbing in men's bathroom. Replace broken faucets.
Replace or repair inoperative water heater.
5. Doors: Repair front folding door and side roll up door as needed, and paint
same. Replace door on small men's bathroom and paint same.
6. Air conditioning: Replace air conditioner in lab.
7. Landscaping: Remove and cap off sprinkler heads and install decorative pea
gravel in front of Building, and install minimum landscaping on side of
building.
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EXHIBIT 10.16
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
March 29, 1996 is made by and between S&M Development Co., a General
Partnership ("LESSOR") and Burke Industries. Inc., a California corporation
("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 13615 Excelsior Drive, Santa Fe
Springs, California, located in the County of Los Angeles, State of California,
and generally described as (describe briefly the nature of the property)
an approximate 28,700 SF concrete tilt-up general purpose industrial building
located on approximately 57,716 SF of M-2 zoned land and all parking located
at such address ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: 4 years and 9 1/2 months ("ORIGINAL TERM") commencing April
15, 1996 ("COMMENCEMENT DATE") and ending January 31, 2001 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION:_______________________ ("Early Possession Date").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $10,332.00 per month ("BASE RENT"), payable on the first
day of each month commencing April 15, 1996 (see Addendum #49) (See
Paragraph 4 for further provisions.)
/ /If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $10,332.00 as Base Rent for the period
April 15, 1996 thru May 14, 1996.
1.7 SECURITY DEPOSIT: $10,332.00 ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: warehousing, sales, administration and distribution
of resilient flooring products and warehousing of custom molded silicon
products and rubber compounds which have been approved by the Santa Fe
Springs Fire Department prior to lease commencement. (See Paragraph 6 for
further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $3,725.00 is the "BASE
PREMIUM." (See Paragraph 8 for further provisions.) Lessee will be provided
documentation as available, from Lessor's insurance broker, supporting the
base property insurance premium.
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
The Seeley Company - Stephen C. Calhoun represents
/ /Lessor exclusively ("LESSOR'S BROKER"); /X/ both Lessor and Lessee, and
_________________________________________ represents
/ /Lessee exclusively ("LESSEE'S BROKER"); / /both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 63 and Exhibits A & B, all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that
may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by
Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within thirty (30) days after the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.3 See Exhibit "B".
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, compliance with
Applicable Law, as defined in Paragraph 6.3) and the present and future
suitability of the Premises for Lessee's intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such matters
and assumes all responsibility therefor as the same relate to Lessee's
occupancy of the Premises and/or the term of this Lease, and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written
representations or warranties with respect to the said matters other than as
set forth in this Lease.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be
abated for the period of such early possession. All other terms of this
Lease, however, shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
GROSS PAGE 1
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if
one is specified in Paragraph 1.4. or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof. If
possession of the Premises is not delivered to Lessee within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing
to Lessor within ten (10) days thereafter, cancel this Lease, in which event
the Parties shall be discharged from all obligations hereunder; provided,
however, that if such written notice by Lessee is not received by Lessor
within said ten (10) day period, Lessee's right to cancel this Lease shall
terminate and be at no further force or effect. Except as may be otherwise
provided, and regardless of when the term actually commences, if possession
is not tendered to Lessee when required by this Lease and Lessee does not
terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from
the date of delivery of possession and continue for a period equal to what
Lessee would otherwise have enjoyed under the terms hereof, but minus any
days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent
and other charges shall be made to Lessor at its address stated herein or to
such other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall; upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall [INSERT 4], at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease. [INSERT 5]
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for
no other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any
written request by Lessee, Lessee assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein,
is not significantly more burdensome to the Premises and the improvements
thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor
elects to withhold such consent, Lessor shall within five (5) business days
give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance [INSERT 6] with respect to which any Applicable Law requires that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any
obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lesser such additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability
therefrom or therefor, including, but not limited to, the installation (and
removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party. or persons
entering or occupying the Premises. concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in,
on, or about the Premises, including but not limited to all such documents as
may be involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages.
liabilities, judgments. costs, claims, liens, expenses, penalties, permits
and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for
Lessee. [INSERT 7] Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects or any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing),
removal, remediation restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks,
unless specifically so agreed by Lessor in writing at the time of such
agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "APPLICABLE LAW," which term is used
in this Lease to include all laws, rules, regulations, ordinances,
directives, covenants, easements and restrictions of record, permits, the
requirements of any applicable fire insurance underwriter or rating bureau,
and the recommendations of Lessor's engineers and/or consultants, relating in
any manner to the Premises (including but not limited to matters pertaining
to (i) industrial hygiene, (ii) environmental conditions on, in, under or
about the Premises, including soil and groundwater conditions, [INSERT 8] and
(iii) the use, generation, manufacture, production, installation, maintenance,
removal, transportation, storage, spill or release of any Hazardous Substance or
storage tank) [INSERT 9] now in effect or which may hereafter come into effect,
and whether or not reflecting a change in policy from any previously existing
policy. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with spies of all documents and information, including,
but not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Law specified
by Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving failure by
Lessee or the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited
to the installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance or storage tank on or from the Premises [INSERT 10].
The costs and expenses of any such inspections shall be paid by the party
requesting same, unless a Default or Breach of this Lease, violation of
Applicable Law, or a contamination, caused or materially contributed to by
Lessee is found to exist or be imminent, or unless' the inspection is requested
or ordered by a governmental authority as the result of any such existing or
imminent violation or contamination. In any such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition).
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
limes, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee,
and whether or not the need for such repairs occurs as a result of Lessee's
use, any prior use, the elements or the age of such portion of the
Premises), including, without limiting the generality of the foregoing, all
equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or smoke
detection systems and equipment, fire hydrants, fixtures, walls (interior and
exterior), ceilings, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, about, or adjacent to the Premises,
but excluding foundations, the exterior roof and the structural aspects of
the Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, under or about the Premises (including through
the plumbing or sanitary sewer system) and shall promptly, at Lessee's
expense, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of
any contamination of, and for the maintenance, security and/or monitoring of,
the Premises, the elements surrounding same, or neighboring properties. that
was caused or materially contributed to by Lessee, or pertaining to or
involving any Hazardous Substance and/or storage tank brought onto the
Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. Notwithstanding anything in Paragraph 7.1(a) and 7.2 to the contrary,
Lessor will be responsible for exterior roof maintenance and Lessee will be
responsible for the roof areas surrounding the skylights and the skylight
maintenance, normal wear and tear excepted.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies Promptly supplied, to Lessor, in customary form and
substance for, and with contractors specializing and experienced in, the
inspection, maintenance and service of the following equipment and
improvements, if any, located on the Premises: (i) heating, air conditioning
and ventilation equipment, (ii) boiler, fired or unfired pressure vessels,
(iii) fire sprinkler and/or standpipe and hose or other automatic fire
extinguishing systems, including fire alarm and/or smoke detection, (iv)
landscaping and irrigation systems, (v) drain maintenance and (vi) asphalt
and parking lot maintenance. Notwithstanding anything in Paragraph 7.1(b) to
the contrary, Lessee has the option to contract with themself for said
maintenance work, which shall be done in a professional manner, and give
copies of all contracts to Lessor.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's
expense, keep the foundations. exterior roof and structural aspects of the
Premises in good order, condition and repair, Lessor shall not, however, be
obligated to paint the exterior surface of the exterior walls or to maintain
the windows, doors or plate glass or the interior surface of exterior walls.
Lessor shall not, in any event, have any obligation to make any repairs until
Lessor receives written notice of the need for such repairs. It is the
intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises.
Lessee and Lessor expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease with
respect to, or which affords Lessee the right to make repairs at the expense
of Lessor or to terminate this Lease by reason of, any needed repairs. Lessee
will not be responsible for painting the building exterior during the initial
five (5) year term except where there is graffiti or minor painting as the
result of vandalism or other mischievous acts.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(A) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that
can be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements on the Premises
from that which are provided by Lessor under the terms of this Lease, other
than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by lessee that are not yet
owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any
Alterations or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations and alterations to the interior of the
Premises (excluding the roof), as long as they are not visible from the
outside, do not involve puncturing, relocating or removing the roof or any
existing walls, and the cumulative cost thereof during the term of this Lease
as extended does not exceed $80,000.00, or $20,000.00 per individual
consent. Lessor shall have the right to request Lessee and Lessee shall
comply with said request to return the building to the original condition,
prior to any Lessee utility or trade fixture installations or alterations.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented
to Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities, (ii) the furnishing
of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon, and (iii) the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this Lease
shall be done in a good and workmanlike manner, with good and sufficient
materials, and in compliance with all Applicable Law. Lessee shall promptly
upon completion thereof furnish Lessor with as-built plans and specifications
therefor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at
or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorney's fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(A) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises.
Lessor may, at any time and at its option, elect in writing to Lessee to be
the owner of all or any specified part of the Lessee Owned Alterations and
Utility Installations. Unless otherwise instructed per subparagraph 7.4(b)
hereof, all Lessee Owned Alterations and Utility Installations shall, at the
expiration or earlier termination of this Lease, become the property of
Lessor and remain upon and be surrendered by Lessee with the Premises. Prior
to Lessee completing any alterations or utility installations, Lessee shall
have the option to request Lessor to notify Lessee if the alterations,
equipment, or installations will have to be removed or can remain at the
expiration of the Lease.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed
by the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor. Prior to
Lessee completing any alternations or utility installations, Lessee shall
have the option to request Lessor to notify Lessee if the alterations,
equipment, or installations will have to be removed or can remain at the
expiration of the Lease and Lessee shall submit a detailed drawing with each
request.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris
and in condition as when received, ordinary wear and tear excepted. "ORDINARY
WEAR AND TEAR" shall not include any damage or deterioration that would have
been prevented by good maintenance practice or by Lessee performing all of
its obligations under this Lease. Except as otherwise agreed or specified in
writing by Lessor, the Premises, as surrendered, shall include the Utility
Installations. The obligation of Lessee shall include the repair of any
damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by
Applicable Law and/or good service practice. Lessee's Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee subject to its
obligation to repair and restore the Premises per this Lease. Lessee
acknowledges that all improvements, parts, and surfaces were in satisfactory
condition at the commencement of the Lease, subject to the conditions set
forth in Paragraph 2.2 of the Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase ("INSURANCE
COST INCREASE") occurring during the term of this Lease. "INSURANCE COST
INCREASE" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED INSURANCE"),
over and above the Base Premium, as hereinafter defined, calculated on an
annual basis. "INSURANCE COST INCREASE" shall include, but not be limited to,
increases resulting from the nature of Lessee's occupancy, any act or
omission of Lessee, requirements of the holder of a mortgage or deed of trust
covering the Premises, increased valuation of the Premises, and/or a premium
rate increase. If the parties insert a dollar amount in Paragraph 1.9. such
amount shall be considered the "BASE PREMIUM." In no event, however, shall
Lessee be responsible for any portion of the premium cost attributable to
liability insurance coverage in excess of $1,000,000 procured under Paragraph
8.2(b) (Liability Insurance Carried By Lessor). At the commencement of the
Lease, Lessor does not plan to carry earthquake insurance coverage. If at a
later date, Lessor shall elect to carry earthquake insurance, Lessee will
receive a new base insurance premium incorporating the earthquake insurance
premium. Lessee will then pay any insurance cost over and above the
combination of the original insurance cost paid by Lessor plus the cost of
the earthquake insurance placed by Lessor.
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement
or other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement or Expiration of the
Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance (Lessee
shall promptly supply a copy to Lessor) protecting Lessee and Lessor (as an
additional insured) against claims for bodily injury, personal injury and
property damage based upon, involving or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto.
Such insurance shall be on an occurrence basis providing single limit
coverage in an amount not less than $2,000,000.00 per occurrence with an
"Additional Insured-Managers or Lessors of Premises"
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease except those set forth in Section 6.2(c). The
limits of said insurance required by this Lease or, as carried by Lessee
shall not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a), above,
in addition to, and not in lieu of, the insurance required to be maintained
by Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss
or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason
of the unique nature or age of the improvements involved, such latter amount
is less than full replacement cost. Lessee Owned Alterations end Utility
Installations shall be insured by Lessee under Paragraph 8.4. If the coverage
is available and commercially appropriate, such policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender), including coverage
for any additional costs resulting from debris removal and reasonable amounts
of coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss, but not including plate glass Insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any coinsurance clause,
waiver of subrogation, and inflation guard protection causing an increase in
the annual property insurance coverage amount by a factor of not less than
the adjusted U.S. Department of Labor Consumer Price Index for All Urban
Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease
is terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an
agreed valuation provision in lieu of any coinsurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental
income, property taxes, insurance premium costs and other expenses, if any,
otherwise payable BY Lessee, for the next twelve (12) month period.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party, the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's
option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to
that carried by the Insuring Party under Paragraph 8.3. Such insurance shall
be full replacement cost coverage with a deductible of not to exceed
$10,000,00 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property or the restoration of
Lessee Owned Alterations and Utility Installations. Lessee shall be the
Insuring Party with respect to the insurance required by this paragraph 8.4
and shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender having a lien on the Premises, as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in this
Paragraph 8. Lessee shall cause to be delivered to Lessor certified copies
of, or certificates evidencing the existence and amounts of, the insurance,
and with the additional insureds, required under Paragraph 8.2(a) and 8.4. No
such policy shall be cancelable or subject to modification except after
thirty (30) days prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor after making a commercially reasonable effort to notify Lessee, may
order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the
other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured
against under Paragraph 8. The effect of such releases and waivers of the
right to recover damages shall not be limited by the amount of insurance
carried or required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor and Lessor's employees, contractors, and
agents negligence and/or breach of express warranties, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its
agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, costs, liens,
judgments, penalties, permits, attorney's and consultant's fees, expenses
and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any
act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and
whether or not (in the case of claims made against Lessor) litigated and/or
reduced to judgment, and whether well founded or not. In case any action or
proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for the gross negligence or
willful misconduct of Lessor or its agents, contractors, or employees, Lessor
shall not be liable for injury or damage to the person or goods, wares,
merchandise or other property of Lessee, Lessee's employees, contractors,
invitees, customers, or any other person in or about the Premises, whether
such damage or injury is caused by or results from fire, steam, electricity,
gas, water or rain, or from the breakage, leakage, obstruction or other
defects of pipes, fire sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Premises or upon
other portions of the building of which the Premises are a part, or from
other sources or places, and regardless of whether the cause of such damage
or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any
other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this
Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land
and Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a), irrespective of any deductible amounts or
coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances
or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the foregoing, if the
insurance proceeds are not sufficient to effect such repair, excluding
deductibles, and in the event the shortage in proceeds was due to the fact
that, by reason of the unique nature of the improvements, full replacement
cost insurance coverage was not commercially reasonable and available, Lessor
shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless the shortage of
insurance proceeds was caused by the Lessor's failure to carry the insurance
required hereinunder or unless Lessee provides Lessor with the funds to cover
same, or adequate assurance thereof, within ten (10) business days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10)
business day period, the party responsible for making the repairs shall
complete them as soon as reasonably possible and this Lease shall remain in
full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) business days thereafter to make such restoration and repair
as is commercially reasonable with Lessor paying any shortage in proceeds, in
which case this Lease shall remain in full force and effect. If in such case
Lessor does not so elect, then this Lease shall terminate sixty (60) days
following the occurrence of the damage or destruction. Unless otherwise
agreed or unless Lessor does not spend the same on the construction of the
Premises, Lessee shall in no event have any right to reimbursement from
Lessor for any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last nine (9) months
of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor or
Lessee may at its, terminate this Lease effective sixty (60) days following
the date of occurrence of such damage by giving written notice to the
other of its election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i)
exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise Period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such
funds or assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in
the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage--
Insured), whether or not Lessor or Lessee repairs or restores the Premises,
the Base Rent, Real Property Taxes, insurance premiums, and other charges, if
any, payable by Lessee hereunder for the period during which such damage, its
repair or the restoration continues (not to exceed the period for which
rental value insurance is required under Paragraph 8.3(b)), shall be abated
in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial
and meaningful way, the repair or restoration of the Premises within ninety
(90) days after such obligation shall accrue, Lessee may, at any time prior
to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's
election to terminate this Lease on a date not less than sixty (60) days
following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced within
thirty (30) days after receipt of such notice, this Lease shall terminate as
of the date specified in said notice. If Lessor or a Lender commences the
repair or restoration of the Premises within thirty (30) days after receipt
of such notice, this Lease shall continue in full force and effect.
"COMMENCE" as used in this Paragraph shall mean either the unconditional
authorization of the preparation of the required plans. or the beginning of
the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) it the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally
at Lessee's expense and without reimbursement from Lessor except to the
extent of an amount equal to twelve (12) times the then monthly Base Rent.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as
reasonably possible and the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance
Condition occurs for which Lessee is not legally responsible, there shall be
abatement of Lessee's obligations under this Lease to the same extent as
provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor
shall, in addition, return to Lessee so much of Lessee's Security Deposit as
has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however,
that Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("TAX INCREASE"). Subject to
Paragraph 10.1(b), payment of any such Tax Increase shall be made by Lessee
within thirty (30) days after receipt of Lessor's written statement setting
forth the amount due and the computation thereof. Lessee shall promptly
furnish Lessor with satisfactory evidence that such taxes have been paid. If
any such taxes to be paid by Lessee shall cover any period of time prior to
or after the expiration or earlier termination of the term hereof, Lessee's
share of such taxes shall be equitably prorated to cover only the period of
time within the tax fiscal year this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment after such proration. In the event of a
sale, refinance, or transfer, the new assessed property value for determining
Lessee's payment of a property tax increase shall be $800,000.00. This shall
apply only during the initial lease term. In addition, Lessee shall be
responsible for the payment of other annual property tax increases.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Tax Increase to be paid in
advance to Lessor by Lessee: (i) in a lump sum amount equal to the amount
due, at least twenty (20) days prior to the applicable delinquency date. If
the amounts paid to Lessor by Lessee under the provisions of this Paragraph
are insufficient to discharge the obligations of Lessee to pay such Tax
Increase as the same becomes due, Lessee shall pay to Lessor, upon Lessor's
demand, such additional sums as are necessary to pay such obligation and any
excess payments shall be returned to Lessee. All moneys paid to Lessor
under this paragraph may be intermingled with other moneys of Lessor and
shall not bear interest. In the event of a Breach by Lessee in the
performance of the obligations of Lessee under this Lease, then any balance
of funds paid to Lessor under the provisions of this Paragraph may, subject
to proration as provided in Paragraph 10.1(a), at the option of Lessor, be
treated as an additional Security Deposit under Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase
in Real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. Any bond or special
assessment will be prorated over the term of said bond or assessment and paid
in an annual installment. The term "REAL PROPERTY TAXES" shall also include
any tax, fee, levy, assessment or charge, or any increase therein, imposed by
reason of events occurring, or changes in applicable law taking effect,
during the term of this Lease, including but not limited to a change in the
ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether
or not contemplated by the Parties. In the event of a sale, refinance, or
transfer, the new assessed property value for determining Lessee's payment of
a property tax increase shall be $800,000.00. This shall apply only during
the initial lease term. In addition, Lessee shall be responsible for the
payment of other annual property tax increases. In addition, Lessee will be
responsible for property tax increases as a result of any tenant improvements
made by Lessee which add to the assessed property valuation.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause its Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor. If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property or, at Lessor's option, as
provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "ASSIGNMENT") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms
of Paragraph 36. Lessor's consent shall not be unreasonably withheld and
Lessor shall grant or deny consent within fifteen (15) days after receipt by
Lessor of Lessee's written request, which shall include but not be limited to
a description of the proposed operation, sufficient financial information (at
least two (2) year tax returns and income statements) and written Landlord
references with telephone numbers.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of forty
percent (40%) or more of the voting control of Lessee shall constitute a
change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment
or hypothecation of this Lease or Lessee's assets occurs, which results or
will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of
such Net Worth of Lessee as it was represented to Lessor at the time of the
execution by Lessor of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior
to said transaction or transactions constituting such reduction, at whichever
time said Net Worth of Lessee was or is greater, shall be considered an
assignment of this Lease by Lessee to which Lessor may reasonably withhold
its consent. "NET WORTH OF LESSEE" for purposes of this Lease shall be the
net worth of Lessee (excluding any guarantors) established under generally
accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be
a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a noncurable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice ("Lessor's Notice"), increase the monthly
Base Rent to fair market rental value or one hundred ten percent (110%) of
the Base Rent then in effect, whichever is greater. Pending determination of
the new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with any overpayment credited against
the next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and market value adjustment, (i) the purchase price of any option
to purchase the Premises held by Lessee shall be subject to similar
adjustment to the then fair market value (without the Lease being considered
an encumbrance or any deduction for depreciation or obsolescence, and
considering the Premises at its highest and best use and in good condition),
or one hundred ten percent (110%) of the price previously in effect,
whichever is greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of
such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the
market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease, (ii) release
Lessee of any obligations hereunder, or (iii) alter the primary liability of
Lessee for the payment of Base Rent and other sums due Lessor hereunder or
for the performance of any other obligations to be performed by Lessee under
this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach
by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto but will notify Lessee or
anyone else liable on the Lease or sublease and will obtain their consent,
which shall not be unreasonably withheld, and such action shall not relieve
such persons from liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor,
or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with
anon-refundable deposit of $500.00 as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may
be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions of
an assignment or sublease to which Lessor has specifically consented in
writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to one and one half(1.5) times the
then monthly Base Rent, and Lessor may make the actual receipt by Lessor of
the amount required to establish such Security Deposit a condition to
Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, will share equally with Lessee in the overage in rent received
from a Sublessee or Assignee as compared to the rent being paid by the Lessee
to Lessor, after only deducting any real estate brokerage commission.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not,
by reason of this or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against said sublessee,
or, until the Breach has been cured, against Lessor, for any such rents and
other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined),
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<PAGE>
and that Lessor may include the actual cost of such services and costs in
said notice as rent due and payable to cure said Default. A "DEFAULT" is
defined as a failure by the Lessee to observe. comply with or perform any of
the terms, covenants. conditions or rules applicable to Lessee under this
Lease. A "BREACH" is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, shall entitle Lessor to pursue the
remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises for a period longer than six (6) months.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third
party, as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of five (5) business days following written notice thereof by or on
behalf of Lessor to Lessee. Lessor to make a commercially reasonable effort
to make a courtesy telephone call to Lessee if Lessee does not pay rent as
scheduled. However, this effort shall not be a condition of this Lease.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the recission of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii)
the execution of any document requested under Paragraph 42 (easements), or
(viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice by or on
behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
those described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this
Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guarantor of Lessee's obligations hereunder was materially
false.
13.2 REMEDIES. It Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
due to insufficient funds, Lessor, at its option, may require all future
payments to be made under this Lease by Lessee to be made only by cashier's
check. In the event of a Breach of this Lease by Lessee, as defined in
Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have
by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
tees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of award plus one percent (1%). Efforts by
Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease
shall not waive Lessor's right to recover damages under this Paragraph. If
termination of this Lease is obtained through the provisional remedy of
unlawful detainer, Lessor shall have the right to recover in such proceeding
the unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable
grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice,
and the failure of Lessee to cure the Default within the greater of the two
such grace periods shall constitute both an unlawful detainer and a Breach of
this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS,"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach of this Lease by Lessee, as dined in Paragraph
13.1, any such inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus. inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor as additional rent due
under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph shall not be deemed a waiver by
Lessor of the provisions of this Paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within seven (7)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to four percent
(4%) of such overdue amount. The parties here agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall
not be in breach of this Lease if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion. Lessee may
make needed repairs in an emergency situation and will make a best effort to
notify Lessor prior to commencing any work, and will notify Lessor in writing
as soon as reasonably possible thereafter.
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14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "CONDEMNATION"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the land area not occupied by any building, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor
area of the building located on the Premises. No reduction of Base Rent shall
occur if the only portion of the Premises taken is land on which there is no
building. Any award for the taking of all or any part of the Premises under
the power of eminent domain or any payment made under threat of the exercise
of such power shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for
Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the
event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of its net severance damages received, over and
above the legal and other expenses incurred by Lessor in the condemnation
matter, repair any damage to the Premises caused by such condemnation, except
to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall be responsible for the payment of any amount in
excess of such net severance damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Broker named in Paragraph 1.10 is the procuring causes of this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Broker, a fee as set forth in a separate written agreement between Lessor
and said Broker (or in the event there is no separate written agreement
between Lessor and said Brokers, the sum of $______ per separate agreement)
for brokerage services rendered by said Brokers to Lessor in this transaction.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation
of this Lease and/or the consummation of the transaction contemplated hereby,
and that no broker or other person, firm or entity other than said named
Brokers is entitled to any commission or finder's fee in connection with said
transaction. Lessee and Lessor do each hereby agree to indemnify, protect,
defend and hold the other harmless from and against liability for
compensation or charges which may be claimed by any such unnamed broker,
finder or other similar party by reason of any dealings or actions of the
indemnifying Party, including any costs, expenses, attorneys' fees reasonably
incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) business days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial statements
of Lessee and such Guarantors as may be reasonably required by such lender o;
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shaft mean the owner
or owners at the time in question of the fee title to the Premises, or, it
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and deliver of the Security Deposit, as aforesaid, the prior
Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to
be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction. shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the data on which it was due, shall bear interest from the
tenth (10th) day after it was due at the rate of 10% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS;. This Lease contains all agreements between
the Parties with respect to any matter mentioned herein, and no other prior
or contemporaneous agreement or understanding shall be effective.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service)
or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this
Lease shall be that Party's address for delivery or mailing of notice
purposes. Either Party may by written notice to the other specify a different
address for notice purposes, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for the purpose
of mailing or delivering notices to Lessee. Lessee agrees to send notices to
both the corporate and subject building address as a courtesy only. However,
Lessor sending a notice to only one address is sufficient to satisfy all
noticing obligations. A copy of all notices require or permitted to be given
to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or it no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given six (6) days after the same is
addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery
of the same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be
deemed served or delivered upon telephone confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail.
If notice is received on a Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions
made by Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically
agreed to in writing by Lessor at or before the time of deposit of such
payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto. However,
this Lease or any short form of this Lease shall not be recorded by Lessee
without written permission from Lessor.
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26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. If Lessee does not surrender possession of the Premises at the
end of the term of this Lease, base rent shall thereafter be payable at a
rate equal to one hundred fifty percent (150%) of the base rent described in
Paragraph 1.5.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of
the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets
or defenses which Lessee might have against any prior lessor, or (iii) be
bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises. At this
time, there is no real estate loan on this property. In the event Lessor
obtains a loan, he shall make a commercially reasonable effort to secure a
commercially reasonable non-disturbance agreement from the new lender. This
will not be an absolute requirement of Lessor, but a commercially reasonably
effort made by Lessor.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises. Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document
any such subordination or non-subordination, attornment and/or
non-disturbance agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or of its claim
or defense. The attorney's fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices
of Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any
ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises
any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee. As a courtesy only, Lessor
will try to notify Lessee in advance of when they will be inspecting the
building, but this is not a condition of the Lease.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the
roof) such signs as are reasonably required to advertise Lessee's own
business. The installation of any sign on the Premises by or for Lessee shall
be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Unless otherwise expressly
agreed herein, Lessor reserves all rights to the use of the roof and the
right to install, and all revenues from the installation of, such advertising
signs on the Premises, including the roof, as do not unreasonably interfere
with the conduct of Lessee's business. Lessee shall submit to Lessor the sign
design and color for same for any sign to be placed on the exterior of the
building. The design and colors, including the background color, shall be
subject to Lessor's approval. No sign shall be erected or placed on the
building without Lessor's prior approval of same. Lessee shall be limited to
one sign. The location of same shall be on the front of the building facing
Excelsior Drive. No sign may be placed on the other sides of the building.
The size of the sign shall not be larger than three (3) feet by fourteen (14)
feet. Said sign shall not be a lighted sign. No sign shall be placed by
Lessee upon the roof of the building. In the event Lessee desires to change
the sign design in any way after it is approved, Lessee must submit a new
sign design to Lessor prior to installation of such newly designed sign.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
38. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act
by or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of
a Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor.
Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by Lessor to represent
the cost Lessor will incur in considering and responding to Lessee's request.
Except as otherwise provided. any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment
of this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the
time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. The Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof
and any affiliate and cannot be voluntarily or involuntarily assigned or
exercise any person or entity other than said original Lessee or any
affiliate while the original Lessee
GROSS PAGE 9
<PAGE>
is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, except to any affiliate either as a part of an
assignment of this Lease or separately or apart therefrom, and no Option may
be separated from this Lease in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee
is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or
not the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST.
Waiver: No delay or omission in the exercise of any right or remedy of
Lessor or Lessee on any default by the other party shall impair such a right
or remedy or be construed as a waiver.
The subsequent acceptance of Rent by Lessor after breach by Lessee of any
covenant or term of this Lease shall not be deemed a waiver of such breach,
other than a waiver of timely payment for the particular Rent payment
involved, and shall not prevent Lessor from maintaining an unlawful detainer
or other action based on such breach.
No payment by Lessee or receipt by Lessor of a lesser amount than the
monthly Rent and other sums due hereunder shall be deemed to be other than
on account of the earliest Rent or other sums due, nor shall any endorsement
or statement on any check or accompanying any check or payment be deemed an
accordance and satisfaction; and Lessor may accept such check or payment
without prejudice to Lessor's right to recover the balance of such Rent or
other sum or pursue any other remedy provided in this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties may amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
<TABLE>
<S> <C>
Executed at Los Angeles, Calif. Executed at San Jose, Calif.
------------------------------------ -----------------------------------
on 4/3/96 on 4/1/96
--------------------------------------------- --------------------------------------------
by LESSOR: S&M DEVELOPMENT CO., A by LESSEE: BURKE INDUSTRIES, INC., A
- ----------------------------------------------- ----------------------------------------------
GENERAL PARTNERSHIP CALIFORNIA CORPORATION
- ----------------------------------------------- ----------------------------------------------
By /s/ John L Stern By /s/ Rocky Genovese
--------------------------------------------- -------------------------------------------
Name Printed: John Stern Name Printed: Rocky Genovese
---------------------------------- ---------------------------------
Title: Title: President
----------------------------------------- ----------------------------------------
By By
--------------------------------------------- --------------------------------------------
Name Printed: Name Printed:
---------------------------------- ---------------------------------
Title: Title:
----------------------------------------- ----------------------------------------
Address: 2330 Westwood Boulevard, Suite 104 Address: 2550 S. 10th Street
--------------------------------------- --------------------------------------
Los Angeles, CA 90064 San Jose, CA 95112-4197
- ----------------------------------------------- ----------------------------------------------
Tel. No. (310) 475-6428 Fax No. (310) 475-4038 Tel No. (800) 669-7010 Fax No. (408) 280-0699
--- ---------- --- --------- --- --------- --- ---------
</TABLE>
GROSS PAGE 10
NOTICE: These forms are often modified to meet changing requirements of
law and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 700 South Flower Street, Suite 600, Los Angeles, CA
90017. (213) 687-8777. Fax No. (213) 687-8616.
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE - GROSS DATED MARCH 29, 1996
FOR THE PROPERTY AT 13615 EXCELSIOR DRIVE,
SANTA FE SPRINGS, CALIFORNIA BY AND BETWEEN
LESSOR: S&M DEVELOPMENT CO., A GENERAL PARTNERSHIP
LESSEE: BURKE INDUSTRIES, INC., A CALIFORNIA CORPORATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
49. On or before May 15, 1996, Lessee will make a rent payment to Lessor in
the amount of $5,166.00 which represents the period from May 15-31, 1996.
Then commencing July 1, 1996 regular monthly rent payments will be due on
the first (1st) of each month through the balance of the lease term or any
option period, subject to rental abatement in #51 below.
50. Beginning with the month of June, 1998, the rent shall be adjusted to
$10,796.00 per month for the balance of the primary term which shall end
January 31, 2001.
51. During the months of June, 1996 and June, 1997, Lessee will occupy the
Premises free of base rent. However, during these months, Lessee will be
responsible for complying with all other terms and conditions of this Lease.
52. Attached hereto is EXHIBIT "B" to this Lease which shows the original
building permit and final inspection records for the premises when it was
constructed in 1969.
53. Anything to the contrary in this Lease notwithstanding, Lessor has been
advised by Lessee and Lessee warrants that they have contacted all
appropriate governmental and other authorities regarding their occupancy and
Lessee has satisfied itself that their proposed use is acceptable for this
particular building in its current condition. No additional improvements
and/or modifications whatsoever (except as required under repair and
maintenance obligations) need to be made by the Lessor except those
identified in Addendum, Paragraph 56 I and II.
54. The approximate 3,000 square foot exterior shed on the north side of the
building has not been included in the square footage of this Lease for the
purpose of calculation of base rent. Lessee is authorized to use this area
only for storing pallets, debris, and the type of materials that can
normally be stored outside, either covered or uncovered, with minimal damage
from the elements. If Lessee uses this area for anything that would normally
be stored inside of the building, Lessee will be required to pay an
additional $600.00 per month in rent for the use of this space.
55 I. LESSEE IMPROVEMENTS-PHASE A:
Lessee will accept the Premises with all systems in good working order with
the Lessor having completed the following at their sole cost and expense
except item "j". Lessee has inspected said work and approves the same.
a. Prepare and paint walls and all previously painted surfaces throughout
the office space. The color shall be white.
b. Tack all wallpaper and patch surfaces prior to painting.
c. Install industrial grade carpeting throughout. Install carpet flooring
where applicable and new base where necessary. Lessee may install VCT
flooring in the lobby and hallway leading to the shop area at their own
cost and expense.
d. Install door at second (2nd) room in lobby.
e. Replace/repair all fans in restrooms.
<PAGE>
ADDENDUM - 13615 EXCELSIOR DRIVE
SANTA FE SPRINGS
PAGE 2 OF 5
f. Repair toilet partition latch at men's room in warehouse.
g. Fix toilet #3 in mens bathroom/check toilets.
h. Ladies toilet/warehouse - patch walls, fix cracked toilet, replace light
fixture.
i. Clean-up throughout office area.
j. Render primary lighting system operational - inoperable primary
lighting fixtures will be repaired or replaced, at Lessor's discretion.
Fluorescent and surrounding lighting systems to be left "as is". Lessee
will not be responsible for secondary systems.
k. Fix downspout at northeast building corner.
55 II. LESSEE IMPROVEMENTS-PHASE B:
On April 1, 1996, Lessee shall provide Lessor with written evidence from
the City of Santa Fe Springs and/or any other governing body that their
proposed use for the Premises is acceptable. Furthermore, on April 1,
1996, Lessee shall provide Lessor with building permits, all other
necessary permits, and written documentation from the City fire
department in order for Lessor to commence the improvement work in Phase
B, as outlined below.
For Phase B, Lessor shall contribute up to $15,000.00 and complete the
following work. Lessor anticipates that the scope of work outlined in
Phase B shall be completed on or before April 15, 1996, subject to Lessee
executing and delivering a signed Lease with a check for the first (1st)
months rent and security deposit to Lessor on April 1, 1996. However, if
not complete by said date, Lessor shall use due diligence to complete
said work as soon as is reasonably practical, subject to force majeure,
City delays, governmental agency delays, strikes, acts of God, etc.
a. Smoke vents and draft curtains will be installed in no more than the
following quantities:
1. 11 skylights/smoke vents.
2. 350 lineal feet of 6' draft curtains.
Anything to the contrary in Paragraph 7.2 of this lease
notwithstanding, any roof leaks as a result of skylight installations
shall be the responsibility of the Lessee, assuming the required work
has been completed in a workmanlike fashion..
b. Lessor may remove broken plywood panels at rear and side of shed
or at Lessor's discretion, may install new plywood as needed. Lessee
will not use shed for their business except to store items that could
be outside anyway.
c. Contractor fees, architectural fees, permits, miscellaneous
expenses and contingencies, etc.
d. In the event these lessee improvement costs come in over the
$15,000.00 contribution by Lessor, Lessee shall submit a check to
Lessor for the overage in costs immediately upon request from Lessor.
Lessor shall supply Lessee with copies of invoices for any overage in
costs, if any.
e. In the event these lessee improvement costs come in under the (up to)
$15,000.00 contribution by Lessor, Lessor shall be entitled to keep any
cost savings.
56. STACKING HEIGHT:
Burke Industries represents to the Landlord that they have received
appropriate approval from the Santa Fe Springs Fire Department enabling them
to stack no higher than fourteen (14) feet, eleven (11) inches (14'11") for
the type of products they propose to store in the subject warehouse. Under
no circumstances will Lessee stack beyond 14'11". In addition,
<PAGE>
ADDENDUM - 13615 EXCELSIOR DRIVE
SANTA FE SPRINGS
PAGE 3 OF 5
there are numerous adhesives which Lessee will be storing where the height
limit has already been designated at six (6) feet, and Lessee agrees to not
stack said adhesives or other products that the fire department designates
higher than this six (6) foot limit.
57. OPTION TO EXTEND
Lessor hereby grants to Lessee the option to extend the term of this Lease
for one (1) additional sixty (60) month period commencing when the prior
term expires upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date
which is prior to the date that the option period would commence (if
exercised) by at least nine (9) and not more than twelve (12) months,
a written notice of the exercise of the option to extend this Lease
for said additional term, time being of essence. If said notification
of the exercise of said option is not so given and received, the
option shall automatically expire;
(ii) The provisions of Paragraph 39, including the provision relating to
default of Lessee set forth in Paragraph 39.4 of this Lease are
conditions of this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows:
On February 1, 2001 the monthly rent payable under Paragraph 1.5
("Base Rent") of the attached Lease shall be adjusted to the "Fair
Market Value" of the property as follows, but in no event shall the
monthly rent be less than $10,796.00.
The baseball arbitration method shall be utilized in the event Lessor and
Lessee are unable to reach agreement after negotiating in good faith for
thirty (30) days following receipt by Lessor of Lessee's notice of election
to exercise the option.
If Lessor and Lessee are unable to agree on the rental rates and
concessions after negotiating in good faith for thirty (30) days following
receipt by Lessor of Lessee's notice of election to exercise the option,
each shall submit their suggested rental rate within not more than ten (10)
days, of the end of the thirty (30) day period specified in the beginning
of this paragraph. Lessor and Lessee shall also, within that same ten (10)
day time period, each appoint one (1) arbitrator who shall by profession be
a real estate broker who has been active in connection with industrial
properties in the Santa Fe Springs area over not less than a five (5) year
period preceding the date of such appointment. The decision of the
arbitrator shall be limited solely to the issue of whether Lessors or
Lessees submitted lease extension rental rate is closer to the actual
proper extension rate as determined by the arbitrators taking into account
the option language above. Each such arbitrator shall be appointed within
thirty (30) days after the applicable outside agreement date.
The two (2) arbitrators so appointed shall within ten (10) days of the date
of the appointment of the last appointed arbitrator agree upon and appoint
a third (3rd) arbitrator who shall be qualified under the same criteria set
forth herein above for qualification of the initial two (2) arbitrators.
The three (3) arbitrators shall within thirty (30) days of the appointment
of the third (3rd) arbitrator reach a decision as to whether the parties
shall use Lessor's or Lessee's submitted extension rent and shall notify
Lessor and Lessee thereof.
The decision of the majority of the three (3) arbitrators shall be binding
upon Lessor and Lessee.
<PAGE>
ADDENDUM - 13615 EXCELSIOR DRIVE
SANTA FE SPRINGS
PAGE 4 OF 5
If either Lessor or Lessee fails to appoint an arbitrator within thirty
(30) days after the applicable outside agreement date, the arbitrator
appointed by one of them shall reach a decision, notify Lessor and Lessee
thereof, and such arbitrator's decision shall be binding upon Lessor and
Lessee.
If the two (2) arbitrators fail to agree upon and appoint a third (3rd)
arbitrator within the time period provided above, then the Lessor and
Lessee shall mutually select the third (3rd) arbitrator. If Lessor and
Lessee are unable to agree upon the third (3rd) arbitrator within ten (10)
days, then either party may, upon at least five (5) days prior written
notice to the other party, request a presiding Judge of the Los Angeles
County Superior Court, acting in his private and non-judicial capacity, to
appoint the third (3rd) arbitrator. Following the appointment of the third
(3rd) arbitrator, the panel of arbitrators shall within thirty (30) days
thereafter reach a decision as to whether Lessor's or Lessee's submitted
Extension Rent shall be used and shall notify Lessor and Lessee thereof.
The cost of the arbitrators and the arbitration proceeding shall be paid by
Lessor and Lessee equally.
Lessee shall have an additional monthly rent increase at the beginning of
the thirty-first (31st) month of this option period of four and one-half
percent (4 1/2%) above the Fair Market Value rental rate that will have
been established for the month of February, 2001.
By way of example only, if the Fair Market Value rental rate for February,
2001 is $11,000.00, the new monthly rent for months 31-60 of this option
period shall be $11,000.00 x 1.045 = $11,495.00.
58. AFFILIATE:
Notwithstanding anything to the contrary set forth in the Lease, Lessee may
assign the Lease at any time, or sublease all or part of the Premises,
without the receipt of Lessor's consent, to (i) an entity which is
controlled by, controls, or is under common control with, Lessee (an
"Affiliate"), or which owns or is owned by an Affiliate, (ii) an entity
with which Lessee merges or consolidates, or (iii) a purchaser of all or
substantially all of Lessee's stock or assets or all of the assets of the
division operating from the Premises, so long as such transaction was not
entered into as a subterfuge to avoid the obligations and restrictions of
the Lease. The term "Control", as used in this addendum paragraph, shall
mean the ownership, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person or entity, whether
through the ownership of voting securities, by contract or otherwise.
59. INDEMNIFICATION:
Lessor and Lessee shall indemnify and hold the other and its Related
Parties (defined below) harmless against and from liability and claims of
any kind for loss or damage to property of the other and/or its Related
Parties, or for any injury to or death of any person, arising out of (i)
any breach or default by the other and/or its Related Parties of any of the
other obligations under this Lease; or (ii) any negligent or otherwise
tortuous act or omission of the other and/or its Related Parties. Lessor
and Lessee shall, at their expense and by counsel reasonably satisfactory
to the other, defend the other in any action or proceeding arising from any
such claim and shall indemnify the other against all costs, attorney's
fees, expert witness fees and any other expenses incurred in such action or
proceeding. The "Related Parties" of an entity or individual (where
appropriate) include, but are not limited to, all past, present and future
employees, officers, directors, shareholders, contractors, subcontractors,
invitees, customers, trust beneficiaries, partners, joint ventures, agents,
successors, assigns, heirs, personal representatives, administrators,
parent entities, subsidiaries and affiliates of that entity or individual
(where appropriate).
60. INSURANCE:
Lessee may carry insurance under a so-called "blanket" policy, provided
that such policy provides that the amount of insurance required thereunder
shall not be prejudiced by their losses covered thereby.
<PAGE>
ADDENDUM - 13615 EXCELSIOR DRIVE
SANTA FE SPRINGS
PAGE 5 OF 5
61. SECURITY:
Lessee shall have the right to install its own security/alarm system
and/or have its own security personnel in the Premises, at Lessee's sole
and absolute discretion and Lessor shall have the option, at the end of
the term, to elect to retain said system or have Lessee remove and
return areas to their original condition. In the event Lessor elects to
retain system, Lessor will be responsible for all future expenses to
keep system operational.
62. ADA:
Lessor shall deliver the Premises to Lessee in compliance with all
governmental laws or regulations in effect as of the Commencement Date
relating to the Americans with Disabilities Act. Thereafter, Lessor
shall perform, at Lessor's sole cost and expense with respect to those
portions of the Premises which Lessor is obligated to maintain and
repair under Paragraph 7.2 of this lease, all requirements in order to
comply with any governmental law or regulation relating to the Americans
with Disabilities Act, including any re-enactment or subsequent
codification, local or otherwise, except those which are caused by
Lessee's specific unique use of the Premises. It is understood and
agreed that the Lessee is responsible for ADA compliance with respect to
those portions of the Premises which Lessee is obligated to maintain and
repair under Paragraph 7.1 of this lease, in addition, if Lessee changes
the use of the building or does alterations that trigger Lessor's
obligations regarding ADA structural requirements (including but not
limited to outside walkways, doors, etc.) then the Lessee shall be
obligated to pay for said structural and outside work as well.
63. Lessee agrees to lock the gate during non business hours in order to keep
the property secure.
LESSOR:
S&M DEVELOPMENT CO., A GENERAL PARTNERSHIP
/s/ John L. Stern 4/1/96
- ---------------------------------- ---------------------------
SIGNATURE DATE
- ---------------------------------- ---------------------------
SIGNATURE DATE
LESSEE:
BURKE INDUSTRIES, INC., A CALIFORNIA CORPORATION
/s/ Rocky Genovese 4/1/96
- --------------------------------- ---------------------------
SIGNATURE DATE
- --------------------------------- ---------------------------
SIGNATURE DATE
<PAGE>
EXHIBIT "A"
(GRAPHIC OF FLOORPLAN)
EXCELSIOR DRIVE
THE Contact Exclusive Agent:
SEELEY Stephen C. Calhous, SIOR
COMPANY (213) 726-1200 - FAX (213) 726-1942
COMMERCIAL REAL ESTATE SINE 1908 5801 East Slauson Avenue, Suite 160,
Commerce, California 90040
The information contained is from sources we believe to be reliable but, we
do not guarantee its accuracy. All measurements & dimensions are
approximations and clients are encouraged to verify their accuracy.
<PAGE>
EXHIBIT "B"
PAGE 1 of 3
(COPY OF CITY OF SANTA FE SPRINGS BUILDING PERMIT)
<PAGE>
EXHIBIT "B"
PAGE 2 of 3
(COPY OF CITY OF SANTA FE SPRINGS BUILDING PERMIT)
<PAGE>
EXHIBIT "B"
PAGE 3 of 3
(COPIES OF INSPECTION RECORDS)
<PAGE>
EXHIBIT 10.17
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, June
6, 1995 is made by and between Stephen S. Gray, the duly-appointed Chapter 11
Trustee of the estate of Haskon Corporation, a Delaware corporation
("Lessor") and Burke Industries, Inc., a California corporation ("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 336 Weir Street, Taunton located in
the County of Bristol, State of Massachusetts and more particularly depicted
on Exhibit "A" attached hereto ("Premises"). (See Paragraph 2 for further
provisions.)
1.3 TERM: one (1) years and -0- months ("Original Term") commencing June 6,
1995 ("Commencement Date") and ending June 5, 1996 ("Expiration Date") (See
Paragraph 3 for further provisions.)
1.5 BASE RENT: $8,500.00 per month ("Base Rent"), payable on the first
(1st) day of each month commencing July 1, 1995 (See Paragraph 4 for further
provisions.)
1.6 BASE RENT PAID UPON EXECUTION: $7,083.33 as Base Rent for the period
from June 6, 1995 through and including June 30, 1995.
1.8 PERMITTED USE: For the purpose of manufacture, sale and distribution
of silicone fabricated products and any other related, reasonably consistent,
or ancillary uses together with any use of the Premises consistent with the
uses of the Premises during the previous 24 months and for no other purpose.
(See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs ______ through ______ and Exhibits ________________________________
all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that
may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less. The
Premises shall be delivered in "as-is" condition without representation or
warranty but subject to each parties' rights and remedies with respect to
repair and maintenance of the Premises.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
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4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent
and other charges shall be made to Lessor at its address stated herein or to
such other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee. Lessee shall be responsible for the payment
of all utilities furnished to Premises.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8 or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises
in a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any
written request by Lessee or an Affiliate for a modification of said
permitted purpose for which the premises may be used or occupied, so long as
the same will not impair the structural integrity of the improvements on the
Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is
otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about
the Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but in compliance with all Applicable Law, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of Lessee's business permitted on the Premises, so long as such use is
not a Reportable Use and does not expose the Premises or neighboring
properties to any risk of contamination or damage or expose Lessor to any
liability therefor. In addition, Lessor may (but without any obligation to do
so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such
additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or
therefor, including, but not limited to, the installation (and removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements)
and/or the deposit of Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously disclosed to Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in,
on, or about the Premises, including but not limited to all such documents as
may be involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgements, costs, claims, liens, expenses, penalties, permits
and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the premises by or for
Lessee or Lessee's Affiliates. Lessee's obligations under this Paragraph 6
shall include, but not be limited to remediation, curing and indemnifying
Lessor for the effects of any contamination or injury to person, property or
the environment created, generated, released or disposed of by Lessee, its
agents, employees, contractors, licensees or invitees (collectively,
"Lessee's Affiliates"), and the cost of investigation (including consultant's
and attorney's fees and testing), removal, remediation, restoration and/or
abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to
Hazardous Substances or storage tanks, unless specifically so agreed by
Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "Applicable Law," which term is used
in this Lease to include all laws, rules, regulations, ordinances,
directives, covenants, easements and restrictions of record, permits, the
requirements of any applicable fire insurance underwriter or rating bureau.
Lessee shall, within five (5) days after receipt of Lessor's written request,
provide Lessor with copies of all documents and information, including, but
not limited to, permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Law
specified by Lessor relating to Lessee's specific use of the Premises and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or
the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise during reasonable times upon 48 hours
prior written notice, for the purpose of inspecting the condition of the
Premises and for verifying compliance by Lessee with this Lease and all
Applicable Laws (as defined in Paragraph 6.3) relating to Lessee's specific
use of the Premises and to employ experts and/or consultants in connection
therewith and/or to advise Lessor with respect to Lessee's activities,
including but not limited to the installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Substance or storage tank on or from
the Premises. The costs and expenses of any such inspections shall be paid by
the Lessor, unless a Default or Breach of this Lease, violation of Applicable
Law relating to Lessee's specific use of the Premises or a contamination,
caused or materially contributed to by Lessee relating to Lessee's specific
use of the Premises is found to exist or be imminent in which event Lessee shall
be responsible for said costs and expenses.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. See Addendum Paragraph 3.
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7.2 LESSOR'S OBLIGATIONS. See Addendum Paragraph 3.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises.
The term "Trade Fixtures" shall mean Lessee's machinery and equipment that
can be removed without doing material damage to the Premises. The term
"Alterations" shall mean any modification of the improvements on the premises
from that which are provided by Lessor under the terms of this Lease, other
than Utility Installations or Trade Fixtures, whether by addition or
deletion. "Lessee Owned Alterations and/or Utility Installations" are defined
as Alterations and/or Utility Installations made by lessee. Lessee shall not
make any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent, Lessee may, however, make
non-structural Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the outside, do
not involve puncturing, relocating or removing the roof or any existing
walls, and the cumulative cost thereof during the term of this Lease as
extended does not exceed $25,000.
(b) CONSENT. Lessor may withhold consent in its absolute discretion if
any Alteration or Utility Installation affects the structure or base building
systems or will impair the integrity or value of the Building. Any
Alterations or Utility Installations that Lessee shall desire to make and
which require the consent of the Lessor shall be presented to Lessor in
written form with proposed detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies
of such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the
work thereon, and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a
good and workmanlike manner, with good and sufficient materials, and in
compliance with all Applicable Law. Lessee shall promptly upon completion
thereof furnish as-built plans and specifications for Alterations or Utility
Installations exceeding $10,000.00.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at
or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorney's fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall
immediately after installation be the property of and owned by Lessor, but
considered a part of the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed
by the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof in as good a condition and
state of repair, as on the Commencement Date, in broom-clean condition
including without limited (illegible), ordinary wear and tear and Lessor
obligated repairs excepted, subject to Addendum Paragraph 3. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations and Alterations. Lessee's Trade Fixtures
shall remain the property of Lessee and shall be removed by Lessee subject to
its obligation to repair and restore the Premises per this Lease. Lessee
shall repair any damage caused by the removal of Lessee's Trade Fixtures,
furnishings and equipment except to the extent such damage resulted by
virtue of such removal rather than the negligence or wilful misconduct of
Lessee or Lessee's Affiliates. So long as Lessee provides Lessor with the
right to supervise the removal of items which may damage Premises by virtue
of such removal. Lessee agrees to deliver to Lessor a list of items which
are located in the Premises that Lessee elects to have excluded from items
owned by Lessee within thirty (30) days from the date hereof (provided that
Lessor may preclude Lessee from including on said list any items used by
Lessee upon notice specifying items to Lessee) and Lessor, subject to Section
32 below, shall have the right to remove and/or sell such items at any time
during the Term including sales of such items directly from the Premises
prior to removal.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor and bankruptcy trustee (as an additional
insured) against claims for bodily injury, personal injury and property
damage based upon, involving or arising out of the ownership, use, occupancy
or maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage in
an amount not less than $1,000,000 per occurrence with an "Additional
Insured-Managers or Lessors of Premises" Endorsement and contain the
"Amendment of the Pollution Exclusion" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee
of any obligation hereunder. All insurance to be carried by Lessee shall be
primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
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8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party at its sole cost and
expense shall obtain and keep in force during the term of this Lease a policy
or policies in the name of Lessor, with loss payable to Lessor and to the
holders of any mortgages, deeds of trust or ground leases on the Premises
("Lender(s)"), insuring loss or damage to the Premises. The amount of such
insurance shall be equal to $1,000,000.00. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender). Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause and
waiver of subrogation.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's
option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to
that carried by the Insuring Party under Paragraph 8.3. Such insurance shall
be full replacement cost coverage with a deductible of not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee
for the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party
with respect to the insurance required by this Paragraph 8.4 and shall
provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender having a lien on the Premises, as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in this
Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be
delivered to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with the
insureds and loss payable clauses as required by this Lease. No such policy
shall be cancellable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with evidence of renewals
or "insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to
procure and maintain the insurance required to be carried by the Insuring
Party under this Paragraph 8, the other Party may, but shall not be required
to, procure end maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the
other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured
against under Paragraph 8. The effect of such releases and waivers of the
right to recover damages shall be limited to the extent of insurance proceeds
actually received.
8.7 INDEMNITY. Except for Lessor's negligence, Lessee shall indemnify,
protect, defend and hold harmless the Premises, Lessor and its agents,
Lessor's master or ground lessor, partners and Lenders, from and against any
and all claims, loss of rents and/or damages, costs, liens, judgments,
penalties, permits, attorney's and consultant's fees, expenses and/or
liabilities arising out of, involving, or in dealing with, the occupancy of
the Premises by Lessee, the conduct of Lessee's business, any act, omission
or neglect of Lessee, its agents, contractors, employees or invitees, and out
of any Default or Breach by Lessee in the performance in a timely manner of
any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in
the case of claims made against Lessor) litigated and/or reduced to judgment,
and whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for gross negligence or
wilful misconduct of Lessor and then only to the extent not covered by
insurance proceeds (or the amount which would have been covered had Lessee
complied with its insurance obligations), Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1
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9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage to the Premises, whether or not Lessor or
Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes,
insurance premiums, and other charges, if any, payable by Lessee hereunder
for the period during which such damage, its repair or the restoration
continues, shall be abated in proportion to the degree to which Lessee's use
of the Premises is impaired. Except for abatement of Base Rent, Real Property
Taxes, insurance premiums, and other charges, if any, as aforesaid, all other
obligations of Lessee hereunder shall be performed by Lessee, and Lessee
shall have no claim against Lessor for any damage suffered by reason of any
such repair or restoration.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit, if any, as has not been, or is not then required to be, used by
Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Lessor shall not be deemed to be in default hereunder for failure to
pay Real Property Taxes unless Lessee is evicted or threatened with eviction
from the Premises as a result of the failure to pay Real Property Taxes.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but
not limited to a change in the ownership of the Premises or in the
improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
10.3 JOINT ASSESSMENT.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations. Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause its Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor. If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property or, at Lessor's option, as
provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
reasonably determined by Lessor, of all charges jointly metered with other
premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent, which may be withheld
in Lessor's sole and absolute discretion. See Addendum Paragraph 8.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this
Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors
or any one else responsible for the performance of the Lessee's obligations
under this Lease, including the sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefor to Lessor,
or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $750.00, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may
be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for
the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed
or performed by Lessee during the term of said assignment or sublease, other
than such obligations as are contrary to or inconsistent with provisions of
an assignment or sublease to which Lessor has specifically consented in
writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all Subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not,
by reason of this or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to
the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance of
Lessee's obligations under this Lease, to pay to Lessor the rents and other
charges due and to become due under the sublease. Sublessee shall rely upon
any such statement and request from Lessor and shall pay such rents and other
charges to Lessor without any obligation or right to inquire as to whether
such Breach exists and notwithstanding any notice from or claim from Lessee
to the contrary. Lessee shall have no right or claim against said sublessee,
or, until the Breach has been cured, against Lessor, for any such rents and
other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent, which may be withheld in
Lessor's sole discretion.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "Default" is defined as failure by the Lessee to
observe, comply with or perform any of the terms, covenants, conditions or
rules applicable to Lessee under this Lease. A "Breach"
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is defined as the occurrence of any one or more of the following Defaults,
and, where a grace period for cure after notice is specified herein, the
failure by lessee to cure such Default prior to the expiration of the
applicable grace period, shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a)
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary
payment required to be made by Lessee hereunder, whether to Lessor or to a
third party within five (5) business days following written notice that such
amount is due, provided that Lessee shall be entitled to only two (2) notices
during the Term for a Base Rent payment default, it being understood that if
2 notices for a Base Rent payment default have been sent to Lessee hereunder,
any subsequent failure to pay Base Rent when due shall constitute a default
and Lessee shall not be entitled to a notice or grace period. The failure by
Lessee to provide Lessor with reasonable evidence of insurance or surety bond
required under this Lease, or the failure of Lessee to fulfill any obligation
under this Lease which endangers or threatens life or property, where such
failure continues for a period of three (3) days following written notice
thereof by or on behalf of Lessor to Lessee.
(c)
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
those described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this
Lease by Lessee if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment
of a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a guarantor becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its
option (but without obligation to do so), perform such duty or obligation on
Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach
of this Lease by Lessee, as defined in Paragraph 13.1, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover from Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank
of Boston at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination
of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the
unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b) or (d). In such case, the applicable
grace period under subparagraphs 13.1(b) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice,
and the failure of Lessee to cure the Default within the greater of the two
such grace periods shall constitute both an unlawful detainer and a Breach of
this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
after Lessee's Breach and abandonment and recover the rent as it becomes due,
Lessee and Lessor agree are reasonable. Acts of maintenance or preservation,
efforts to relet the Premises, or the appointment of a receiver to protect
the Lessor's interest under the Lease, shall not constitute a termination of
the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground Lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
business days after such amount shall be due, then, without any requirement
for notice to Lessee, Lessee shall pay to Lessor a late charge equal to five
percent (5%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent Lessor from exercising any
of the other rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or
any other provision of this Lease to the contrary, Base Rent shall, at
Lessor's option, become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall
not be in breach of this Lease if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "Condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes
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title or possession, whichever first occurs. If more than ten percent (10%)
of the floor area of the Premises, or more than twenty-five percent (25%) of
the land area, is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority
takes such possession if Lessee's operation will be adversely affected. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the same proportion
as the rentable floor area of the Premises taken bears to the total rentable
floor area of the building located on the Premises. No reduction of Base Rent
shall occur if the only portion of the Premises taken is land on which there
is no building. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that
Lessee shall be entitled to any compensation separately awarded to Lessee for
Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the
event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of its net severance damages received, over and
above the legal and other expenses incurred by Lessor in the condemnation
matter, repair any damage to the Premises caused by such condemnation, except
to the extent that Lessee has been reimbursed therefor by the condemning
authority provided that if the repairs would take in excess of 2 months to
reasonably complete three (3) months of the Term or if the failure to repair
shall not adversely affect the Lessee's use of the Premises, Lessor shall not
be obligated to repair or restore. Lessee shall be responsible for the
payment of any amount in excess of such net severance damages required to
complete such repair.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder in connection
with the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity is
entitled to any commission or finder's fee in connection with said
transaction. Lessee and Lessor do each hereby agree to indemnify, protect,
defend and hold the other harmless from and against liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
Party, including any costs, expenses, attorneys' fees reasonably incurred with
respect thereto.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form and substance typically used in the Commonwealth of Massachusetts, plus
such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial statements
of Lessee and such Guarantors as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. Except as
provided in Paragraph 15, the prior Lessor shall be relieved of all liability
with respect to the obligations and/or covenants under this Lease thereafter
to be performed by Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only
upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
tenth (10th) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS. This Lease contains all agreements between
the Parties with respect to any matter mentioned herein, and no other prior
or contemporaneous agreement or understanding shall be effective. Lessor and
Lessee each represents and warrants to the other that it has made, and is
relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and
as to the nature, quality and character of the Premises.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service)
or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail or Federal Express, with postage prepaid, or by
facsimile transmission, and shall be deemed sufficiently given if served in a
manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier. If
any notice is transmitted by facsimile transmission or similar means, the
same shall be deemed served or delivered upon telephone confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Sunday or legal holiday, it
shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted, except as
otherwise set forth herein. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or conditions made by Lessee in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor
at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event Lessee holds over, Lessee shall be deemed a tenant
at sufferance, only subject to all of Lessee's obligations set forth herein,
provided that Lessee shall pay Base Rent for such holdover period at 150% of
Base Rent payable hereunder. In addition, Lessee shall be liable for all
damages (including consequential) as a result of holding over.
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "Security Device"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
and allow such Lender thirty (30) days following receipt of such notice for
the commencement of cure of said default and such additional time as is
reasonably necessary to cure such default provided Lender is diligently
prosecuting such cure to completion if such default is susceptible to cure
before invoking any remedies Lessee may have to terminate the Lease. If any
Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets
or defenses which Lessee might have against any prior lessor, or (iii) be
bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessor shall use reasonable efforts
to obtain a assurance (a "non-disturbance agreement") from the Lender that
Lessee's possession and this Lease, will not be disturbed so long as Lessee
is not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection
with a sale, financing or refinancing of the Premises, Lessee and Lessor
shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party brings an action or proceeding to enforce
the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party of its claim or
defense. The attorney's fees award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices
of Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise during reasonable times following 48 hours prior
notice for the purpose of showing the same to prospective purchasers,
lenders, or lessees, and making such alterations, repairs, improvements or
additions including any environmental remediation (subject to Addendum
Paragraph 1) to the Premises or to the building of which they are a part, as
Lessor may reasonably deem necessary. Lessor may at any time place on or
about the Premises or building any ordinary "For Sale" signs and Lessor may
at any time during the last one hundred twenty (120) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the
roof) such signs as are reasonably required to advertise Lessee's own
business provided the same comply with Applicable Law. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures
and Alterations).
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act
by or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of
a Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor.
Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money reasonably calculated by Lessor
to represent the cost Lessor will incur in considering and responding to
Lessee's request. Except as otherwise provided, any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to any
act, assignment of this Lease or subletting of the Premises by Lessee shall
not constitute an acknowledgement that no Default or Breach by Lessee of this
Lease exists, nor shall such consent be deemed a waiver of any then existing
Default or Breach, except as may be otherwise specifically stated in writing
by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
without hindrance/molestation of Lessor or anyone claiming by or through
Lessor, Lessee shall have quiet possession of the Premises for the entire
term hereof subject to all of the provisions of this Lease.
None.
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<PAGE>
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
all reasonable rules and regulations which Lessor may make from time to time
for the management, safety, care, and cleanliness of the grounds, the parking
and unloading of vehicles and the preservation of good order, as well as for
the convenience of other occupants or tenants of such other buildings and
their invitees, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR ITS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
ABOVE TO THEIR RESPECTIVE SIGNATURES.
Executed at Boston, Massachusetts Executed at Boston, Massachusetts
--------------------------- --------------------------
on June 5, 1995 on June 5, 1995
------------------------------------ -----------------------------------
by LESSOR: Stephen S. Gray, the by LESSEE: BURKE INDUSTRIES, INC., a
duly-appointed Chapter 11 California corporation
Trustee of the estate of
HASKON CORPORATION, a
Delaware corporation
By /s/ Stephen S. Gray By /s/ Daniel P. Flamen
------------------------------------- -----------------------------------
Name Printed: Stephen S. Gray Name Printed: Daniel P. Flamen
-------------------------- ------------------------
Title: as above Title: DIRECTOR
--------------------------------- -------------------------------
By By
------------------------------------- -----------------------------------
Name Printed: Name Printed:
-------------------------- ------------------------
Title: Title:
--------------------------------- -------------------------------
Address: c/o The Recovery Group Address: ATT: ROCKY GENOVESE,
270 Atlantic Ave., Boston, MA BURKE INDUSTRIES
2250 SOUTH TENTH ST.,
SAN JOSE, CA 95112
Tel. No. (617) 482-4242 Tel. No. (408) 297-3500
Fax No. (617) 482-9804 Fax No. (408) 995-5163
PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association,
345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071.
(213) 687-8777. Fax. No. (213) 687-8616.
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE-NET
This Addendum is made and entered into by and among BURKE INDUSTRIES,
INC. ("Lessee"), and STEPHEN S. GRAY, THE DULY-APPOINTED CHAPTER 11 TRUSTEE
OF THE ESTATE OF HASKON CORPORATION, a Delaware corporation ("Lessor"), and
is dated as of the date set forth on page 1 of the Standard
Industrial/Commercial Single-Tenant Lease-Net between Lessor and Lessee to
which this Addendum is attached ("Lease").
The promises, covenants, agreements and declarations made and set forth
herein are intended to and shall have the same force and effect as if set
forth at length in the body of the Lease. To the extent that the provisions
of this Addendum are inconsistent with the terms and conditions of the Lease,
the terms hereof shall control.
1. HAZARDOUS SUBSTANCES. Lessor hereby agrees that Lessee shall not be
liable for any and all claims, lawsuits, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial action requirements and enforcement actions of any kind,
and all costs and expenses incurred in connection therewith, arising out of
(i) the presence of any "Hazardous Substances," as that term is defined in
the Lease, on or under the Premises as of the Commencement Date, or any
releases or discharges of any Hazardous Substances on, under or from the
Premises as of the Commencement Date, and (ii) any activity carried on or
undertaken on or off the Premises in connection with the handling, treatment,
removal, storage, decontamination, clean-up, transport or disposal of any
Hazardous Substances located on or under the Premises occurring or existing
prior to the date Lessee takes possession of the Premises and Lessor agrees
that Lessee shall be entitled to offset reasonable costs and expenses
actually paid by Lessee as a result of any local, state or federal court or
agency orders or notices requiring investigatory or remediation action issued
to Lessee relating to items (i) or (ii) above against amounts owing under
that certain Promissory Note made by Lessee of even date herewith (the
"Note"); provided, however, Lessee agrees to cooperate with Lessor to the
extent reasonably possible to allow Lessor to determine what response to a
claim or potential claim against Lessee in connection with any Hazardous
Substances on, under or from the Premises as of the Commencement Date is in
the best interest of Lessor and so long as Lessee's potential liability does
not exceed the amount of the Note, Lessee shall only act with respect to such
a claim if Lessee believes such action is then necessary. Notwithstanding
anything to the contrary contained herein, in the event that at such time as
the Note becomes due and payable, Lessee has received written notification or
an order of a required investigation or remediation action or has became
aware that there exists a claim or potential claim and has provided written
notice thereof to Lessor together with information substantiating the
Lessee's belief of the claim or potential claim in connection with any
Hazardous Substances on, under or from the Premises as of the Commencement
Date but Lessee has not yet actually incurred all of the expenses which
Lessee reasonably believes Lessee may incur in connection therewith, the
portion of the payment on the Note equal to the amount claimed in dispute by
Lessor or Lessee under this Paragraph 1 shall be placed in a mutually
agreeable escrow pending the resolution of the claim; provided, however, if
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Lessor and Lessee are unable to agree upon the amount of the expenses related to
such remediation or investigatory action, Lessor and Lessee shall submit such
dispute to the United States Bankruptcy Court for the District of Massachusetts
(Eastern District)(the "Court"), and the Court shall determine the reasonable
amount which should be placed in the mutually agreeable escrow pending the
satisfaction of the claim or potential claim and a reasonable disbursement
procedure. In addition, Lessor consents to any Reportable Use by Lessee if such
Reportable Use is substantially similar to any use of the Premises by Lessor
prior to the Commencement Date provided the same complies with all Applicable
Laws, rules and regulations. Notwithstanding anything to the contrary set forth
in this Lease, the provisions of this Section 1 shall survive the expiration or
earlier termination of this Lease. In addition, and without limiting the
generality of the foregoing, Lessee, for itself and its successors and assigns,
agrees to give and afford to Dunlop-Haskon, Inc. ("Dunlop-Haskon") and its
designees, including, without limitation, Franklin Environmental Services, Inc.
and ENSR Consulting and Engineering, such commercially reasonable cooperation
and access to the Premises, from time to time, upon forty-eight (48) hours
advance written notice as Dunlop-Haskon shall, acting reasonably and in good
faith, determine to be necessary or appropriate to permit Dunlop-Haskon and its
designees to timely complete environmental remediation efforts at the Premises
in accordance with the requirements of the Massachusetts Contingency Plan, 31
CMR 40.00 ET SEQ. and Applicable Laws, provided that (a) in conducting any such
remediation efforts, Dunlop-Haskon and its designees shall use reasonable good
faith efforts to minimize interference with Lessee's business operations and (b)
insofar as any such remediation efforts may result in any such interference,
Dunlop-Haskon shall consult with Lessee in advance in an effort to minimize and
coordinate such interference and to identify appropriate precautions to be taken
in connection therewith. Any required precautions and other costs and expenses
reasonably undertaken or incurred by Lessee in connection with such remediation
efforts with the prior approval of Dunlop-Haskon (which shall not be
unreasonably withheld or delayed) shall be at Dunlop-Haskon's sole cost and
expense. Lessor and Lessee acknowledge and agree that either or both of Lessor
and Dunlop-Haskon may obtain specific performance of Lessee's agreement to
cooperate with and give access to Dunlop-Haskon and its designees and Lessor
agrees that Lessee may seek preliminary and/or permanent injunctive relief in
the event Lessor or Dunlop-Haskon or its designees are not strictly complying
with the terms and provisions of clauses (a) and (b) of the sentence immediately
preceding the immediately preceding sentence.
2. DAMAGE AND DESTRUCTION. Notwithstanding anything to the contrary
contained in the Lease, in the event the Premises are damaged or destroyed by
casualty, and the time required to repair such damage exceeds two (2) months
or if such damage does not materially adversely affect Lessee's operations
from the Premises or if Lessee has discontinued operations from the Premises
or if insurance required to be carried under this Lease are insufficient to
complete a reasonable workable restoration of the Premises or if the casualty
occurs within the last three (3) months of the Term, Lessor shall have no
obligation to repair the Premises or such portion of the Premises as will not
materially adversely affect Lessee's operations from the Premises, as the
case may be. In the event the Premises are damaged or destroyed and such
damage will take in excess of two (2) months to repair or if such damage
materially adversely affects Lessee's operations from the Premises, Lessee
may terminate the Lease by written notice delivered to Lessor within thirty
(30) days from the date of such casualty and such termination shall be
effective upon the
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date of delivery of the written notice to Lessor. In the event the Lessee
does not elect to terminate the Lease, and if Lessor is obligated to repair
the damage pursuant to this Paragraph 2, Lessor shall use reasonable
diligence to reconstruct the Premises as soon thereafter as possible to the
extent of insurance required to be carried under this Lease.
3. LESSEE RIGHT TO REPAIR. Notwithstanding anything to the contrary
provided herein, in the event that (i) Lessee provides written notice (or
oral notice in the event of an emergency followed by written notice as soon
thereafter as possible) to Lessor of the need for Lessor to perform its
repair obligations set forth in this Lease, and (ii) Lessor fails to respond
to such notice (either in the form of commencing the requested action or
notifying Lessee in writing that such action is not required by Lessor under
the Lease) within a reasonable period of time given the circumstances after
receipt of the notice, but in any event no later than fifteen (15) days after
receipt of such notice, and further provided that Lessee is operating from
the Premises and further provided that such repair, if not made, will
materially adversely affect Lessee's operations from the Premises, then
Lessee may proceed to perform Lessor's obligation upon delivery of an
additional notice to Lessor specifying that Lessee is taking such action.
Provided that Lessor designates a contractor to perform such repairs
within such fifteen (15) day period, Lessee shall use the contractor
designated by Lessor for such repairs and Lessee thereafter shall be entitled
to offset such actual unrelated third party costs and expenses incurred by
Lessee in connection with the performance of Lessor's obligation against
amounts owing under the Note. In the event Lessor fails to designate a
contractor to perform such repairs and does not notify Lessee in writing that
such action is not required by Lessor under the Lease, within the fifteen
(15) day period, Lessee shall be entitled to use such reputable contractor as
Lessee determines and Lessee thereafter shall be entitled to offset such
reasonable actual costs and expenses incurred by Lessee for work done by
unrelated third parties in connection with the performance of Lessor's
obligation against amounts owing under the Note. Notwithstanding anything to
the contrary contained herein, Lessee shall not be entitled to offset against
amounts owing under the Note any amounts incurred by Lessee in connection
with the performance of Lessor's repair obligations under this Lease in
excess of $100,000.00; provided, however, in the event Lessee has incurred
costs with respect to Lessor's repair obligations in excess of $100,000.00 or
if Lessor fails to complete any of Lessor's repair obligations and the
cumulative total of the costs incurred by Lessee with respect to Lessor's
repair obligations plus the cost to complete all other of Lessor's then
reasonably identifiable and quantifiable repair obligations under this Lease
is in excess of $100,000.00, Lessee may elect, in Lessee's sole discretion,
to perform any such repairs at Lessee's expense and/or to terminate this
Lease upon the delivery of written notice to Lessor.
Notwithstanding the foregoing, in the event of a dispute between the
parties with respect to the responsibility, necessity or scope of such
repair, Lessee shall not be entitled to offset the portion of the costs and
expenses thereof in dispute against amounts owing under the Note until and
unless the matter has been resolved by arbitration in favor of Lessee but
Lessee shall nevertheless be entitled to make such repairs as Lessee deems
necessary for Lessee's use of the Premises.
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Except in connection with the non-payment of Base Rent by Lessee
without a claim of set-off or abatement provided for herein, in the event of
an unresolved dispute between Lessor and Lessee regarding the performance by
either party of an obligation or condition of this Lease, the non-performance
of which constitutes a default under this Lease, the matter shall be referred
to an arbitrator for final binding determination in accordance with the rules
of the American Arbitration Association or any successor thereto. Pending
submission of the matter to arbitration and the arbitrator's final
determination, no default shall be deemed to have occurred, and any time
limit relative to such default shall commence from the date of the final
determination of the arbitrator. This provision shall not, however, prevent
either party from seeking preliminary injunctive relief pending the outcome
of such arbitration. Notwithstanding anything to the contrary contained
herein or in the Note, in the event the Note becomes due and payable and a
dispute has been submitted to arbitration by Lessor or Lessee pursuant to
this Paragraph 3 which has not yet been fully adjudicated, that portion of
the payment on the Note equal to the amount claimed in dispute by Lessor or
Lessee shall be placed in a mutually agreeable escrow pending the resolution
of the arbitration proceeding and shall thereafter be disbursed pursuant to
the arbitrator's shall instructions.
4. NON-DISTURBANCE AGREEMENTS. Lessor agrees to use reasonable efforts
to obtain non-disturbance agreements, in the form of Exhibit "B" attached to
the Lease (the "Non-Disturbance Agreements"), in favor of Lessee from any
ground lessors, mortgage holders or lienholders then in existence. Said
Non-Disturbance Agreements be in recordable form and may be recorded at
Lessee's election and expense. In the event Lessor fails to provide the
Non-Disturbance Agreements to Lessee and Lessee is evicted or threatened with
eviction (and if, at such time, Lessee is still operating from the Premises)
as a result of the failure to provide such Non-Disturbance Agreements, Lessee
shall be entitled to offset reasonable costs and expenses suffered as a
result therefrom against amounts owing under that certain Promissory Note
made by Lessee dated of even date herewith. In addition, Lessor also agrees
to use reasonable efforts to provide Lessee with commercially reasonable
non-disturbance agreement(s) in favor of Lessee from any ground lessors,
mortgage holders or lienholders of Lessor who later come into existence at
any time prior to the expiration of the Term of this Lease in consideration
of, and as a condition precedent to, Lessee's agreement to be bound by
Section 30 of this Lease.
5. REPAIR AND MAINTENANCE. Subject to the provisions of Sections 9
(Damage and Destruction) and 14 (Condemnation) and Paragraph 2 of this
Addendum, Lessee shall, at Lessee's sole cost and expense and at all times,
maintain and repair.the non-structural Premises and every part thereof,
including without limitation, all equipment or facilities serving the
Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinklers, fixtures, walls (interior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about or
adjacent to the Premises (whether or not such portion of the Premises
requiring repairs or the means of repairing the same, are reasonably
accessible to Lessee) but only to the extent the repairs and/or maintenance
are required by Lessee for Lessee's or Lessee's Affiliates' use of the
Premises; provided, however, in the event any single repair (and not ordinary
maintenance) costs in excess of $3,000.00, the portion of such repair in
excess of $3,000.00 shall be Lessor's responsibility at Lessor's sole cost
and expense; provided,
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further, however, in the event the cumulative cost incurred by Lessee of
individual repairs which cost in excess of $2,000.00 ("Over $2,000.00
Repairs") exceeds $20,000.00, the Lessor shall be responsible for the portion
of the aggregate of the Over $2,000.00 Repairs which exceeds $20,000.00, at
Lessor's sole cost and expense. Notwithstanding anything to the contrary, in
no event shall Lessor be obligated to make any repair unless Lessee is
operating from the Premises, in no event shall Lessor be obligated to make
any repair unless the Lessor's failure to make such of repair will materially
adversely affect Lessee's operations from the Premises and in no event shall
Lessor be obligated to make any non-structural repairs that are necessitated
as the result of the acts of Lessee or Lessee's Affiliates (other than as a
result of normal wear and tear). Lessee shall not cause or permit Lessee's
Affiliates to cause any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all investigatory
and/or remedial action reasonably recommended, whether or not formally
ordered or required, for the clean-up of any contamination of, and for the
maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee or Lessee's Affiliates, or pertaining to or
involving any Hazardous Substance and/or storage tank brought on to the
Premises by or for Lessee or Lessee's Affiliates. Notwithstanding anything to
the contrary contained herein, in the event any repairs or maintenance are
necessitated to the structure, roof or the exterior walls of the Premises,
such shall be repaired and maintained by Lessor at Lessor's sole cost and
expense. Notwithstanding the foregoing, Lessee shall be required to (i)
repair any and all non-structural portions of the Premises where such repairs
are necessitated due to the acts of Lessee and Lessee's Affiliates (other
than as a result of normal wear and tear and only to the extent not covered
by insurance carried by Lessor) and (ii) perform all routine and ordinary
maintenance required by Lessee for Lessee's and Lessee's Affiliates' use of
the Premises irrespective of the financial caps contained herein.
6. EXEMPTION OF LESSOR FROM LIABILITY. The obligations of Lessor
specifically set forth in this Lease do not constitute personal obligations
of the Lessor, its partners, directors, officers, shareholders, trustees, or
bankruptcy trustee(s), and Lessee shall not seek recourse against the Lessor
or said partners, directors, officers, shareholders, trustees, or bankruptcy
trustee(s) or any of their personal assets for satisfaction of any liability
in respect to this Lease except as set forth below. Lessee agrees for itself
and each succeeding holder of Lessee's interest, or any portion thereof, that
any judgment, decree or award obtained against Lessor or any succeeding owner
of Lessor's interest, which is related to this Lease or the Premises, whether
at law or in equity, shall be satisfied only out of Lessor's bankrupt estate,
so long as the bankrupt estate of the Lessor which executed this Lease is
still the Lessor under this Lease, and Lessee further agrees to look only to
such assets and to no other assets of Lessor for satisfaction and, if the
bankrupt estate of the Lessor which executed this Lease is not still the
Lessor under this Lease, and Lessee has claims against the successor Lessor,
Lessee shall look only to the succeeding Lessor's interest in the Premises
and to no other assets of the succeeding Lessor for satisfaction.
7. WAIVER OF JURY TRIAL. LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY
AND ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES
HERETO AGAINST THE OTHER, OR IN RESPECT OF ANY MATTER
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WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE.
8. ASSIGNMENT AND SUBLETTING. Notwithstanding anything to the contrary
contained in this Lease, an assignment or subletting of all or a portion of
the Premises to an affiliate of Lessee (an entity which is controlled by,
controls, or is under common control with, Lessee), including any entity that
merges with Lessee (an "Affiliate") shall not require the prior consent of
Lessor (but shall require prior written notice to Lessor) provided that such
assignment or sublease is not a subterfuge by Lessee to avoid its obligations
under this Lease and provided further that such Affiliate shall assume in
writing all of Lessee's obligations hereunder. "Control," as used in this
Paragraph 8, shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person or
entity, whether through the ownership of voting securities, by contract or
otherwise. Notwithstanding any such assignment or sublease, Lessee shall not
be released from any liability hereunder, or from the performance by such
assignee or sublessee of all obligations imposed upon Lessee hereunder.
9. COUNTERPARTS. This Lease may be executed in any number of original
counterparts. Each fully executed counterpart shall be deemed an original.
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EXHIBIT "A"
PREMISES DEPICTION
SCHEDULE A*
The land along with all the buildings thereon situated in the City of
Taunton, County of Bristol, Commonwealth of Massachusetts, more particularly
bounded and described as follows:
PARCEL I: Beginning at Weir Street at the southwesterly corner of land of the
heirs of Terrace Curran; thence by said Curran heirs land North 86 DEG. 30
minutes East 168.09 feet to land of the NY, NH & H RR Co.; thence
southeasterly by said railroad company land 210.25 feet to Parcel II below;
thence westerly by said Parcel II 264.50 feet to Weir Street; thence
northerly by Weir Street 115.00 feet to the point of beginning, or however
otherwise bounded and described and by all or any of said measurement more or
less.
PARCEL II: Beginning at Weir Street at the southwesterly corner of Parcel I,
above; thence by Parcel I above southeasterly about 265.00 feet to the
westerly line of New York, New Haven and Hartford Railroad Company; thence by
said line of said railroad southeasterly 652.75 feet more or less to the
northerly line of Parcel V below; thence by said Parcel V below, westerly
415.30 feet to Weir Street; thence northerly by Weir Street 756.00 feet more
or less to the point of beginning.
PARCEL III: Beginning at the intersection of the easterly line of Weir Street
and the southerly line of Parcel V below; thence by said Parcel V below North
84 DEG. 50 minutes East 416.50 feet to land of NY, NH, & H RR Co.; thence by
said railroad company and southwesterly by a curved line 419.75 feet to land
once of Tripp, now Parcel IV below; thence by said Parcel IV below, North 47
DEG. West 70.30 feet to a turn; thence still by Parcel IV below and by land
of Duarte, Jr., North 56 DEG., 56 minutes West 272.76 feet to a turn; thence
still by land of Duarte, Jr., North 68 DEG., 53 minutes West 38.50 feet more
or less to Weir Street, thence by Weir Street North 1 degree 51 minutes East
102.52 feet to the point of beginning.
PARCEL IV: Beginning at a point easterly from Weir Street at the
northeasterly corner of land once Tripp, now of Frank and Marita T. Duarte,
Jr.,; thence by said Duarte, Jr., land Southeasterly 15.00 feet to a corner;
thence westerly still by said Duarte, Jr., land about 118.00 feet to the
easterly side of Weir Street at the southwesterly corner of said Duarte, Jr.,
land; thence southerly along Weir Street 14 feet more or less to the
northwesterly corner of land once of Paine, now of Peter and Alice Fernandes;
thence easterly by said Fernandes Land about 118 feet to the northeasterly
corner of said land of Fernandes; thence southerly in a line parallel to said
Weir Street, in part by said land of Fernandes and land of Sylvia 140.50 feet
to land of Julia H. Nichols; thence easterly by said Nichols' land 47 feet to
a corner; thence southerly, again in a line parallel to said Weir Street and
by land of Said Nichols, Thadeio, MacDonald and Power about 204.00 feet to
the land of New York, New Haven and Hartford Railroad Company; thence
Northeasterly by said Railroad Company land 283 feet more or less to Parcel
III above; thence by Parcel III above about 263.50 feet to the point of
beginning.
PARCEL V: The land in said Taunton, bounded and described as follows:
Beginning on the easterly side of Weir Street at a point 102.52 feet
northerly of the northwesterly corner of land now or formerly of Frank and
Marita T. Duarte, Jr.; thence by Parcel III above N. 84 DEG. 50 min., E.
416.50 feet of land of the New york, New Haven and Hartford Railroad Company;
thence northerly by said Railroad Company land by a curve of a radius of
714.99 feet a distance of 40.00 feet more or less to a concrete bound which
marks the southeasterly corner of Parcel II above; thence westerly by said
Parcel II above 415.30 feet to a concrete bound at Weir Street; thence S. 1
degree 51 min. W. by Weir Street a distance of 40.29 feet to the point of
beginning.
*Subject to modification to reflect portions of premises presently leased to
third parties.
7
<PAGE>
LEGAL DESCRIPTION
PARCEL VI: Beginning at the southwesterly corner of land now or formerly of
George and Josephine Prairie, which point is also the northwesterly corner of
land of the grantor; thence northerly by the easterly line of Weir Street
50.00 feet; thence at a right angle (90 DEG.) with said line just
mentioned and continuing easterly in a straight line to the land of the
railroad; thence southerly, following the curve of the railroad to other land
of grantor; thence westerly by said other land of the grantor 185.01 feet
more or less to Weir Street, the point of beginning.
For Title Reference to Parcel I through VI above, see Deeds recorded in
Bristol County Northern District Registry of Deeds in Book 1552, Page 302,
2045, page 87, 2464, page 144.
ALL THAT PARCEL of land situated in the City of Taunton, County of Bristol,
and Commonwealth of Massachusetts, more particularly bounded and described
according to a plan of survey dated May 14, 1981, made by Almer Huntley, Jr.
& Associates, Inc., Surveyors, Engineers & Planners, Northampton,
Massachusetts, and bounded as follows:
BEGINNING at a concrete bound on the Westerly sideline of land of
Consolidated Rail Corporation and land of Christiano Nunes and Mary Nunes,
said concrete bound bearing South 04 DEG., 06 seconds West a distance of
196.34 feet from a concrete bound at land of Haskon, Inc. and the
Northeasterly corner of land of John T. Nichols; thence running North 04
DEG., 06 minutes East partially along land of said Nunes and land of Met
Realty Trust a distance of 53.50 feet to land of Haskon, Inc.; thence turning
and running North 41 DEG., 42 minutes, 11 seconds East a distance of 236.16
feet to a point; thence turning and running North 20 DEG., 39 minutes, 11
seconds East a distance of 356.10 feet to a point; thence turning and running
North 87 DEG., 19 minutes, 48 seconds East a distance of 7.38 feet to a
point; thence turning and running Northerly along a curve to the left having
a radius of 714.99 feet and an arc length of 40.25 feet to an iron pin;
thence turning and running South 87 DEG., 19 minutes, 48 seconds West a
distance 8.59 feet to a point; thence turning and running North 00 DEG., 46
minutes, 11 seconds East a distance of 184.79 feet to a point; thence turning
and running North 14 DEG., 30 minutes, 49 seconds West a distance of 447.39
feet to a point; thence turning and running North 16 DEG., 00 minutes, 49
seconds West a distance of 226.45 feet to a point; thence turning and running
North 19 DEG., 10 minutes, 49 seconds West a distance of 52.61 feet to a
point at the Southwest corner of land of Robert G. Prairie and Josephine
Prairie and land of Consolidated Rail Corporation; the last nine (9) courses
being along land of Haskon, Inc.; thence turning and running South 85 DEG.,
30 minutes, 00 seconds East a distance of 24.78 feet to a concrete bound;
thence continuing South 85 DEG., 30 minutes, 00 seconds East a distance of
10.62 feet to a point; thence turning and running South 16 DEG., 02 minutes,
36 seconds East a distance of 210.48 feet to a point; thence turning and
running South 14 DEG., 00 minutes, 26 seconds East a distance of 510.44 feet
to a point; thence turning and running South 75 DEG., 59 minutes, 34 seconds
West a distance of 10.00 feet to a point; thence turning and running
Southeasterly, Southerly and Southeasterly along and curve to the right
having a radius of 702.27 feet and an arc length of 695.40 feet to a point;
thence turning and running South 47 DEG., 16 minutes, 21 seconds East a
distance of 10.00 feet to a point; thence turning and running South 47 DEG.,
16 minutes, 21 seconds East a distance of 10.00 feet to a point; thence
turning and running South 42 DEG., 43 minutes, 39 seconds West a distance of
197.58 feet to a point; thence turning and running North 47 DEG., 16 minutes,
21 seconds West a distance of 19.04 feet to the place of beginning, the last
nine (9) courses being along land of Consolidated Rail Corporation.
For Title Reference to the above Parcel see deed recorded in the Bristol
County Northern District Registry of Deeds in Book 2161, page 126.
8
<PAGE>
EXHIBIT "B"
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
Stern, Neubauer, Greenwald & Pauly
1299 Ocean Avenue, Tenth Floor
Santa Monica, California 90401
Attn: Richard L. Miller, Esq.
ATTORNMENT, SUBORDINATION AND
NON-DISTURBANCE AGREEMENT
This Attornment, Subordination and Non-Disturbance Agreement (this
"Agreement") is made and entered into as of the 6th day of June, 1995 by and
among BURKE INDUSTRIES, INC., a California corporation ("Tenant"), whose
address is 2250 South Tenth Street, San Jose, California 95112 and STEPHEN S.
GRAY, AS CHAPTER 11 TRUSTEE OF THE ESTATE OF HASKON CORPORATION, a Delaware
corporation ("Landlord"), whose address is 336 Weir Street, Taunton,
Massachusetts, and FIDELITY FUNDING OF CALIFORNIA, INC., a California
corporation ("Lender") whose address is 101 Federal Street, Suite 1900,
Boston, Massachusetts 02110.
RECITALS
WHEREAS, Tenant is the tenant under that certain Lease dated June 6,
1995 ("the Lease") by and between Landlord and Tenant, pertaining to and
covering that certain real property which is legally described on Exhibit "A"
attached hereto and the buildings and improvements located thereon
(collectively, the "Property"); and
WHEREAS, Lender is the holder of a note in the original principal amount
of $1,500,000 secured by a mortgage in favor of Lender which encumbers the
Property and which was recorded in the Bristol County Northern District
Registry of Deeds in Book 5872, Page 137 (the "Mortgage"); and
WHEREAS, Tenant desires that, subject to the conditions and limitations
stated below, Lender consent to the Lease and recognize Tenant's rights under
the Lease in the event that Lender (or any Successor Landlord, as defined
below) succeeds to the interest of Landlord under the Lease, and in
consideration therefor, Tenant is willing to agree to attorn to Lender (or
any Successor Landlord) in the event that Lender (or any Successor Landlord)
succeeds to the
-1-
<PAGE>
interest of Landlord under the Lease, and to acknowledge and agree that
Tenant's leasehold interest is subordinate in all respects to Lender's
interest under the Mortgage.
NOW, THEREFORE, for and in consideration of the mutual benefits
accruing to each, receipt whereof is hereby acknowledged, and for and in
consideration of their respective covenants herein made, the parties agree as
follows:
1. The Lease, and all the provisions thereof, and all of Tenant's rights
and interests thereunder, shall be, are hereby made, and shall remain
completely subject and subordinate to the Mortgage and the rights of Lender
thereunder, including any renewals, modifications, replacements,
consolidations or extensions of the Mortgage. The provisions of this Section
1 shall be effective notwithstanding any provisions to the contrary in the
Lease.
2. Notwithstanding the fact that the Lease is subordinate to the
Mortgage as stated above, in the event that Lender or any other party
(collectively a "Successor Landlord") succeeds to the rights of Landlord
under the Lease, whether through foreclosure, the acceptance of a deed in
lieu of foreclosure or any possession, surrender, assignment, judicial action
or any other action taken by Lender, then Tenant agrees that it shall attorn
to, and be liable to and recognize Successor Landlord as the lessor under the
Lease for the balance of the term of the Lease upon and subject to all the
terms and conditions of this Agreement and of the Lease, with the same force
and effect as if the Successor Landlord was the original lessor under the
Lease, and Tenant waives provisions of any statute or rule of law giving it
the right to elect to terminate the Lease. Such attornment shall be
self-operative without the execution of any further documents; however, at
the Successor Landlord's request, Tenant agrees to execute any instruments-
to confirm the foregoing provisions, including a new lease on the same terms
and conditions as the Lease directly with the Successor Landlord.
3. So long as Tenant shall pay, when due, the rent, impositions and
other amounts owing under the Lease and otherwise perform such other tenant
obligations as set forth in the Lease, Tenant shall not be joined as an
adverse party defendant in any action or proceeding which may be instituted
or commenced by Lender to foreclose or enforce the Mortgage (unless Lender is
legally required to so join Tenant to protect Lender's ability to foreclose
against Landlord), Tenant shall not be evicted from the Property, nor shall
any of Tenant's rights under the Lease, including but not limited to the
right to use and possession, be affected in any way by reason of being
subordinate to the Mortgage, and Tenant's leasehold estate under the Lease
shall not be terminated or disturbed during the term of the Lease by reason
of any default under the Mortgage.
4. This Agreement shall inure to the benefit of, and shall be binding
upon, Tenant, Landlord and Lender and each of their respective heirs,
personal representatives, successors and assigns. In the event that any one
or more of the provisions contained in this Agreement shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any of the provisions of this
Agreement, but this Agreement shall be construed as if such invalid, illegal
or unenforceable provision was not contained herein. This Agreement may not
be modified orally or in any manner other than by
-2-
<PAGE>
a written agreement signed by the parties hereto or their respective
successors or assigns. This Agreement shall be governed by and construed
according to the internal laws of the State of California without resort to
choice of law principles.
5. Nothing contained in this Agreement shall be deemed to amend,
modify or otherwise limit the provisions of the Mortgage, which shall remain
in full force and effect. The parties hereto agree that any inconsistency
between this Agreement and the Lease shall be governed by this Agreement.
6. This Agreement may be executed in any number of counterparts, each
of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in manner and form sufficient to bind them, as of the day and
year first above written.
TENANT:
BURKE INDUSTRIES, INC.,
a California corporation
By:
------------------------------------
Its:
----------------------------
LANDLORD:
HASKON CORPORATION,
a Delaware corporation
By:
------------------------------------
Stephen S. Gray, as Chapter 11
Trustee of the Estate of Haskon
Corporation, and not individually
[SIGNATURES CONTINUED ON NEXT PAGE]
-3-
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
LENDER:
FIDELITY FUNDING OF CALIFORNIA, INC.,
a California corporation
By:
------------------------------------
Its:
----------------------------
<PAGE>
ACKNOWLEDGMENT
STATE OF )
) SS.
COUNTY OF )
On this ___________ day of ___________, in the year 1995, before me, a
notary public in and for the State of ___________, personally appeared
___________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument he or the
entity on behalf of which he acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------
NOTARY PUBLIC
State of ____________
ACKNOWLEDGMENT
STATE OF )
) SS.
COUNTY OF )
On this ___________ day of ___________, in the year 1995, before me, a
notary public in and for the State of ___________, personally appeared
___________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument he or the
entity on behalf of which he acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------
NOTARY PUBLIC
State of ____________
<PAGE>
ACKNOWLEDGMENT
STATE OF )
) SS.
COUNTY OF )
On this ___________ day of ___________, in the year 1995, before me, a
notary public in and for the State of ___________, personally appeared
___________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument he or the
entity on behalf of which he acted, executed the instrument.
WITNESS my hand and official seal.
-----------------------------
NOTARY PUBLIC
State of ____________
<PAGE>
Exhibit "A"
LEGAL DESCRIPTION
-1-
<PAGE>
SECOND AMENDMENT TO LEASE
REFERENCE is made to that certain lease dated June 6, 1995, by and
between Stephen S. Gray, the then duly-appointed Chapter 11 Trustee (and now
the duly-appointed Chapter 7 Trustee) of the estate of Haskon Corporation, a
Delaware corporation (the "Lessor") and Burke Industries, Inc., a California
corporation (the "Lessee"), as amended by the First Amendment To Lease dated
July 18, 1996 (the "Lease"), for the Premises more specifically described in
the Lease.
WHEREAS, the Lessor and the Lessee wish to amend the Lease as set forth
herein.
NOW THEREFORE, in consideration of the promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Lessor and Lessee agree that the Lease shall be
amended as follows:
1. ARTICLE 1 (BASIC PROVISIONS)
a. SECTION 1.3 (TERM)
Section 1.3 shall be deleted in its entirety and replaced with the
following:
1.3 Term: To HAVE AND TO HOLD on a month to month basis
commencingas of June 6, 1997. This Lease shall terminate
effective the last day of any calendar month following
written notice (a "Termination Notice") given by any party
to the other on or before the first day of such calendar
month, provided that the Lessee may, by giving written
notice to the Lessor within ten (10) days of receiving a
Termination Notice from the Lessor, elect, at its sole
option, to remain at the Premises for a period of time
identified in Lessee's notice, which period of time shall
in no event exceed one hundred twenty (120) days after
the date of the Termination Notice, during which period
of time the Lessee shall continue to be obligated to pay
rent and perform all other obligations hereunder.
b. SECTION 3.1 (TERM)
Section 3.1 shall be deleted in its entirety.
1
<PAGE>
2. Addendum to Standard Industrial/Commercial Single-Tenant Lease-Net
a. SECTION 3 (LESSEE RIGHT TO REPAIR)
Section 3 shall be amended by replacing the language "the sum of
(x) the amount required to repair the roof in accordance with the description of
the repairs attached to the First Amendment to Lease as Exhibit A, which repairs
Lessor consents may be performed and Lessee may offset the cost thereof against
Base Rent in accordance with the terms hereof (but in no event in excess of
$28,000) (said amount, the "Roof Cost") plus (y) the amount determined by
deducting fifty (50%) percent of the Roof Cost from $32,812.50 (the "Offset
Cap")" therein with the language "$21,875.00 (the "Offset Cap")".
b. SECTION 5 (REPAIR AND MAINTENANCE)
Section 5 shall be amended by replacing the language at line thirteen
(13):
"expense; provided, further, however, in the event that the
cumulative cost incurred by Lessee of individual repairs which
cost in excess of 32,000.00 ("Over $2,000.00 Repairs") "exceeds
$20,000.00 for the period from June 6, 1996 to June 5, 1997, the
Lessor shall be responsible for the portion of the aggregate of
the Over $2,000.00 Repairs that exceeds $20,000.00, at Lessor's
sole cost and expense, provided that the Lessor shall only be
responsible for any Over $2,000.00 Repairs to the extent that
such sums do not exceed any Base Rent yet to be paid by Lessee
under the terms of this Lease"
with:
"expense; provided, further, however, in the event that the
cumulative cost incurred by Lessee of individual repairs which
cost in excess of $2,000.00 ("Over $2,000.00 Repairs) exceeds the
amount determined by multiplying $1,666.67 by the number of months
(including any partial month) during which the Lessee occupies the
Premises from and after the period beginning June 6, 1997 (said
amount, the "Over $2,000.00 Repairs Cap"), the Lessor shall be
responsible for the portion of the aggregate of the Over $2,000.00
Repairs that exceeds the Over $2,000.00 Repairs Cap, at Lessor's
sole cost and expense, provided that the Lessor shall only be
responsible for any Over $2,000.00 Repairs to the extent that such
sums do not exceed any Base Rent yet to be paid by Lessee under
the terms of this Lease"
2
<PAGE>
c. SECTION 10 (TERMINATION)
Section 10 shall be deleted in its entirety.
3. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed thereto in the Lease.
4. The Trustee's ability to enter into this Second Amendment is subject
to the approval of the United States Bankruptcy Court for the District of
Massachusetts (the "Court") in the bankruptcy proceedings of Haskon
Corporation, Chapter 7 Case No. 95-12689-CJK. Accordingly, this Second
Amendment shall not become effective until it is approved by the Court. Upon
such approval, the effective date of this Second Amendment shall be deemed to
be June 6, 1997.
3
<PAGE>
EXCEPT as modified by this Second Amendment, all other terms of the
Lease remain unchanged and in full force and effect.
WITNESS our hands and seal this 19th day of May, 1997.
LESSOR: LESSEE:
STEPHEN S. GRAY, DULY-APPOINTED BURKE INDUSTRIES, INC.
CHAPTER 7 TRUSTEE OF THE ESTATE OF
HASKON CORPORATION
By: /s/ Stephen S. Grey By: /s/ David E. Worthington
--------------------------- ------------------------
Stephen S. Grey, as Trustee Name: David E. Worthington
---------------------
Title: VP - FINANCE
--------------------
<PAGE>
EXHIBIT 10.18
SUBLEASE
by and between
BURKE RUBBER COMPANY, INC.,
a California corporation
as Sublessor,
and
WESTLAND TECHNOLOGIES, INC.,
a California corporation
as Sublessee,
at
107 South Riverside Drive, Modesto, California.
<PAGE>
SUBLEASE
THIS SUBLEASE ("Sublease") is made effective as of this 27th day of June, 1996
by and between BURKE RUBBER COMPANY, INC., a California corporation (the
"Sublessor"), and WESTLAND TECHNOLOGIES, INC., a California corporation (the
"Sublessee") with regard to the following facts:
RECITALS
A. Sublessor entered into that certain Industrial Lease dated July 1,
1991 by and between Arthur D. Bridges Family Revocable Trust ("Master
Lessor"), as "Lessor," and Sublessor, as "Lessee," for the lease of a portion
of that real property commonly known as 107 South Riverside Drive, Modesto,
California, consisting of approximately 112,986 square feet (the "Premises")
and more particularly described in the Master Lease. Such Lease was amended
by that certain Addendum to Industrial Lease dated as of July 1, 1991
(collectively, as amended, the "Master Lease"). A copy of the Master Lease is
attached hereto as EXHIBIT "A" and incorporated herein by this reference.
B. Substantially concurrently herewith, pursuant to that certain Asset
Sale Agreement ("Asset Sale Agreement") dated March 15, 1996 by and between
Sublessor, as "Seller," and Sublessee, as "Purchaser," Sublessor is
transferring to Sublessee all of Sublessor's right, title and interest in and
to those certain "Assets" (as defined in the Asset Sale Agreement), which
Assets are utilized for the business of manufacturing and selling rubber and
rubber-like custom-molded products at the Premises.
C. In connection with Sublessor's transfer of the Assets to Sublessee,
Sublessor desires to sublease to Sublessee, and Sublessee desires to sublease
from Sublessor, the Premises, upon the terms, covenants and conditions set
forth in this Sublease.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CAPITALIZED TERMS. All capitalized terms when used herein shall have
the same meaning as is given such terms in the Master Lease, unless expressly
superseded by the terms of this Sublease.
2. SUBLEASE. Sublessor hereby subleases to Sublessee and Sublessee
hereby subleases from Sublessor, the Premises on an "as-is," "where-is"
basis, subject to the terms, covenants and conditions set forth in this
Sublease.
1
<PAGE>
3. TERM. The term ("Term") of this Sublease shall commence on the date
upon which the "Closing" occurs under the Asset Sale Agreement (the
"Commencement Date") and shall expire on October 31, 2001, unless sooner
terminated pursuant to any provision of this Sublease or the Master Lease
(the "Termination Date").
4. RENT.
(a) BASE RENT. Effective as of the Commencement Date, Sublessee shall
pay to Sublessor, or its designee, as rent for the Premises, monthly payments
of base rent ("Base Rent"), in advance, on the first day of each month of the
Term of this Sublease in the amounts set forth under Column C of EXHIBIT
"A-1". Base Rent and all other payments of rent and other sums under this
Sublease (collectively, "Rent") shall be payable by Sublessee without notice,
demand, reduction or set-off in lawful money of the United States of America
to Sublessor or its agent at the address set forth in this Sublease, or to
such other person or such other places as Sublessor may from time to time
designate in writing. If the Term begins or ends on a day other than the
first or last day of a month, the Base Rent for the partial month shall be
prorated on the basis of a thirty (30) day month, and if the Commencement
Date occurs on any day other than the first (1st) day of a calendar month,
the Base Rent for the first partial month of the Term shall be paid on the
Commencement Date.
(b) OPERATING EXPENSES. In addition to the Base Rent and any other
amounts constituting additional rent hereunder, Sublessee shall pay to
Sublessor, as additional rent, the portion of the Operating Expenses,
including but not limited to taxes, utilities, and insurance, which are
attributable to the Premises during the term of this Sublease. Such
additional rent shall be payable as and when Operating Expenses are payable
by Sublessor to Master Lessor. Since the Master Lease gives the Master Lessor
the option of requiring payment by Sublessor of Operating Expenses on the
basis of an estimate thereof, as and when adjustments between estimated and
actual Operating Expenses are made under the Master Lease, the obligations of
Sublessor and Sublessee hereunder shall be adjusted in a like manner; and if
any such adjustment shall occur after the expiration or earlier termination
of the Term, then the obligations of Sublessor and Sublessee under this
Paragraph 4(b) shall survive such expiration or termination. For purposes of
this Sublease, the parties acknowledge and agree that, as of the date hereof,
"Lessee's Share" of Operating Expenses payable by Sublessor under the Master
Lease is sixty-three point eight percent (63.8%).
(c) EXISTING TENANT IMPROVEMENTS. In addition to the Base Rent and
any other amounts constituting additional rent hereunder, Sublessee shall pay
to Sublessor, as additional rent on account of the tenant improvements
heretofore installed by Sublessor in, on and about the Premises, including
without limitation the Manufacturing Improvements and sprinkler system
("Existing Tenant Improvements"), monthly payments of $8,600.29, payable on
the first (1st) day of each and every month commencing on the first (1st) day
of the first full calendar month following the Commencement Date and
continuing thereafter on the first (1st) day of each succeeding calendar
month until the Termination Date, as specified on the payment schedule
attached hereto as EXHIBIT "B". If the Commencement Date occurs on any day
other
2
<PAGE>
than the first (1st) day of a calendar month, an amount equal to the amount
of such monthly installment prorated on the basis of a thirty (30) day month,
shall be paid on the Commencement Date. If this Sublease or the Master Lease
is terminated earlier than October 31, 2001, (i) as a result of Sublessee's
default hereunder or under applicable provisions of the Master Lease (a
"Sublessee Default"), then, upon said termination, Sublessee shall pay to
Sublessor an amount equal to the entire balance then outstanding on account
of the Existing Tenant Improvements, as specified on EXHIBIT "B"; or (ii) for
any reason other than a Sublessee Default, then Sublessee shall remain
obligated to Sublessor from and after said termination to make monthly
payments of $8,600.29 until all payments required on Exhibit B have been
paid. This paragraph shall survive the Termination Date or any earlier
termination of this Sublease.
5. SECURITY DEPOSIT. Concurrent with Sublessee's execution of this
Sublease, Sublessee shall deposit with Sublessor a security deposit (the
"Security Deposit") in the amount of Twenty One Thousand Three Hundred
Eighty-One Dollars ($21,381.00) as security for the faithful performance by
Sublessee of all of its obligations under this Sublease. If Sublessee fails
to pay rent or other charges due hereunder, or otherwise defaults with
respect to any provisions of this Sublease, Sublessor may, but shall not be
required to, apply all or any part of the Security Deposit for the payment of
any rent or any other sum in default, or for the payment of any amount that
Sublessor may spend or become obligated to spend by reason of Sublessee's
default (including without limitation any amounts payable to Master Lessor
under the Master Lease), or to compensate Sublessor for any other loss or
damage that Sublessor may suffer by reason of Sublessee's default. If any
portion of the Security Deposit is so used or applied, Sublessee shall,
within five (5) days after written demand therefor restore the Security
Deposit to its original amount. If Sublessee is not in default upon
termination of this Sublease, said deposit, or so much thereof as has not
theretofore been applied by Sublessor, shall be returned, without payment of
interest or other increment for its use, to Sublessee at the expiration of
the Term, and after Sublessee has vacated the Premises. No trust relationship
is created herein between Sublessor and Sublessee with respect to the
Security Deposit. Sublessor shall not be required to keep the Security
Deposit separate from its general accounts. Sublessee shall not be entitled
to any interest on the Security Deposit. Sublessee hereby waives the
provisions of Section 1950.7 of the California Civil Code, and all other
provisions of law, now or hereafter enforced, which provide that Sublessor
may claim from a Security Deposit only those sums reasonably necessary to
remedy defaults in the payment of rent, to repair damage caused by Sublessee
or to clean the Premises, it being agreed that Sublessor may, in addition,
claim those sums reasonably necessary to compensate Sublessor from any other
loss or damage, foreseeable or unforeseeable, caused by the act or omission
of Sublessee or any officer, employee, agent or invitee of Sublessee.
6. USE. The Premises shall be used and occupied only for general office
purposes, sales, manufacturing, warehousing, shipping and support or any
other use which is reasonably comparable and for no other purposes. All
provisions of the Master Lease regarding use of the Premises (including
without limitation Paragraph 6 of the Master Lease) shall apply to the
Sublessee.
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<PAGE>
7. MASTER LEASE.
(a) Sublessee acknowledges that it has read the attached copy of the
Master Lease and agrees that this Sublease shall be subject and subordinate
to the provisions thereof. Except as otherwise expressly provided to the
contrary in this Sublease or except to the extent the provisions of the
Master Lease are inconsistent herewith or otherwise inapplicable (i) all of
the rights and obligations conferred or imposed by the Master Lease on the
"Lessee" thereunder (to the extent the same relate to the Premises) are
hereby conferred and imposed upon Sublessee and all of the rights conferred
by the Master Lease upon the "Lessor" thereunder (to the extent the same
relate to the Premises) are hereby conferred on Sublessor and (ii) the
provisions of the Master Lease applicable to the Premises are hereby
incorporated herein by reference as if Sublessor were the "Lessor" and
Sublessee were the "Lessee" thereunder; provided, however that the time
limits contained in the Master Lease for the giving of notices, making of
demands, or performing of any act, condition or covenant on the part of
Sublessee as "Lessee" under the Master Lease are shortened for the purposes
of incorporation herein so that in each instance Sublessee shall have two (2)
business days less time to observe or perform under this Sublease than
Sublessor has as tenant under the Master Lease, and for the exercise by
Sublessor as "Lessor" under the Master Lease of any right, remedy or option
are lengthened so that in each instance Sublessor shall have two (2) business
days more time to observe or perform under this Sublease than the Master
Lessor has as landlord under the Master Lease.
(b) Except as otherwise expressly provided herein, during the Term
and for all subsequent periods with respect to obligations arising prior to
the termination of this Sublease, Sublessee shall comply with and perform,
for the benefit of Master Lessor and Sublessor, all of the terms, covenants,
conditions and obligations of the "Lessee" under the Master Lease allocable
or applicable to the Premises. Sublessee shall not do, permit or suffer any
act, occurrence or omission which if done, permitted or suffered by Sublessor
would be (with notice, the passage of time or both) in violation of or a
default by the Lessee under the Master Lease, or could lead in any respect to
the termination of the Master Lease. If Sublessee shall default or fail to
perform any of its obligations under this Sublease, other than its obligation
to pay Base Rent and additional rent and all other charges provided for
herein to Sublessor, Sublessor, without being under any obligation to do so
and without thereby waiving such default, may remedy such default or failure
for the account, and at the expense, of Sublessee, without notice in the case
of emergency and, in all other cases, after such default or failure continues
for five (5) days following the date Sublessor delivers written notice to
Sublessee of its intention to remedy such default or failure, and all costs
and expenses expended or incurred by Sublessor in connection with the same
shall be payable by Sublessee to Sublessor within ten (10) days of
Sublessor's delivery of written demand therefor to Sublessee.
(c) Sublessee acknowledges that Sublessor is entering into this
Sublease for the purpose of facilitating the transition from Sublessor to
Sublessee of the ownership of the "Assets" (as defined in the Asset Sale
Agreement) and of the operation of the "Business" (as defined in the Asset
Sale Agreement) as a going concern at the Premises, and agrees that (i) if
the Master Lease is terminated for any reason whatsoever, this Sublease shall
immediately be
4
<PAGE>
terminated and the parties' rights and obligations hereunder shall cease,
except as otherwise provided in this Paragraph 7(c); and (ii) in the event,
at any time after the Commencement Date, Sublessor obtains Master Lessor's
consent to terminate the Master Lease upon economic and other terms and
conditions acceptable to Sublessor in its sole discretion, and to enter into
a new lease ("New Lease") directly with Sublessee for the Premises upon
economic and other terms and conditions substantially similar to the terms
and conditions of this Sublease, then Sublessee shall enter into such New
Lease directly with Master Lessor in which event this Sublease shall be
terminated and the parties' rights and obligations hereunder shall cease,
except as otherwise provided in this Paragraph 7(c). Notwithstanding any
provision of this Sublease to the contrary, if this Sublease is terminated
for any reason whatsoever earlier than the Termination Date, the parties'
rights and obligations hereunder shall cease, save and except, (a)
Sublessor's obligation to return the Security Deposit to the extent provided
under Paragraph 5, above, (b) Sublessee's obligation to pay all additional
rent payable on account of the Existing Tenant Improvements to the extent
provided under Paragraph 4(c), above, and (c) any other obligations of the
parties hereunder that expressly survive the expiration or earlier
termination of this Sublease.
8. EXCLUDED PROVISIONS. Notwithstanding any provision of this Sublease
to the contrary, the provisions of Paragraphs 3.2, 4.1, 4.2, 5, 15, 17, 39,
47, 47.1, 47.2, 47.3, 47.4, 48, 49, 50, 51 and 53 and Exhibits A-1 and C of
the Master Lease are not incorporated into this Sublease and shall not apply
to this Sublease.
9. MASTER LESSOR'S PERFORMANCE UNDER MASTER LEASE. Sublessee recognizes
that Sublessor is not in a position to render any of the services or to
perform any of the obligations required by Sublessor by the terms of this
Sublease. Therefore, notwithstanding anything to the contrary contained in
this Sublease, Sublessee agrees that performance by Sublessor of its
obligations hereunder are conditional upon due performance by the Master
Lessor of its corresponding obligations under the Master Lease and Sublessor
shall not be liable to Sublessee for any default of the Master Lessor under
the Master Lease. Sublessee shall not have any claim against Sublessor by
reason of the Master Lessor's failure or refusal to comply with any of the
provisions of the Master Lease, unless such failure or refusal is a result of
Sublessor's act or failure to act, and Sublessee shall pay Base Rent and
additional rent and all other charges provided for herein without any
abatement, deduction or set-off whatsoever (except to the extent provided for
in Paragraph 9.5 of the Master Lease). Whenever Master Lessor shall fail to
perform its obligations under the Master Lease, Sublessor agrees to use
commercially reasonable efforts to obtain such performance on behalf of
Sublessee. If Sublessor fails, after using reasonable efforts, to cause the
Master Lessor under the Master Lease to observe and/or perform its
obligations under the Master Lease, Sublessee shall have the right, upon
prior written notice to Sublessor, to bring an action in Sublessor's name to
accomplish such purpose and Sublessor, upon Sublessee's reasonable request
and at Sublessee's sole cost and expense, shall reasonably cooperate with
Sublessee in this regard. Sublessee shall defend, indemnify and hold
Sublessor harmless from all claims, costs and liabilities, including
attorneys' fees and costs, arising out of or in connection with any such
action by Sublessee, unless such actions are required as a result of
Sublessor's breach of any of its covenants set forth above.
5
<PAGE>
10. MASTER LESSOR CONSENTS. In any case where any event, transaction,
action or omission contemplated to be taken or omitted by Sublessee requires
the consent or approval of Sublessor under this Sublease and/or of Master
Lessor under the Master Lease, it shall be a condition precedent to such
event, transaction, action or omission that the prior consent or approval of
Master Lessor shall have been obtained. Sublessee agrees that Sublessor shall
not have any duty or responsibility with respect to obtaining the consent or
approval of Master Lessor when the same is required or desired by Sublessee
other than (i) the transmission in a timely fashion by Sublessor to Master
Lessor of Sublessee's request for such consent or approval and (ii)
Sublessor's cooperation with Sublessee to obtain such approval or consent,
provided that such cooperation does not require Sublessor to pay any sum or
incur any out-of-pocket expense or to make any material performance or
undertaking.
11. NOTICES. Any and all notices, approvals or demands required or
permitted under this Sublease shall be in writing, shall be served either
personally, by United States certified mail, postage prepaid, return receipt
requested or by reputable overnight carrier and, shall be deemed to have been
given or made on the day on which it was received and shall be addressed to
the parties at the addresses set forth below. Any party may, from time to
time, by like notice, give notice of any change of address, and in such
event, the address of such party shall be deemed to have been changed
accordingly. The address for each party is:
If to Sublessor: Burke Rubber Company, Inc. c/o Burke Industries, Inc.
2250 South Tenth Street San Jose, California 95112
Attention: Rocco Genovese
If to Sublessee: Westland Technologies, Inc.
107 South Riverside Drive
Modesto, California 95354
Attention: Thomas Halyburton
12. BROKERS. Sublessor and Sublessee warrant to each other and to Master
Lessor that each has had no dealings with any real estate broker or agent in
connection with the negotiation of this Sublease (the "Broker"), and that
neither Sublessor nor Sublessee knows of any real estate broker or agent who
is or might be entitled to a commission in connection with this Sublease.
Sublessor and Sublessee each hereby agree to indemnify, defend and hold
harmless the other and Master Lessor from and against any losses, causes of
action, liabilities, damages, claims, demands, costs and expenses (including
reasonable attorneys' fees and costs) incurred, or to be incurred, by reason
of any breach of the foregoing warranty by either party hereto with respect
to any such dealings with any and all real estate broker(s) or agent(s).
6
<PAGE>
13. SUBLESSOR'S WARRANTIES. Sublessor represents and warrants to
Sublessee that:
(a) The Master Lease attached to the Sublease as Exhibit "A"
constitutes the entire agreement between the Master Lessor and Sublessor
regarding the Premises, and there are no written or oral amendments or
modifications thereto;
(b) Sublessor has not assigned any of its rights under the Master
Lease to the Premises to any third parties;
(c) The Master Lease is in full force and effect and, to Sublessor's
knowledge, neither Sublessor nor the Master Lessor is in default under the
Master Lease; and
(d) All rents and monetary or other obligations required of Sublessor
to be paid to Master Lessor or required to be performed by Sublessor pursuant
to the Master Lease have been paid by or performed by Sublessor through the
date of execution of this Sublease.
14. SUBLESSOR'S COVENANTS. Sublessor covenants to Sublessee that:
(a) As long as Sublessee is not in default under the Sublease,
Sublessor shall make all monetary payments to the Master Lessor which
Sublessor is obligated to make pursuant to the Master Lease, subject to any
and all cure periods, defenses, offsets and/or other good faith claims which
Sublessor may have, whether at law or equity, or under the terms and
provisions of the Master Lease; and
(b) Sublessor shall, using its best efforts and diligence given the
time constraints involved, send copies to Sublessee of all material notices
or other correspondence applicable to the Premises either sent or received by
Sublessor in connection with the Master Lease.
15. ALTERATIONS AND ADDITIONS. Sublessee shall comply with the
provisions of the Master Lease incorporated herein that relate to alterations
and additions, including without limitation the obligation to remove and
restore any and all alterations, improvements, additions or Utility
Installations at the expiration of the term and to restore the Premises to
its prior condition (as of the commencement of the Master Lease); provided,
however, that Sublessee shall not make any alterations, improvements,
additions or Utility Installations in, on or about the Premises, whether
interior or exterior, structural or nonstructural, where the total cost
thereof is more than Twenty Thousand Dollars ($20,000.00) or the aggregate
cost over any twelve (12) month period is more than Fifty Thousand Dollars
($50,000.00), unless approved in advance in writing by Sublessor, which
approval shall not be unreasonably withheld.
16. INSURANCE PROCEEDS AND AWARDS. Notwithstanding anything contained in
the Master Lease to the contrary, as between Sublessor and Sublessee only,
all insurance proceeds or condemnation awards received by Sublessor under the
Master Lease shall be deemed to be the property of Sublessor.
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<PAGE>
17. INDEMNITY. Sublessee hereby agrees to indemnify, protect, defend and
hold Sublessor harmless from and against any and all claims, losses and
damages, including without limitation, reasonable attorneys' fees and
disbursements, (A) which may at any time be asserted against Sublessor by (i)
the Master Lessor for failure of Sublessee to perform any of the covenants,
agreements, terms, provisions or conditions contained in the Master Lease
which by reason of the provisions of this Sublease Sublessee is obligated to
perform, or (ii) any person by reason of Sublessee's use and/or occupancy of
the Premises and (B) resulting from any failure by Sublessee to comply with
the terms of this Sublease and the Master Lease, except to the extent any of
the foregoing is caused by the negligence or willful misconduct of Sublessor.
The provisions of this Paragraph 16 shall survive the expiration or earlier
termination of the Master Lease and/or this Sublease, or the failure of
Sublessor to perform its obligations hereunder.
18. INSURANCE. Sublessee shall comply with all of the insurance
requirements and obligations of Sublessor (applicable to the Premises), as
Lessee under the Master Lease, and shall, whether required by the Master
Lease or not, name Master Lessor and Sublessor as additional insureds, as
their interests may appear, on all policies of insurance required to be
carried by Sublessee hereunder or thereunder. No later than the Commencement
Date hereunder, Sublessee shall provide Sublessor with certificates or other
evidence of insurance acceptable to Sublessor certifying to the existence of
all such policies of insurance.
19. TAXES AND UTILITIES. Sublessee shall pay all taxes, including
without limitation all Real Property Taxes and all personal property taxes on
all trade fixtures, furnishings, equipment and all other personal property of
Sublessee, as and when required to be paid by Sublessor under the Master
Lease. Sublessee shall pay for all water, gas, heat, light, power, telephone
and other utilities and services supplied to the Premises, as and when
required to be paid by Sublessor under the Master Lease.
20. ASSIGNMENT AND SUBLETTING. Subject to all of the rights of Master
Lessor under the Master Lease and the restrictions contained in the Master
Lease, Sublessee shall be entitled to assign this Sublease or to sublet all
or any portion of the Premises subject to obtaining the prior written consent
of Sublessor, which consent shall not be unreasonably withheld or delayed by
Sublessor; provided, however, it shall be deemed reasonable for Sublessor to
deny its consent with respect to any sublease or assignment of this Sublease
if the Master Lessor does not consent to the same.
21. DEFAULT. In addition to the events of default described under the
Master Lease, the occurrence of any one or more of the following events shall
additionally constitute a material default of this Sublease by Sublessee, in
which event, immediately and without notice or demand, Sublessor shall be
entitled to terminate this Sublease and/or to exercise all remedies otherwise
available to it as the "Lessor" under the Master Lease:
(a) The failure of Sublessee to observe or perform any of the
covenants, conditions or provisions to be observed or performed by Sublessee
under any one or more the
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<PAGE>
following: (i) the Asset Sale Agreement; and/or (ii) that certain "Service
Agreement" dated no later than the Commencement Date hereunder by and among
Sublessee, Sublessor and Burke Industries, Inc., a California corporation
("Burke Industries").
(b) The failure of Sublessee to make any payment when due under that
certain Promissory Note made no later than the Commencement Date hereunder by
Sublessee for the benefit of Burke Industries in the original principal
amount of Four Hundred Thousand Dollars ($400,000.00).
22. HOLDOVER. Notwithstanding anything to the contrary contained in the
Master Lease, if Sublessee fails to surrender the Premises upon the
termination or expiration of this Sublease, with or without the express or
implied consent of Sublessor, Sublessee shall pay rent during such tenancy at
a monthly rate equal to the greater of (i) the amount which Master Lessor
requires Sublessor to pay with respect to the Master Premises during such
tenancy pursuant to the Master Lease and (ii) one hundred fifty percent
(150%) of the Rent applicable under this Sublease during the last period of
the Term and, in addition to any and all other liabilities of Sublessee to
Sublessor accruing therefrom and any and all other rights and remedies of
Sublessor provided herein, at law, or in equity, Sublessee shall protect,
defend, indemnify and hold Sublessor harmless from all loss, cost (including
reasonable attorneys' fees) and liability resulting from such failure to
surrender the Premises, including, without limiting the generality of the
foregoing, any claims made by any succeeding tenant founded upon such failure
to surrender, and any losses suffered by Sublessor, including loss profits
and/or any liability to Master Lessor resulting from such failure to
surrender.
23. TENANT IMPROVEMENTS. Sublessor agrees to lease to Sublessee and
Sublessee agrees to lease from Sublessor on an "as is" basis the
Manufacturing Improvements, the Utility Installations and other trade
fixtures or improvements pertaining to the production or to mechanical or
electrical systems ("Tenant Improvements"), including without limitation
those improvements listed on EXHIBIT "C" attached hereto. During the term of
the Sublease, Sublessee shall bear the risk of loss with respect to the
Tenant Improvements and shall obtain and maintain insurance which insures
such Tenant Improvements, and all of Lessee's personal property, fixtures,
equipment and tenant improvements, if any, for "all risks" for the full new
replacement cost value thereof without deduction for depreciation of the
covered items and which policies shall name Sublessor as an additional
insured and loss payee thereof. Sublessee shall, at its sole expense, keep
the Tenant Improvements in good repair, condition and working order, ordinary
wear and tear excepted, and shall indemnify, defend and hold harmless
Sublessor, its assignees, transferees and successors and their respective
employees, officers and/or agents, from and against any losses (including tax
liability), costs, expenses, liabilities, damages, penalties and
disbursements at law or in equity, including attorneys' fees, imposed on or
incurred by or asserted against the indemnified parties arising out of the
leasing, ownership, use, possession, control, maintenance or operation of the
Tenant Improvements and claims for property damage, personal injury or
wrongful death arising in strict liability or negligence. All indemnities
contained in this Paragraph 23 shall survive the expiration or other
termination of this Sublease
9
<PAGE>
and are expressly made for the benefit of, and shall be enforceable by, any or
all of the indemnified parties.
24. SUCCESSORS AND ASSIGNS. The covenants and conditions contained in
this Sublease shall, subject to the provisions of Paragraph 20, above, apply
to and bind the successors and assigns of Sublessor and Sublessee.
25. SEVERABILITY. If any term or provision of this Sublease or the
application thereof to any person or circumstances shall, to any extent, be
invalid and unenforceable, the remainder of this Sublease or the application
of such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby and
each term or provision of this Sublease shall be valid and be enforced to the
fullest extent permitted by law.
26. ENTIRE AGREEMENT; WAIVER. This Sublease contains the entire
agreement between the parties hereto and shall be binding upon and inure to
the benefit of their respective heirs, representatives, successors and
permitted assigns. Any agreement hereinafter made shall be ineffective to
change, modify, waive, release, discharge, terminate or effect an abandonment
hereof, in whole or in part, unless such agreement is in writing and signed
by the parties hereto.
27. FURTHER ASSURANCES. The parties hereto agree that each of them, upon
the request of the other party, shall execute and deliver, in recordable form
if necessary, such further documents, instruments or agreements and shall
take such further action that may be necessary or appropriate to effectuate
the purposes of this Sublease.
28. ATTORNEYS' FEES. In the event of the bringing of any action or suit
by any part or parties hereto against another party or parties hereunder
alleging a breach of any of the covenants, conditions, agreements or
provisions of this Sublease, the prevailing party or parties shall recover
all reasonable costs and expenses of suit, including without limitation,
reasonable attorneys' fees, consultants fees and fees of expert witnesses.
29. DEFINED TERMS. All capitalized, defined terms used in this Sublease
shall have the same meanings and effect given to them in the Master Lease
unless otherwise defined herein.
30. CHOICE OF LAW. This Sublease shall be governed by and construed in
accordance with the laws of the State of California.
31. POWER AND AUTHORITY. Each of the persons executing this Sublease on
behalf of Sublessee and Sublessor respectively warrant and represent to the
other that they have full power and authority to execute this Sublease and
bind their respective parties hereto.
32. COUNTERPARTS. This Sublease may be executed in one or more
counterparts, each of which shall be deemed original, and all of which
together shall constitute one and the same instrument.
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<PAGE>
33. CONSENT OF MASTER LESSOR. The obligations of each of Sublessor and
Sublessee hereunder shall be conditional upon the parties obtaining the
written unconditional consent of Master Lessor to this Sublease ("Master
Lessor Consent"). In the event, for any reason whatsoever, the Master Lessor
Consent is not obtained on or before twenty (20) days after the date hereof,
either party hereto may, in their respective sole discretion, cancel this
Sublease upon delivery of ten (10) days' prior written notice to the other
party; provided, however, that if such Master Lessor Consent is obtained
within such ten (10) day period, such notice of cancellation shall be deemed
revoked and this Sublease shall continue in full force and effect.
34. CONSENT OF GUARANTOR. The obligations of each of Sublessor and
Sublessee hereunder shall additionally be conditional upon the parties
obtaining the written unconditional consent of Burke Industries, in its
capacity as the "Guarantor" of Sublessor's performance under the Master Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease to be
effective as of the day and year first above written.
"SUBLESSEE"
WESTLAND TECHNOLOGIES, INC.,
a California corporation
By: [ILLEGIBLE]
---------------------------------
Its: President
--------------------------
By: [ILLEGIBLE]
---------------------------------
Its: Secretary
--------------------------
"SUBLESSOR"
BURKE RUBBER COMPANY, INC.,
a California corporation
By: [ILLEGIBLE]
---------------------------------
Its: President
--------------------------
11
<PAGE>
GUARANTOR ACKNOWLEDGEMENT AND CONSENT:
The undersigned, Burke Industries, Inc., a California corporation,
guarantor of Sublessor's performance under the Master Lease, hereby
acknowledges and consents to this Sublease upon and only upon the terms and
conditions set forth in this Sublease, and further acknowledges that Master
Lessor's consent to this Sublease shall have no effect on Guarantor's
preexisting obligations as Guarantor.
DATED: June , 1996
-----
BURKE INDUSTRIES, INC.,
a California corporation
By: [ILLEGIBLE]
---------------------------------
Its: President
--------------------------
MASTER LESSOR ACKNOWLEDGEMENT AND CONSENT:
Each of the undersigned, co-trustees of the Arthur D. Bridges Family
Revocable Trust, the Master Lessor under the Master Lease, hereby
acknowledges and consents to this Sublease upon the terms and conditions set
forth in this Sublease and the Master Lease.
DATED: June 21 , 1996
----
/s/ [ILLEGIBLE]
-----------------------------------------------
Dennis L. Garrison, Co-Trustee of the Arthur D.
Bridges Family Revocable Trust
/s/ [ILLEGIBLE]
-----------------------------------------------
Beverly Bridges, Co-Trustee of Arthur D.
Bridges Family Revocable Trust
12
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT "A"
MASTER LEASE
[ATTACHED]
<PAGE>
INDUSTRIAL LEASE (TRIPLE NET)
1. PARTIES. This lease, dated July 1, 1991, is made by and between
ARTHUR D. BRIDGES FAMILY REVOCABLE TRUST (herein called "Lessor") and BURKE
RUBBER COMPANY, a California corporation (herein called "Lessee").
2. Premises, Parking and Common Areas.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, a portion of that real property situated in the County of Stanislaus,
State of California, commonly known as 107 S. Riverside Drive, Modesto, more
particularly described on Exhibit A, and described as approximately 106,906
square feet (including approximately 10,390 square feet of office area) of
the building occupying the Property (the "Building") as outlined on Exhibit
A, herein referred to as the "Premises", including rights to the Common Areas
as hereinafter specified.
2.2 VEHICLE PARKING. Lessor hereby grants to Lessee the exclusive
right to park in all parking spaces located on the north side of the Building
and all parking spaces located on the south side of the Building; except for
the sixty (60) spaces in the south parking lot marked on Exhibit A and access
to the two (2) grade level loading doors located on the south side of the
Building. Lessee shall have nonexclusive use of such sixty (60) spaces until
such time as Lessor rents a portion of the Building to a tenant other than
Lessee, and Lessor gives Lessee notice that the new tenant will have
exclusive use of some or all of the sixty (60) spaces. Lessor hereby grants
to Lessee a nonexclusive easement over the Property between the east side of
the Building and the eastern boundary of the Property for purposes of
constructing and maintaining a walkway and for ingress and egress on and over
a walkway between the south parking lot and the Premises.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined
as all areas and facilities outside the Building and within the boundary line
of the Property, except for the north parking lot.
2.4 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, customers
and invitees, during the term of this Lease, the non-exclusive right to use,
in common with others entitled to such use, the Common Areas. Lessee shall
have
-1-
<PAGE>
the right to temporarily store personal property in the north parking lot of
the Property from time to time as it deems necessary or desirable; provided
that such property as stored is not in violation of any law, rule or
regulation of a governmental authority having jurisdiction over the Property.
Lessor shall not make changes to the Common Areas or the north parking lot
without Lessee's prior written consent, which consent shall not be
unreasonably withheld.
3. TERM.
3.1 TERM. The term of this Lease shall be for ten (10) years and
four (4) months commencing on July 1, 1991 and ending on October 31, 2001
unless otherwise changed pursuant to any provision hereof. This Lease term
includes four (4) months free rent.
3.2 EARLY POSSESSION. Lessee may occupy the Premises prior to said
commencement date; such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date.
4. RENT.
4.1 RENT COMMENCEMENT DATE. Lessee shall pay no rent through and
until November 1, 1991. If either Lessor or Lessee has obtained financing for
the Improvement Loan set forth in paragraph 48 of this Lease (hereinafter
"Improvement Loan") by September 1, 1991, Lessee shall commence paying Base
Rent to Lessor on November 1, 1991 ("Rent Commencement Date). If neither
Lessor nor Lessee has obtained financing for the Improvement Loan by
September 1, 1991, the Rent Commencement Date shall be delayed on a
day-by-day basis from November 1, 1991 by the number of days past September
1, 1991 until the date that the Improvement Loan is obtained by either Lessor
or Lessee. For example, if the financing for the Improvement Loan is obtained
on September 15, 1991 (by either Lessor or Lessee), the Rent Commencement
Date shall be November 15, 1991. If the Rent Commencement Date is other than
the first day of a calendar month, then the Base Rent for such month in each
year of the lease shall be equitably prorated based on the number of days
that rent or a particular rental rate is in effect during the month. Lessee
shall be responsible, however, for any payments to be applied to the
Improvement Loan prior to the Rent Commencement Date if said Improvement Loan
proceeds have been provided by Lessor to Lessee.
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4.2 BASE RENT. The amount of Lessee's monthly base rental payments
shall be dependent upon whether Lessor obtains the funding for the
Improvement Loan. In the event that Lessor provides to Lessee the funding for
the Improvement Loan prior to the Rent Commencement Date, Lessee shall pay to
Lessor, beginning on the Rent Commencement Date, the amounts set forth under
Column A of Exhibit A-1, "Schedule of Monthly Base Rental Payments", as its
Base Rent. In the event that Lessor does not provide the funding for the
Improvement Loan, Lessee shall pay to Lessor, beginning on the Rent
Commencement Date, the amounts set forth under Column B of Exhibit A-1,
"Schedule of Monthly Base Rental Payments", as its Base Rent. In the event
that Lessor provides the funding for the Improvement Loan subsequent to the
Rent Commencement Date, the amount of the Improvement Loan proceeds payable
by Lessor to Lessee shall be reduced by Twenty Thousand Dollars ($20,0000)
for each month after the Rent Commencement Date. Upon the providing of the
Improvement Loan proceeds by Lessor to Lessee, Lessee shall, in the
succeeding month and every month thereafter, pay the amounts set forth under
Column A of Exhibit A-l, "Schedule of Monthly Base Rental Payments" as its
Base Rent. For example, if the Rent Commencement Date is November 1, 1991 and
if on December 30, 1991 Lessor provides to Lessee funding for the Improvement
Loan, the amount of the Improvement Loan proceeds would be $535,000.00 and,
beginning January 1, 1992 (Month 3), Lessee's Monthly Base Rent would be
$21,381.00. Upon execution of this Lease, Lessee shall pay Lessor Twenty-One
Thousand Three Hundred Eighty-One no/100 dollars ($21,381.00) as Base Rent
for the first month in which rent is due. Rent shall be payable in lawful
money of the United States to Lessor at the address stated herein or to such
other persons or at such other places as Lessor may designate in writing.
4.3 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined,
of all Operating Expenses, as hereinafter defined, during each calendar year
of the term of this Lease.
(a) "Lessee's Share" is defined, for purposes of this Lease,
as sixty (60) percent.
(b) "Operating Expenses" is defined, for purposes of this
Lease, as all costs incurred by Lessor, if any, for:
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(i) The operation, repair and maintenance, in neat,
clean, good order and condition, such portions of the Building as Lessor is
responsible for maintaining under the terms of this Lease.
(ii) The cost of the premiums for the liability and
property insurance policies required to be maintained by Lessor under
paragraph 8 hereof (but not to the extent that such policy limits exceed
those required by paragraph 8).
(iii) The amount of the real property tax to be paid by
Lessor under paragraph 10.1 hereof.
Notwithstanding the foregoing, the following shall be explicitly excluded
from Operating Expenses:
(1) Expenditures required by Lessor's failure to
comply with laws enacted on or before the date of this Lease;
(2) Costs incurred by Lessor for repair of damage to
the Building and costs attributable solely to tenants of the Building other
than Lessee;
(3) Costs, including permits, license and inspection
costs, incurred with respect to the installation of tenant improvements made
for tenants in the Building or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for other occupants of the
Building;
(4) Costs incurred by Lessor for maintenance,
repairs or alterations which are considered capital improvements and
replacements under generally accepted accounting principles, consistently
applied;
(5) Costs incurred by Lessor due to the violation by
Lessor or any other tenants of the terms and conditions of any other tenants
leasing of space in the Building.
(c) The inclusion of the improvements, facilities and services
set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses
shall not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the Industrial
Center already has the
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same, Lessor already provides the services, or Lessor has agreed elsewhere in
this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of
annual Operating Expenses and the same shall be payable monthly or quarterly,
as Lessor shall designate, during each twelve-month period of the Lease term,
on the same day as the Base Rent is due hereunder. In the event that Lessee
pays Lessor's estimate of Lessee's Share of Operating Expenses as aforesaid,
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of
the actual Operating Expenses incurred during the preceding year. If Lessee's
payments under this paragraph 4.2(d) during said preceding year exceed
Lessee's Share as indicated on said statement, Lessee shall be entitled to a
refund of the amount of such overpayment. if Lessee's payments under this
paragraph during said preceding year were less than Lessee's share as
indicated on said statement, Lessee shall pay to Lessor the amount of the
deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement.
(e) Lessor shall provide to Lessee documents substantiating
all of Lessor's Operating Expenses which Lessee is obligated to pay under
this Lease. Should there be a discrepancy between Lessee's share of Operating
Expenses set forth in the statement and Lessee's share of Operating Expenses
actually incurred then the party who was benefited by such discrepancy shall
pay the other party the amount of the discrepancy within thirty (30) days
after receiving notice of the discrepancy.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof $21,381.00 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which Lessor may suffer
thereby. If Lessor so uses or applies all or any portion of said deposit,
Lessee shall within ten (10) days after written demand therefor deposit cash
with Lessor in an amount sufficient to restore said deposit to the full
amount then required of Lessee. Lessor shall not be required
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to keep said security deposit separate from its general accounts. If Lessee
is not in default upon termination of the Lease, said deposit, or so much
thereof as has not theretofore been applied by Lessor, shall be returned,
without payment of interest or other increment for its use, to Lessee at the
expiration of the term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect
to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for general
office purposes, sales, manufacturing, warehousing, shipping and support or
any other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants
or restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the
obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event
Lessee does not give to Lessor written notice of the violation of this
warranty within six months from the date that the lease term commences, the
correction of same shall be the obligation of the Lessee at Lessee's sole
cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record now in
effect or which may hereafter come into effect, whether or not they reflect a
change in policy from that now existing, during the term or any part of the
term hereof, relating in any manner to the Premises and the occupation and
use by Lessee of the Premises and of the Common Areas. Lessee shall not use
nor permit the use of the Premises or the Common Areas in any manner that
will create waste or a nuisance or shall unreasonably disturb other occupants
of the Property.
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6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on the Lease commencement date {unless Lessee is already in
possession) and Lessor warrants to Lessee that, subject to the qualifications
set forth in this paragraph 6.3(a), the plumbing, lighting, air conditioning
(if any), heating and loading doors, shall be in good operating condition on
the Rent Commencement Date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the
nature of the violation, to promptly, at Lessor's sole cost, rectify such
violation. With respect to the warranty as to the condition of the Premises,
but not the warranty of legal compliance, Lessee's failure to give such
written notice to Lessor within thirty (30) days after the Lease Commencement
Date shall cause the conclusive presumption that Lessor has complied with all
of Lessor's obligations hereunder.
(b) The parties acknowledge that the fire sprinkler system in
the Building presently is not capable of performing at the standard for
Lessee's specific use of the premises. Conditioned upon the terms set forth
below, Lessor agrees to install a fire sprinkler system so that it meets or
exceeds the standards necessary for Lessee's specific use of the Premises and
to add fire sprinklers to the paint booths and acid etch room to be
constructed within the Premises. The costs of such sprinkler installation and
repair shall be borne by Lessee and Lessor as follows: The first Seventy-five
Thousand Dollars ($75,000.00) shall be the obligation of Lessee. Any costs in
excess of Seventy-five Thousand Dollars ($75,000.00) shall be the obligation
of Lessor. In no event shall Lessee's portion of such costs exceed
Seventy-Five Thousand Dollars ($75,000.00). Such sprinkler installation and
repair shall be immediately begun upon either Lessor or Lessee obtaining the
financing for the Improvement Loan set forth in paragraph 48.
(c) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises,
and any covenants or restrictions of record, and accepts this Lease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made
any representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.
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7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs
4.2 (Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage
or Destruction) and except for damage caused by any negligent or intentional
act or omission of Lessee, Lessee's employees, suppliers, shippers,
customers, or invitees, in which event Lessee shall repair the damage (to the
extent uninsured by Lessor). Lessor, at Lessor's expense, subject to
reimbursement pursuant to paragraph 4.2, shall keep in good condition and
repair the foundations, exterior walls, the Common Areas (except as otherwise
provided herein) and roof of the Premises, as well as providing the services
for which there is an Operating Expense pursuant to paragraph 4.2. Lessor
shall have no obligation to make repairs under this paragraph 7.1 until a
reasonable time after receipt of written notice from Lessee of the need for
such repairs. Lessor shall not, however, be obligated to paint the exterior
or interior surface of exterior walls, nor shall Lessor be required to
maintain, repair or replace windows, doors or plate glass of the Premises.
Lessor shall not be liable for damages or loss of any kind or nature by
reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of Lessor.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraphs 6 (Use, 7.1
(Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's
expense, shall keep in good order, condition and repair the Premises and
every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to
Lessee) including, without limiting the generality of the foregoing, all
rplumbing, heating, ventilating and air conditioning systems, electrical and
lighting facilities and equipment within the Premises, fixtures, interior
walls and interior surfaces of exterior walls, ceilings, windows, doors,
plate glass, and skylights located within the Premises, the structural
condition of interior load bearing walls and roof membrane. Lessee shall
maintain the landscaping on the Property, all parking lots on the Property
and the walkway, if any, constructed pursuant to paragraph 2.2, at its cost
and expense subject to reimbursement as set forth below. Lessee shall bill
Lessor for: (i) a percentage of the costs incurred in maintaining the south
parking lot equal to the percentage obtained by dividing the number of spaces
Lessee does not have the exclusive use of in such south parking lot by the
total number of spaces in such south parking lot; and (ii) the costs incurred
in maintaining the landscaping on the Property that lies south of the east-
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west line running through the most southerly point of the Premises (excluding
the boiler room).
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter
upon the Premises after ten (10) days' prior written notice to Lessee (except
in the case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at the
maximum rate then allowable by law shall be due and payable as additional
rent to Lessor together with Lessee's next Base Rent installment.
(c) On the last date of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave all components of
the Premises that existed prior to the execution of this Lease and all tenant
improvements (other than those pertaining to production or to mechanical ' or
electrical systems). Lessor may require the removal or Lessee may elect to
remove any or all of the Manufacturing Improvements and/or improvements
pertaining to production or to mechanical or electrical systems. Lessee shall
repair any damage caused by such removal and restore the effected portion of
the Premises to its pre-lease condition, reasonable wear and tear excepted.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee may, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises that it desires; provided that Lessee shall make no change
or alteration to the exterior of the Premises nor the exterior of the
building nor the Property without Lessor's prior written consent; and
provided further that such alteration is and is carried out in compliance
with all applicable laws. As used in this paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters,
air conditioning, plumbing, and fencing. Unless Lessee has obtained Lessor's
written consent to its leaving the alterations, Lessor may require that
Lessee remove (or
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Lessee may voluntarily remove) any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term, and restore
the Premises and the Property to their prior condition. Lessor may require
Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to the estimated cost of such
improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Property that Lessee shall
desire to make and which requires the consent of the Lessor shall be
presented to Lessor in written form, with proposed detailed plans. If Lessor
shall give its consent, the consent shall be deemed conditioned upon Lessee
acquiring a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Lessor prior to the commencement of the work
and the compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any mechanic's
or materialmen's lien against the Premises, or the Property, or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Property, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a
surety bond satisfactory to Lessor in an amount equal to such contested lien
claim or demand indemnifying Lessor against liability for the same and
holding the Premises and the Property free from the effect of such lien or
claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees
and costs in participating in such action if Lessor shall decide it is to
Lessor's best interest to do so.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas
for the benefit of Lessor or Lessee, or any other Lessee of the Property,
including, but not by way of limitation, such utilities as plumbing,
electrical systems, security systems,
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communication systems, and fire protection and detection systems, so long as
such installations do not unreasonably interfere with Lessee's use of the
Premises. Notwithstanding any provision of this Lease to the contrary, Lessor
shall take no action that would violate Lessee's security clearance or
obligations as a government contractor; provided that this sentence shall not be
construed to prevent Lessor from exercising its remedies under paragraph 13.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE -- LESSEE. Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this Lease a policy of
Combined Single Limit Bodily Injury and Property Damage Insurance insuring
Lessee and Lessor against any liability arising out of the use, occupancy or
maintenance of the Premises and the Property. Such insurance shall be in an
amount not less than $1,000,000.00 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder. The insurance required by this paragraph may be maintained by a
rider to Lessee's existing blanket liability coverage. Each party shall
require its insurer to provide notice of cancellation to the additional
insured.
8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in
force during the term of this lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor, but not Lessee,
against any liability arising out of the ownership, use, occupancy or
maintenance of the Property in an amount not less than $500,000.00 per
occurrence. The policy shall insure the performance by Lessor of the
indemnity provisions of paragraph 8.7. The limits of said insurance shall
not, however, limit the liability of Lessor hereunder.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Property improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the
full replacement value thereof, as the same may exist from time to time,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, flood (in the event
same is required by a lender having a lien on the Premises) special extended
perils ("all risk", as such term is used in the insurance industry). In
addition, Lessor shall obtain and keep , in force, during the term of this
Lease, a policy of rental value insurance covering a period of one year, with
loss payable to Lessor, which insurance shall also cover
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all Operating Expenses for said period. In the event that the Premises shall
suffer an insured loss as defined in paragraph 9.1(g) hereof, the deductible
amounts under the casualty insurance policies relating to the Premises shall be
paid by Lessee: provided such deductible amount does not exceed $5,000.00.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall
not be responsible for paying Lessee's Share of any increase in the Property
insurance premium for the Property specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other Lessee of the
Property, or by the nature of such other Lessee's occupancy which create an
extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in
the property insurance premium for the Property over what it was immediately
prior to the commencement of the term of this Lease if the increase is caused
by the nature of Lessee's occupancy, but not by the fact that the Building is
now occupied (as opposed to unoccupied), or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender having a lien on the
Premises, as set forth in the most current issue of "Best's Insurance Guide."
Each party shall not do or permit to be done anything which shall invalidate
the insurance policies carried by the other party. Each party shall deliver
to the other party copies of liability insurance policies required under
paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance within seven (7) days after the commencement date of this Lease. No
such policy shall be cancellable or subject to reduction of coverage or other
modification except after thirty (30) days prior written notice to the other
party. Each party shall name the other party as an additional insured. Each
party shall, at least thirty (30) days prior to the expiration of such
policies, furnish the other party with renewals or "binders" thereof. Each
policy shall contain a cross-liability provision.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release
and relieve the other, and waive their entire right of recovery against the
other for loss or damage arising out of or incident to the perils insured
against which perils occur in, on or about the Premises, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor
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shall, upon obtaining the policies of insurance required give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease.
8.7 INDEMNITY.
(a) Except for Lessor's negligence or willful misconduct,
Lessee hall indemnify and hold harmless Lessor from and against any and all
claims arising from Lessee's use of the Property, or from the conduct of
Lessee's business or from any activity, work or things done by Lessee on the
property and shall further indemnify and hold harmless Lessor from and
against any and all claims arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the
terms of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, or employees.
(b) Lessor shall indemnify and hold harmless Lessee from and
against any and all claims arising from any breach or default in the
performance of any obligation on Lessor's part to be performed under the
terms of this Lease.
(c) The indemnities set forth in this paragraph 8.7 shall
survive the termination of this Agreement.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom. Except for Lessor's negligence or willful misconduct,
Lessor shall not be liable for any damages arising from any act or neglect of
any other lessee, occupant or user of the Property, nor from the failure of
Lessor to enforce the provisions of any other lease of the Property.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.
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(b) "Premises Total Destruction" shall mean if the Premises
are damaged or destroyed to the extent that the cost of repair is fifty
percent or more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is less than fifty percent of the then
replacement cost of the Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is fifty percent or more of the then
replacement cost of the Building.
(e) There is no paragraph 9.1(e) to this Lease.
(f) There is no paragraph 9.1(f) to this Lease.
(g) "Insured Loss" shall mean damage or destruction which was
covered by an event required to be covered by the insurance described in
paragraph 8. The fact that an insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring excluding
all improvements made by Lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5. if at any time during the term of this Lease there is damage which
is an insured Loss and which falls into the classification of either Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage to the Premises, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible
and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs
9.4 and 9.5, if at any time during the term of this lease there is damage
which is
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not an Insured Loss and which falls within the classification of Premises
partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease as of the date of the occurrence of such damage. In the event Lessor
elects to give such notice of Lessor's intention to cancel and terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's intention to repair
such damage at Lessee's expense, without reimbursement from Lessor, in which
event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does
not give such notice within such 10-day period this Lease shall be cancelled
and terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL
DESTRUCTION; THE PROPERTY TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage, whether or not it is
an Insured Loss, and which falls into the classifications of either (i)
Premises Total Destruction, or (ii) Premises Building Total Destruction, then
Lessor may at Lessor's option either (i) repair such damage or destruction,
but not Lessee's fixtures, equipment or tenant improvements, as soon as
reasonably possible at Lessor's expense, and this Lease shall continue in
full force and effect, or (ii) give written notice to Lessee within thirty
(30) days after the date of occurrence of such damage of Lessor's intention
to cancel and terminate this lease, in which case this lease shall be
cancelled and terminated as of the date of the occurrence of such damage.
Lessee shall have the same option to terminate the Lease on the same terms
and conditions applicable to Lessor under this paragraph 9.3. If Lessee
chooses to terminate under this paragraph, it shall pay to Lessor the
Improvement Loan Balance.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the
last six months of the term of this lease there is substantial damage,
whether or not an Insured Loss, which falls within the classification of
Premises Partial Damage,
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Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than twenty (20) days after
the occurrence of an Insured Loss falling within the classification of
Premises Partial Damage during the last six months of the term of this Lease.
If Lessee duly exercises such option during said twenty (20) day period,
Lessor shall, at Lessor's expense, repair such damage, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible
and this lease shall continue in full force and effect. If Lessee fails to
exercise such option during said twenty (20) day period, then Lessor.may at
Lessor's option terminate and cancel this Lease as of the expiration of said
twenty (20) day period by giving written notice to Lessee of Lessor's
election to do so within ten (10) days after the expiration of said twenty
(20) day period, notwithstanding any term or provision in the grant of option
to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises
pursuant to the provisions of this paragraph 9. the rent payable hereunder
for the period during which such damage, repair or restoration continues
shall be abated in proportion to the degree to which Lessee's use of the
Premises is impaired.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may at Lessee's option cancel and terminate this Lease by
giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement of such repair or restoration. In such event this Lease
shall terminate as of the date of such notice.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security
deposit as has not theretofore been applied by Lessor.
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9.7 WAIVER. Lessor and Lessee waive the provisions of any statute
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3 applicable to the Property subject to reimbursement
by Lessee of Lessee's Share of such taxes in accordance with the provisions
of paragraph 4.2. except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying Lessee's Share of any increase in real property tax caused by any sale
or other transfer of the Property or by additional improvements placed upon
the Property by other Lessees or by Lessor for the exclusive enjoyment of
such other Lessees. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Property or any portion
thereof by any authority having the direct or indirect power to tax,
including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Property
or in any portion thereof, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Property.
10.4 There is no paragraph 10.4 to this Lease.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the
real property of Lessor.
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(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
the Premises, Lessee shall pay Lessee's Share of all charges jointly metered
with other premises in the Building.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be void, and
shall constitute a breach of this Lease without the need for notice to Lessee
under paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or to any corporation
resulting from the merger or consolidation with Lessee, or to any person or
entity which acquires all the assets of Lessee as a going concern of the
business that is being conducted on the Premises, all of which are referred
to as "Lessee Affiliate," provided that before such assignment shall be
effective said assignee shall assume, in full, the obligations of Lessee
under this Lease. Any such assignment shall not, in any way, affect or limit
the liability of Lessee under the terms of this Lease.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's
consent, no assignment shall release Lessee of Lessee's obligations hereunder
or alter the primary liability of Lessee to pay the Base Rent and Lessee's
Share of Operating Expenses, and to perform all other obligations to be
performed by Lessee hereunder. Lessor may accept rent from any person other
than Lessee
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pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies
for the breach of any of the terms or conditions of this paragraph 12 or this
Lease. Consent to one assignment shall not be deemed consent to any
subsequent assignment. In the event of default by any assignee of Lessee or
any successor of Lessee, in the performance of any of the terms hereof,
Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included
in subleases:
(a) There is no paragraph 12.4(a) to this Lease.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into
any sublease, Lessee shall use only such form of sublease as is satisfactory
to Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by
reason of entering into a sublease under this Lease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in a
sublease to which Lessor has expressly consented in writing.
(c) If Lessee's obligations under this Lease have been
guaranteed by third parties, then a sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to
such sublease and the terms thereof.
(d) The consent by Lessor to any subletting shall not release
Lessee from its obligations or alter the primary liability of Lessee to pay
the rent and perform and comply with all of the obligations of Lessee to be
performed under this lease.
(e) The consent by Lessor to any subletting shall not
constitute a consent to any subsequent subletting by Lessee or to any
assignment or subletting by the sublessee.
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(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible
for the performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease
from the time of the exercise of said option to the termination of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(h) Each and every consent required of Lessee under a sublease
shall also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises
by Lessee shall not constitute an acknowledgement that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall such
consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee
to the sublessee. Such sublessee shall have the right to cure a default of
Lessee within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet
the Premises or request the consent of Lessor to any assignment or subletting
or if Lessee shall request the consent of Lessor for any act Lessee proposes
to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in
connection therewith, such attorneys fees not to exceed $350.00 for each such
request.
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13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written
notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee
with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(b) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the covenants, conditions or provisions
of' this Lease to be observed or performed by Lessee where such failure shall
continue for a period of thirty (30) days after written notice thereof from
Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion. To the extent permitted by
law, such thirty (30) day notice shall constitute the sole and exclusive
notice required to be given to Lessee under applicable Unlawful Detainer
statutes.
(c) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becomes a
"debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto
(unless, in the case of a petition filed against Lessee, the same is
dismissed within ninety (90) days; (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located
at the premises or of Lessee's interest in this Lease, where possession is
not restored to Lessee within sixty (60) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within sixty (60) days. In the event that any
provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(d) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
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successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 REMEDIES. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises
to Lessor. In such event Lessor shall be entitled to recover from Lessee all
damages incurred by Lessor by reason of Lessee's default including, but not
limited to, the cost of recovering possession of the Premises; Improvement
Loan Balance; expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorney's fees, and any real estate
commission actually paid; the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent for the balance
of the term after the time of such award exceeds the amount of such rental
loss for the same period that Lessee proves could be reasonably avoided; that
portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all
of Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder and the Improvement Loan Balance.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary
obligations of Lessee under the terms of this Lease shall bear interest from
the date due at the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable
time, but in no event later than thirty (30) days after written notice by
Lessee to Lessor and to the holder of any first mortgage or deed of trust
covering the Premises whose name and address shall have theretofore been
furnished to Lessee in writing, specifying wherein Lessor has failed to
perform such obligation; provided, however, that if the
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nature of Lessor's obligation is such that more than thirty (30) days are
required for performance then Lessor shall not be in default if Lessor
commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Suck costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed on Lessor by the terms of any
mortgage or trust deed covering the Property. Accordingly, if any installment
of Base Rent, Operating Expenses, or any other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to 3% of such overdue amount.
The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue amount,
nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of any of
the aforesaid monetary obligations of Lessee, then Base Rent shall
automatically become due and payable quarterly in advance, rather than
monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the
Property are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs. If more than ten percent of the floor area of the Premises, or more
than twenty-five percent of that portion of the Common Areas designated as
parking for the Property is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing only within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of
such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the premises remaining, except that the rent
shall be reduced in the proportion that the
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floor area of the Premises taken bears to the total floor area of the
Premises. No reduction of rent shall occur if the only area taken is that
which does not have the Premises located thereon. Any award for the taking of
all or any part of the Premises under the power of eminent domain or any
payment made under threat of the exercise of such power shall be the property
of Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold or for the taking of the fee, or as severance damages,
provided, however, that Lessee shall be entitled to any award for loss or
damage to Lessee's trade fixtures and removable personal property. In the
event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of severance damages received by Lessor in
connection with such condemnation, repair any damage to the Premises caused
by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess
of such severance damages required to complete such repair.
15. BROKER'S FEE. Lessor shall pay all brokerage commissions arising out
of this transaction in accordance with the terms of a separate brokerage
agreement. Such commissions shall include, without limitation, those due to
McMasters & Westland/TRI, Coldwell Banker and Tom Bridges.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days prior written notice from the other party
("requesting party") execute, acknowledge and deliver to the requesting party
a statement in writing (i) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to the responding
party's knowledge, any uncured defaults on the part of the requesting party,
or specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises or of the business of the requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it
shall be conclusive upon such party that (i) this Lease is in full force and
effect, without modification except as may be represented by the requesting
party, (ii) there are no uncured
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defaults in the requesting party's performance, and (iii) if Lessor is the
requesting party, not more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Property,
or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean
only the owner or owners, at the time in question, of the fee title or a
Lessee's interest in a ground lease of the Property, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of
all liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of Lessor or the then grantor at the
time of such transfer, in which Lessee has an interest, shall be delivered to
the grantee. The obligations contained in this Lease to be performed by
Lessor shall, subject as aforesaid, be binding on Lessor's successors and
assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at
the maximum rate then allowable by law from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the
obligations to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor
under the terms of this Lease, including but not limited to Lessee's share of
Operating
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Expenses, insurance and tax expenses payable, and payments under Paragraph 48 of
this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease
contains all agreements of the parties with respect to any matter mentioned
herein. No prior or contemporaneous agreement or understanding pertaining to
any such matters shall be effective. This Lease may be modified in writing
only, signed by the parties in interest at the time of the modification.
Except as otherwise stated in this Lease, Lessee hereby acknowledges that
neither the real estate broker listed in paragraph 15 hereof nor any
cooperating broker on this transaction nor the Lessor or any employee or
agents of any of said persons has made any oral or written warranties or
representations to Lessee relative to the condition or use by Lessee of the
Premises or the Property and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use
and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted by the terms of this
Lease shall be given in writing and may be given by personal delivery or by
certified mail. Such notice shall be deemed sufficiently given if addressed
to Lessee or to Lessor at the address noted below the signature of the
respective parties, as the case may be. Notices shall be deemed delivered
upon delivery, if delivered personally, or five (5) days after deposit in the
United States Mail with proper postage and address. either party may by
notice to the other specify a different address for notice purposes. Upon
Lessee's taking possession of the Premises, the Premises shall automatically
become Lessee's address for notice purposes unless otherwise specified.
24. WAIVERS. No waiver by either party of any provision hereof
shall be deemed a waiver of any other provision hereof or of any subsequent
breach by the other party of the same or any other provision. A party's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of that party's consent to or approval of any subsequent act.
The acceptance of rent hereunder by Lessor shall not be a waiver of any
preceding breach by Lessee of any provisions hereof other than the failure of
Lessee to pay the particular rent so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of acceptance of such rent.
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25. RECORDING. Either Lessor or Lessee shall, upon request of the
other, execute, acknowledge and deliver to the other a "short form"
memorandum of this Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in
possession of the Premises or any part thereof after the expiration of the
term hereof, such occupancy shall be a tenency from month to month upon all
the provisions of this Lease pertaining to the obligations of Lessee, but all
Options, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease shall be
deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
of paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Property is located and any litigation concerning
this Lease between the parties hereto shall be initiated in the county in
which the Property is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's
option, shall be subordinate to any ground lease, mortgage, deed of trust, or
any other hypothecation or security now or hereafter placed upon the Property
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of
this lease, unless this Lease is otherwise terminated pursuant to its terms.
If any mortgagee, trustee or ground Lessor shall elect to have this Lease and
any Options granted hereby prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Lessee, this Lease
and such Options shall be deemed prior to such
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mortgage, deed of trust or ground lease, whether this Lease or such Options
are dated prior or subsequent to the date of said mortgage, deed of trust or
ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to
effectuate an attornment, a subordination or to make this Lease or any Option
granted herein prior to the lien of any mortgage, deed of trust or ground
lease, as the case may be. Lessee's failure to execute such documents within
ten (10) days after written demand shall constitute material default by
Lessee hereunder without further notice to Lessee or, at Lessor's option,
Lessor shall execute the document attached as Exhibit B on behalf of Lessee
as Lessee's attorney-in-fact. Lessee does hereby make, constitute and
irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name,
place and stead, to execute such document in accordance with this paragraph
30(b).
31. ATTORNEY'S FEES. If either party named herein bring an action
to enforce the terms hereof or declare rights hereunder, the prevailing party
in any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the
right to enter the Premises at reasonable times upon one day's advance
written notice (except in emergencies) for the purpose of inspecting the
same, showing the same to prospective purchasers, lenders, or Lessees, and
making such alterations, repairs, improvements or additions to the Premises
or to the building of which they are part as Lessor may deem necessary or
desirable. Lessor may at any time during the last 180 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities
of Lessor pursuant to this paragraph shall be without abatement of rent, nor
shall Lessor have any liability to Lessee for the same. Notwithstanding any
provision of this Lease to the contrary, Lessee may absolutely exclude Lessor
from any portion of the Premises that Lessee must keep secure in order to
maintain its security clearance or its status as a government contractor;
provided that this sentence shall not be construed to prevent Lessor from
exercising remedies under paragraph 13.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises or the
Common Areas without first having obtained Lessor's prior written consent.
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34. SIGNS. Lessee may place any signage it desires upon the outside
of the exterior walls of the Premises, within the Premises, or upon the roof
of the Premises without Lessor's consent; provided that such signage conforms
with any signage ordinances or programs in effect within the industrial park
in which the Leased Premises are located. Lessor may require that Lessee
remove any signage at the end of the Lease term, as extended, and Lessee
shall repair any damage to the Property occasioned by its installation,
maintenance, or removal of its signage.
35. MERGER. The voluntary or other surrender of this Lease by
Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall
not work a merger.
36. CONSENTS. Wherever in this Lease the consent of one party is
required to an act of the other party such consent shall not be unreasonably
withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this
Lease, said guarantor shall have the same obligations as Lessee under this
Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises
and observing and performing all of the covenants, conditions and provisions
on Lessee's part to be observed and performed hereunder, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease. The individuals executing this Lease on behalf
of Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Property.
39. OPTION TO EXTEND TERM.
39.1 OPTION. Provided Lessee is not in default in the
performance of any of its obligations under this Lease, Lessee shall have the
right, at its option, to extend the term of this Lease for five (5) years
(the "Extended Term"). The lease of the Premises during the Extended Term
shall be upon the same terms, covenants and conditions as are set forth in
this Lease other than "rent", "term of the leasehold" and "this Option." If
Lessor does not receive from Lessee written notice of Lessee's exercise of
this option the "Option Notice") before the date one hundred eighty (180)
days prior to the termination of the initial ten (10) year lease term, this
option shall terminate.
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<PAGE>
39.2 RENT.
(a) The monthly rent for the first year of the Extended Term
shall be determined as follows: The Consumer Price Index ("CPI") figure shall
be established the month of March, 1991, and the month of March, 2001. The
Base Rent for the first month of the Extended Term shall be equal to the
greater of (i) the preceding month's rent or (ii) $21,381.00 increased by the
same percentage, if any, by which the March, 2001, CPI figure shall have
increased over the March, 1991, CPI figure. As used herein, the term
"Consumer Price Index" shall refer to the "Consumer Price Index For All Urban
Consumers San Francisco-Oakland Metropolitan Area (All Items)" compiled by
the U.S. Department of Labor, Bureau of Labor Statistics (1982-84 equals
100). If the CPI should hereafter be changed, then the new base shall be
converted to the 1982-84 base and the base as so converted shall be used. In
the event that the Bureau shall cease to publish the Consumer Price Index,
then the successor or most nearly comparable index thereto shall by used. The
monthly rent for years two through five of the Extended term shall be
determined by a three (3) percent increase from the immediately preceding
year's monthly rent.
(b) After the initial monthly rent for the Extended Term has
been set, Lessee shall have the option to let this Lease expire at the end of
the initial term. Lessee's election to allow this Lease to expire at the end
of the initial term must be exercised within ten (10) days after receipt of
notice from the Lessor of the initial monthly rent for the Extended Term. If
Lessee does not exercise its election within the ten (10) day period, the
term of the Lease shall be extended as provided in this paragraph.
39.3 EFFECT OF DEFAULT. Notwithstanding the timely giving of the
Option Notice, if Lessee is in default of any provision of the Lease on the
date of commencement of the Extended Term at Lessor's option, all rights of
Lessee under this option shall terminate and be of no force and effect.
40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have
no obligation whatsoever to provide guard service or other security measures
for the benefit of the premises or the Property. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Property or any part
thereof.
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<PAGE>
41. EASEMENTS. Lessor reserves to itself the right, from time to time,
to grant such easements, rights and dedications that Lessor deems necessary
or desirable, and to cause the recordation of Parcel Maps and restrictions,
so long as such easements, rights, dedications, Maps and restrictions do not
interfere with the use of the Premises and parking lots by Lessee. Lessee
shall sign any of the aforementioned documents upon request of Lessor and
failure to do so shall constitute a material default of this Lease by Lessee
without the need for further notice to Lessee.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as
to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment, and there shall survive
the right on the part of said party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said party to pay such sum or any part thereof, said party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
43. AUTHORITY. If a party is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If a party is a corporation,
trust or partnership, it shall, within thirty (30) days after execution of
this Lease, deliver to the other party evidence of such authority
satisfactory to such party.
44. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions, if any, shall be controlled by
the typewritten or handwritten provisions.
45. There is no paragraph 45 to this Lease.
46. There is no paragraph 46 to this Lease.
47. PREMISES IMPROVEMENTS, ALTERATIONS AND REPAIRS. At Lessor's sole
cost and expense, thirty (30) days prior to the Rent Commencement Date,
Lessor shall make the improvements to the Premises set forth on Exhibit C,
Schedule of Financial Obligations, which is incorporated herein. Those
improvements set forth
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<PAGE>
on Exhibit C are the only improvements for which Lessor is obligated to pay.
Upon Lessor or Lessee obtaining financing for the Improvement Loan specified
in paragraph 48, Lessor shall deposit Two Hundred Thousand Dollars
($200,000.00), less any amounts previously expended by Lessor on its
financial obligations under this Lease, into an escrow account of its
choosing to be used in payment of Lessors financial obligations under this
Lease.
47.1 OFFICE SPACE. Lessor shall "spruce-up" the Office Space, as
identified on Exhibit A. Such may include (a) the replacement of existing
carpets with new standard grade carpets or, at the option of Lessee,
"BurkeBase," (b) the repainting of the entire area and the painting or
replacement of all other types of wall treatments and ceiling tiles, (c)
where necessary, the repair or replacement of window treatments, (d) where
necessary, the repair or replacement of electrical and plumbing fixtures and
(e) the repair or replacement of all HVAC, electrical, and plumbing such that
all systems are in good operating condition. Burke Industries' products shall
be used in the refurbishment when and where possible.
47.2 WAREHOUSE AREA. Where necessary, Lessor shall repair or
replace, all existing systems within the warehouse portion of the Premises to
assure that they are in good working order. Such systems include all HVAC,
electrical, plumbing and loading doors. Lessor shall assure that all doors,
windows, lights and restrooms are in proper working order. Lessor shall
install lighting such that an illumination of 70 Lumens is maintained
throughout the warehouse area.
47.3 RAILROAD SIDING. The parties acknowledge that a below
floor-level railroad siding (the "Siding") is located within the Premises.
Prior to Lessee's occupancy of the Premises, Lessor shall either (i)
construct a framework over the Siding and cover such framework with a
flooring material reasonably satisfactory to Lessee in such a manner that the
flooring material is flush with the existing floor. or (ii) surround the
Siding with a safety barrier and decrease the monthly Base Rent for the
Premises throughout the term of this Lease and any extension hereof
proportionately to the decrease in the rentable square footage of the
Premises occasioned by the loss of use of the area within such safety barrier.
47.4 SEPARATE CLARIFIER. When another tenant occupies the Building,
Lessor shall install, at its sole cost and expense, a clarifier which will
enable a governmental agent to test the sewage generated by tenants in the
Building other than Lessee.
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48. IMPROVEMENT LOAN. Lessor and Lessee shall each use its best
efforts to obtain financing to pay for Lessee's installation of Manufacturing
Improvements($500,000.00) and Lessee's portion of the installation of the new
sprinkler system ($75,000.00), a total of Five Hundred Seventy-Five Thousand
Dollars ($575,000.00) (hereinafter, the "Improvement Loan"). Lessor shall use
its best efforts to obtain the best rates and conditions available for the
financing. If the financing for the Improvement Loan is obtained by the
Lessor, Lessee shall pay Lessor, in addition to the Base Rent as set forth in
paragraph 4, the Improvement Loan, amortized over a ten-year term at the same
interest rate being paid by Lessor for the financing of the Improvement Loan.
However, if this Lease is terminated earlier than ten years, the Improvement
Loan Balance, as defined below, shall be paid by Lessee to Lessor upon said
earlier termination. Lessee shall also be responsible for the payment of its
proportionate percentage of costs associated with Lessor's obtaining the
financing for the Improvement Loan, and Lessee shall immediately reimburse
Lessor for such costs paid by Lessor. For example, if Lessor finances a total
of Eight Hundred Fifty Thousand Dollars ($850,000), Lessee's proportionate
percentage of financing costs shall be 68% (575,000.00 DIVIDED BY 850,000.00).
Wherever used in this Lease, the term "Improvement Loan Balance" shall mean
the amount of the initial Improvement Loan plus interest accrued thereon
minus all payments made by Lessee to Lessor towards the Improvement Loan. The
proceeds of the Improvement Loan shall be used by Lessee for the acquisition
and installation of certain processing and manufacturing improvements to be
installed by Lessee (the "Manufacturing Improvements") ($500,000.00) and for
Lessee's portion of the costs of the sprinkler system as described in
paragraph 6.3(b) ($75,000.00). If the cost of the Manufacturing Improvements
exceeds Five Hundred Thousand Dollars ($500,000.00), then Lessee shall pay
the amount of such excess (together with all other costs and expenses which
are not the responsibility of Lessor under paragraphs 6(b), 47 and 52). If
the financing for the Improvement Loan is obtained by Lessee, the costs of
obtaining such shall be exclusively the responsibility of Lessee. In the
event financing for the Improvement Loan is obtained by the Lessee, Lessor
shall have the right to continue to seek financing for the Improvement Loan,
and if Lessor subsequently obtains financing for the Improvement Loan, Lessor
may pay such to Lessee pursuant to the terms of paragraph 4 of this Lease. In
the event that neither Lessor nor Lessee has obtained financing for the
Improvement Loan by November 1, 1991, either party may terminate this Lease
by providing written notice to the other party. In the event this Lease is
terminated pursuant to this provision, neither party shall be obligated to
reimburse the other party for any funds expended in connection with any
aspect of this Lease; however, Lessor shall return the amount of the Security
Deposit to Lessee.
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49. LEASE TERMINATION. Beginning six (6) years after the Rent
Commencement Date, Lessee shall have the right to terminate this Lease at
any time upon six (6) months advance written notice to Lessor, upon full
payment of the Improvement Loan Balance and payment of Additional Rent. Upon
such termination all terms set forth in paragraph 7.2(c) shall apply. The
amount of Additional Rent to be paid shall be determined by the date Lessee
provides Lessor with Notice of Termination as set forth below:
DATE NOTICE OF TERMINATION GIVEN ADDITIONAL RENT
Months 67 through 78 6 months of base rent
Months 79 through 90 5 months of base rent
Months 91 through 102 4 months of base rent
Months 103 through 120 3 months of base rent
50. EXPANSION RIGHT. If during the term of this Lease, or any
extension thereof, there is unoccupied (available) space in the Building,
Lessee may lease all or a portion of said available space for a period as
long as the remainder of the term plus any Extended Term or as short as one
year at the then prevailing rental rate per square foot to be paid by Lessee
for the Premises under Column A of Exhibit A-1, "Schedule of Monthly Base
Rental Payments". For example, if beginning with Month 30 of the Lease,
Lessee choses to lease an additional 10,000 square feet of the Premises for
one year, Lessee's additional Base Monthly Rent would be $2,122
[$22,682 DIVIDED BY 106,906 x 10,000] for months 30 through 36 and $2,185
[$23,362 DIVIDED BY 106,906 x 10,000] for months 37 through 41.
51. OPTION TO PURCHASE. Lessor hereby grants Lessee an option to
purchase the Property during the term of the Lease, including any Extended
Term. The price shall be Four Million Three Hundred Thousand Dollars
($4,300,000) until the end of the fifth (5th) year of the Lease and shall
increase by five percent (5%) for each year thereafter of the Lease and, if
exercised, its Extension. The option shall be exercised by sending written
notice to Lessor electing to purchase the Property. Lessee may not exercise
its option to purchase the Property if Lessee is in default of this Lease as
defined in paragraph 13.1.
52. HAZARDOUS MATERIALS.
52.1 LESSEE'S OBLIGATIONS. Subject to the remaining provisions
of this paragraph, Lessee shall be entitled to use and store only those
Hazardous Materials (defined below), that are necessary for Lessee's
business, provided that
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<PAGE>
such usage and storage is in full compliance with all applicable local, state
and federal statutes, orders, ordinances, rules and regulations (as
interpreted by judicial and administrative decisions). Lessor, at its sole
cost and expense, shall have the right upon one day's advance written notice
to (i) inspect the Premises, (ii) conduct test and investigations to
determine whether Lessee is in compliance with the provisions of this
paragraph, and (iii) request lists of all Hazardous Materials used, stored or
located on the Premises. Lessee shall give to Lessor immediate verbal and
follow-up written notice of any spills, releases or discharges of Hazardous
Materials (in amounts exceeding the applicable reportable quantities (if any)
for such Hazardous Materials in 40 C.F.R. Section 302.4) on the Premises, or
in any common areas or parking lots, caused by the acts or omissions of
Lessee, or its agents, employees, representatives, invitees, licensees,
subtenants, customers or contractors. Lessee covenants to comply with all
applicable governmental requirements with respect to any spill, release or
discharge of Hazardous Materials caused by the acts or omissions of Lessee,
or its agents, employees, representatives, invitees, licensees, subtenants,
customers, or contractors at Lessee's cost and expense; any required
remediation shall be performed after Lessee has obtained Lessor's written
consent, which shall not be unreasonably withheld; provided, however, that
Lessee shall be entitled to respond immediately to an emergency without first
obtaining Lessor's written consent. Lessee shall indemnify, defend and hold
Lessor harmless from and against any and all claims, judgments, damages,
penalties, fines, liabilities, losses, suits, administrative proceedings and
costs (including, but not limited to, attorneys, and consultant fees) arising
from or related to the use presence, transportation, storage, disposal,
spill, release or discharge of Hazardous Materials on or about the Premises
caused by the acts or omissions of Lessee, its agents, employees,
representatives, invitees, licensees, subtenants customers or contractors,
Lessee shall not be entitled to install any tanks under, on, or about the
Premises for the storage of Hazardous Materials without the express written
consent of Lessor, which may be given or withheld in Lessor's sole
discretion. As used in this Agreement, the term Hazardous Materials shall
mean (i) any wastes, materials or substances which are or become designated,
classified or regulated as "hazardous", "toxic" or a "pollutant" under any
local, state or federal laws; (ii) petroleum, petroleum products or any
petroleum contaminated soils or sludges; (iii) asbestos; (iv) polychlorinated
biphenyls ("PCBs"); and (v) radioactive materials. The provisions of this
paragraph shall survive the termination of this Lease.
52.2 LESSOR'S OBLIGATIONS. Lessor warrants that the Property (which
for purposes of this paragraph 52 shall include, without limitation, the
Building and the Premises) complies with all local, state and federal laws
and regulations pertaining to Hazardous Materials as of the completion of the
Remediation Period
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<PAGE>
(as defined below). Lessor covenants to promptly remove or otherwise remediate,
as required by all applicable laws, any Hazardous Materials existing on, under
or around the Property at any time during the term of the Lease, except for
those that Lessor can reasonably prove were introduced by Lessee. Lessor shall
indemnify, defend and hold Lessee harmless from and against any and all claims,
judgments, damages, penalties, fines, liabilities, losses, suits, administrative
proceedings and costs (including, but not limited to, attorneys and consultant
fees) arising from or related to the presence and/or threatened release of
Hazardous Materials on or under the Property or the presence of Hazardous
Materials on other properties that have transmigrated from the Property other
than those that Lessor reasonably proves were introduced on, under or around the
Property by Lessee. Throughout the term of this Lease, Lessor shall cause all
other tenants of the Building to execute leases containing the provisions set
forth in paragraph 52.1 and shall use its best efforts to enforce such lease
clauses. Lessor shall promptly inform Lessee of any spill, release, threatened
release or discharge of Hazardous Materials on the Property. The provisions of
this paragraph shall survive the termination of this Lease.
52.3 UNDERGROUND TANKS, REMEDIATION. The parties acknowledge that
there are currently three underground fuel tanks on the Property. Within
ninety (90) days after the date of this Lease (the "Remediation Period")
Lessor shall conduct soils and other tests around the' tanks in a manner
acceptable to all governmental agencies having jurisdiction over the tanks
("Enforcement Agencies") and either (i) remove the three tanks and remediate
any leakage in accordance with all applicable laws and to the satisfaction of
all Enforcement Agencies and receive written acknowledgement of such
compliance and satisfaction from each Enforcement Agency or (ii) if no
remediation is necessary or required by any Enforcement Agency, legally
abandon such tanks (and receive a certificate of such abandonment) in
accordance with all applicable laws concerning abandonment in place. Prior to
the expiration of the Remediation Period, Lessor shall also remove, where
required by any local, state and Federal law, all Hazardous Materials from
the Property and take all steps necessary to comply with the warranties set
forth in paragraph 52.2. Lessor's cost of completing any actions required
under the paragraph shall not be an Operating Expense. If Lessor does not
complete all work required under this paragraph within the Remediation
Period, then Lessee may, at its option, either terminate this Lease or
conduct all, none or a portion of such work and deduct any cost incurred
therein from future rent. Prior to the expiration of the Remediation Period,
Lessor shall also confirm the presence or absence of PCBs in any electrical
transformers or other equipment located on the Property at the commencement
of the Lease and shall remove any PCB containing materials from the Property
in accordance with applicable requirements of law.
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<PAGE>
53. TERMINATION AND REPLACEMENT OF PRIOR LEASE. This Lease
supersedes that certain Lease dated May 24, 1991 between the parties herein.
LESSOR LESSEE
ARTHUR D. BRIDGES FAMILY BURKE RUBBER COMPANY
REVOCABLE TRUST a California corporation
By /s/ Arthur D. Bridges By /s/ Rocco C. Genovese
--------------------------------- ---------------------------------
ARTHUR D. BRIDGES, Trustee ROCCO C. GENOVESE
Chairman
By /s/ Beverly Bridges By /s/ Reed C. Wolthausen
--------------------------------- ---------------------------------
BEVERLY BRIDGES, Trustee REED C. WOLTHAUSEN
Director
Executed on July 1, 1991 Executed on July 1, 1991
ADDRESS FOR NOTICES
AND RENT: ADDRESS:
3223 Crow Canyon Road, Suite 270 2250 South 10th Street
P. O. Box 157 San Jose, CA 95112
San Ramon, CA 9458
Executed on July 1, 1991 Executed on July 1, 1991
ADDRESS FOR NOTICES
AND RENT: ADDRESS:
3223 Crow Canyon Road, Suite 270 2250 South 10th Street
P. O. Box 157 San Jose, CA 95112
San Ramon, CA 94583
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<PAGE>
DESCRIPTION:
EXHIBIT "A"
PARCEL NO. 1:
All that certain piece or parcel of land situated in and being a portion of
the Northwest one-quarter of Section 35, Township 3 South, Range 9 East,
Mount Diablo Base and Meridian, in the County of Stanislaus, State of
California, being more particularly described as follows:
COMMENCING at the Northeast corner of the Northwest one-quarter of Section
35, Township 3 South, Range 9 East, Mount Diablo Base and Meridian, thence
South 89 degrees 54' 30" East along the North line of said Section 35, a
distance of 27.13 feet to its intersection with the Centerline of a County
Road known as Riverside Drive as conveyed by Deed recorded April l, 1932 in
Book 467 page 206 of official records; thence South 0 degrees 30' 48" East
along said center-line a distance of 153.00 feet; thence North 89 degrees 54'
30" West, along the South line of a 60 foot street known as Lapham Drive
and the easterly extension thereof a distance of 50.00 feet to the true point
of beginning of this description, said point being on the westerly line of a
50 foot strip described in Parcel No. 1 in the deed to County of Stanislaus,
recorded December 4, 1964 in Book 1996 page 18 of Official Records, as
Instrument No. 47494 (being the additional width for Riverside Drive);
thence continuing North 89 degrees 54' 30" West along said South line a
distance of 143.47 feet; thence along the arc of a non tangent curve concave
to the Southeast a distance of 318.38 feet, said curve having a central
angle of 30 degrees 43' 12" and a radius of 593.81 feet (Chord bearing and
distance South 42 degrees 58' 14" 314.58 feet); thence South 0 degrees 29'
00" East a distance of 1037.71 feet; thence North 89 degrees 29' 12" East a
distance of 360.48 feet to a point on the Westerly line of said Parcel No. 1
described in the Deed recorded in book 1996 page 18 (Riverside Drive); thence
North 0 degrees 30' 48" West along said westerly line a distance of 1264.44
feet to the point of beginning.
EXHIBIT A - Page 1 of 3
<PAGE>
EXHIBIT "A" (CONT'D)
PARCEL NO. 2:
All of that certain piece or parcel of land situated in and being a portion
of the Northwest one-quarter of Section 35, Township 3 South, Range 9 East,
Mount Diablo Base and Meridian, in the County of Stanislaus, State of
California, being more particularly described as follows:
COMMENCING at the Northeast corner of the Northwest one-quarter of Section
35, Township 3 South, Range 9 East, Mount Diablo Base and Meridian, thence
South 89 degrees 54' 30" East along the North line of said Section 35 a
distance of 27.13 feet to its intersection with the centerline of a County
Road known as Riverside Drive as conveyed by deed recorded April 1, 1932 in
book 467 page 206 of Official Records; thence South 0 degrees 30' 48" East
along said center-line a distance of 153.00 feet; thence North 89 degrees 54'
30" West along the south line of a 60 foot street known as Lapham Drive, and
the Easterly extension thereof, a distance of 50.00 feet to a point on the
Westerly line of a 50 foot strip described in Parcel No. 1 in the Deed to
County of Stanislaus recorded December 4, 1964 in Book 19996 page 18 of
Official Records, as Instrument No. 47494 (being the additional width for
Riverside Drive, thence South 0 degrees 30' 48" East and along the Westerly
line of said Parcel No. 1 as described in the Deed recorded in Book 1996 page
18 (Riverside Drive), a distance of 1264.44 feet to the true point of
beginning of this description; thence continuing South 0 degrees 30' 48" East
along said Westerly line a distance of 553.49 feet; thence South 89 degrees
29' 12" West a distance of 360.77 feet; thence North 0 degrees 29' 00" West a
distance of 553.49 feet; thence North 89 degrees 29' 12" East a distance of
360.48 feet to the point of beginning.
EXCEPTING THEREFROM that portion conveyed to Beard Land Improvement Company,
a California Corporation by Deed recorded December 9, 1977 in book 2k996 page
281, Official Records, as Instrument No. 37186, described as follows:
COMMENCING at the interior one-quarter corner of Section 35, Township 3
South, Range 9 East, Mount Diablo Meridian; thence North 89 degrees 52' 56"
West, a distance of 20.40 feet to the westerly line of a road known as
Riverside Drive; thence North 0 degrees 30' 48" West along the westerly line
of said Riverside Drive, a distance of 672.64 feet to the true POINT OF
BEGINNING of this description; thence continue North 0 degrees 30' 48" West
along said westerly line, a distance of 80.00 feet; thence South 89 degrees
29' 12" West, a distance of 360.73 feet to the easterly right of way of the
Modesto & Empire Traction Company; thence South 0 degrees 29' 00" East along
said easterly line, a distance of 80.00 feet; thence North 89 degrees 29'
12" East a distance of 360.77 feet to the point of beginning.
EXHIBIT A - Page 2 of 3
<PAGE>
Exhibit 'A'
[SITE PLAN]
EXHIBIT A - Page 3 of 3
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B
Month
-----
1 $ 21,381 $ 7,106
2 21,381 7,106
3 21,381 7,106
4 21,381 7,106
5 21,381 7,106
6 21,381 7,106
7 21,381 7,106
8 21,381 7,106
9 21,381 7,106
10 21,381 7,106
11 21,381 7,106
12 21,381 7,106
13 22,022 7,747
14 22,022 7,747
15 22,022 7,747
16 22,022 7,747
17 22,022 7,747
18 22,022 7,747
19 22,022 7,747
20 22,022 7,747
21 22,022 7,747
22 22,022 7,747
23 22,022 7,747
24 22,022 7,747
25 22,682 8,407
26 22,682 8,407
27 22,682 8,407
28 22,682 8,407
29 22,682 8,407
30 22,682 8,407
31 22,682 8,407
32 22,682 8,407
33 22,682 8,407
34 22,682 8,407
35 22,682 21,442
36 22,682 28,407
37 23,362 29,087
38 23,362 29,087
39 23,362 29,087
40 23,362 29,087
41 23,362 29,087
EXHIBIT A-1 - Page 1 of 3
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B
Month
-----
42 $ 23,362 $ 29,087
43 23,362 29,087
44 23,362 29,087
45 23,362 29,087
46 23,362 29,087
47 23,362 29,087
48 23,362 29,087
49 24,063 29,788
50 24,063 29,788
51 24,063 29,788
52 24,063 29,788
53 24,063 29,788
54 24,063 29,788
55 24,063 29,788
56 24,063 29,788
57 24,063 29,788
58 24,063 29,788
59 24,063 29,788
60 24,063 29,788
61 24,785 30,510
62 24,785 30,510
63 24,785 30,510
64 24,785 30,510
65 24,785 30,510
66 24,785 30,510
67 24,785 30,510
68 24,785 30,510
69 24,785 30,510
70 24,785 30,510
71 24,785 30,510
72 24,785 30,510
73 25,528 31,253
74 25,528 31,253
75 25,528 31,253
76 25,528 31,253
77 25,528 31,253
78 25,528 31,253
79 25,528 31,253
80 25,528 31,253
81 25,528 31,253
82 25,528 31,253
EXHIBIT A-1 - Page 2 of 3
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B
Month
-----
83 $ 25,528 $ 31,253
84 25,528 31,253
85 26,294 32,019
86 26,294 32,019
87 26,294 32,019
88 26,294 32,019
89 26,294 32,019
90 26,294 32,019
91 26,294 32,019
92 26,294 32,019
93 26,294 32,019
94 26,294 32,019
95 26,294 32,019
96 26,294 32,019
97 27,083 32,808
98 27,083 32,808
99 27,083 32,808
100 27,083 32,808
101 27,083 32,808
102 27,083 32,808
103 27,083 32,808
104 27,083 32,808
105 27,083 32,808
106 27,083 32,808
107 27,083 32,808
108 27,083 32,808
109 27,895 33,620
110 27,895 33,620
111 27,895 33,620
112 27,895 33,620
113 27,895 33,620
114 27,895 33,620
115 27,895 33,620
116 27,895 33,620
117 27,895 33,620
118 27,895 33,620
119 27,895 33,620
120 27,895 33,620
------------ ------------
TOTAL $ 2,941,140 $ 2,941,175
EXHIBIT A-1 - Page 3 of 3
<PAGE>
Recording Requested by And
When Recorded Mail TO:
- ------------------------
- ------------------------
- ------------------------
Attn:
------------------------------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
(Space above this line for Recorder's Use)
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made as of the day of 19 , between Burke
----- -------- ---
Rubber Company, a California corporation ("Tenant"),
--------------------
, a ("Lender"), and the
- ------------------- -----------------------------
Arthur D. Bridges Family Revocable Trust, organized and existing under the
laws of the State of California ("Landlord").
WITNESSETH
WHEREAS, Tenant has entered into a certain lease with Landlord
(said lease, together with any extensions, renewals, replacements or
modifications thereof, referred to hereinafter as the "Lease") dated May 24,
1991, covering premises (the "Premises") within a certain building known as
107 South Riverside Drive, Modesto, California and situated on land more
particularly described in EXHIBIT A attached hereto and incorporated herein;
and
WHEREAS, Lender has agreed to make a loan ( the "Loan") to
Landlord secured by a certain Deed of Trust, (the "Deed of Trust"); and
WHEREAS, it is a condition precedent to obtaining the Loan that
the Deed of Trust be a lien or charge upon the Premises unconditionally prior
and superior to the Lease and the leasehold interest of Tenant; and
EXHIBIT B - Page 1 of 4
<PAGE>
WHEREAS, Tenant acknowledges that when recorded the Deed of Trust
constitutes, or will constitute, a lien or charge upon the Premises which
is, or shall be, unconditionally prior and superior to the Lease and
leasehold interest of Tenant; and
WHEREAS, Lender has been requested by Tenant and by Landlord to
enter into a non-disturbance agreement with Tenant;
NOW THEREFORE, in consideration of the premises and mutual
covenants hereinafter contained, the parties hereto mutually covenant and
agree as follows:
1. The Lease and all of the right, title and interest of Tenant in
and to the Premises are and shall be subject and subordinate to the Deed of
Trust and to all of the terms and conditions contained therein, and to any
renewals, modifications, replacements, consolidations and extensions thereof.
2. Lender consents to the Lease and, in the event of foreclosure
of the Deed of Trust, or in the event Lender comes into possession or
acquires title to the Premises as a result of the enforcement or foreclosure
of the Deed of Trust or the note secured thereby, or as a result of any other
means, Lender agrees to recognize Tenant, and further agrees that Tenant
shall not be disturbed in its possession of the Premises for any reason other
than one which would entitle the Landlord to terminate the Lease under its
terms or would cause, without any further action by such Landlord, the
termination of the Lease or would entitle such Landlord to dispossess Tenant
from the Premises.
3. In addition, it is agreed that any options to extend the term
of the Lease, purchase options, rights of first refusal and similar rights or
interests of Tenant under the Lease, although subordinated herein to the Deed
of Trust, shall be recognized by Lender or such other purchaser upon any such
foreclosure or deed in lieu of foreclosure, or succession by Lender or such
other purchaser to the interest of Landlord in the Property, to the same
extent and on the same terms and conditions set forth above with respect to
Tenant's leasehold estate.
4. Tenant agrees with Lender that if the interests of Landlord in
the Premises shall be transferred to and owned by Lender by reason of
foreclosure or other proceedings brought by it, or any other manner, or shall
be conveyed thereafter by Lender or shall be conveyed pursuant to a
foreclosure sale of the Premises (and for the purposes
EXHIBIT B - Page 2 of 4
<PAGE>
of this paragraph, the term "Lender" shall be deemed to include any grantee
of Lender or purchaser at foreclosure sale), Tenant shall be bound to Lender
under all of the terms, covenants and conditions of the Lease for the balance
of the term thereof; remaining and any extensions or renewals thereof which
may be effected in accordance with any option therefor in the Lease, with the
same force and effect as if Lender were the landlord under the Lease, and
Tenant does hereby attorn to Lender as its landlord, said attornment to be
effective and self-operative without the execution of any further instruments
on the part of any of the parties hereto immediately upon Lender succeeding
to the interest of the Landlord in the Premises.
5. This Agreement shall bind and inure to the benefit of the
parties hereto and their successors and assigns. As used herein the terms
"foreclosure" and "foreclosure sale" shall be deemed to include the
acquisition of Landlord's estate in the Premises by voluntary deed (or
assignment) in lieu of foreclosure, and the word "Lender" shall include the
Lender herein specifically named and any of its successors and assigns,
including anyone who shall have succeeded to Landlord's interest in the
Premises by, through or under foreclosure of the Deed of Trust.
6. This Agreement shall be the whole and only agreement between
the parties hereto with regard to the subordination of the Lease and
leasehold interest of Tenant to the lien or charge of the Deed of Trust, and
shall supersede and cancel any prior agreements as to such, or any;
subordination, including, but not limited to, those provisions, if any,
contained in the Lease, which provide for the subordination of the Lease and
leasehold interest of Tenant to a deed or deeds of trust, or to a mortgage or
mortgages to be thereafter executed, and shall not be modified or amended
except in writing signed by all parties hereto.
IN WITNESS WHEREOF the parties hereto have executed this Agreement
as of the day and year first above written.
TENANT: BURKE RUBBER COMPANY,
a California corporation,
By
------------------------------------
Its
------------------------------------
[signatures continue]
EXHIBIT B - Page 3 of 4
<PAGE>
LANDLORD: ARTHUR D. BRIDGES FAMILY REVOCABLE TRUST,
By
------------------------------------
Its
------------------------------------
LENDER:
--------------------------------------
a
-------------------------------------
By
--------------------------
Its
-------------------------
EXHIBIT B - Page 4 of 4
<PAGE>
SCHEDULE OF FINANCIAL OBLIGATIONS OF LESSOR
This Schedule is to that certain Lease dated July 1, 1991 between ARTHUR
D. BRIDGES FAMILY REVOCABLE TRUST (herein called "Lessor") and BURKE RUBBER
COMPANY, a California corporation (herein called "Lessee"), hereinafter "the
Lease."
The purpose of this Schedule is to set forth the financial obligations
of Lessor under the Lease to make repairs, alterations and improvements to
the Property. Any financial obligations pertaining to repairs, alterations
and improvements to the Property not specifically set forth on this Schedule
shall be the responsibility and obligation of Lessee.
FINANCIAL OBLIGATIONS OF LESSOR
1. OFFICE SPACE.
a. Replacement of existing carpets with new standard grade or better
carpets.
b. Repainting of the entire area and painting or replacement of all
other wall treatments.
c. Repair or replacement of window treatments where necessary.
d. Existing electrical and plumbing fixtures to be in good operating
condition.
e. Existing HVAC, electrical and plumbing systems to be in good
operating condition.
EXHIBIT C - Page 1 of 3
<PAGE>
2. WAREHOUSE SPACE.
a. Existing HVAC to be in good operating condition and in compliance
with Code.
b. Existing electrical to be in good operating condition and in
compliance with Code.
c. Existing plumbing to be in good operating condition and in
compliance with Code.
d. All existing doors windows, lights and restrooms to be in proper
working order.
e. Installation of lighting to provide 70 Lumens (or foot candle
equivalent) throughout warehouse area.
f. Railroad siding area is to be made flush with the existing floor.
Area must be capable of supporting weight necessary for Lessee's
operations.
g. If and when another tenant occupies the Building, Lessor to install
a separate clarifier which will permit a governmental agent to test
sewage generated by tenant the Building other than Lessee.
3. SPRINKLER SYSTEM. Lessor to install fire sprinkler system in order
that it meets or exceeds the standards necessary for Lessor's specific use of
the Premises, including the installation of fire sprinklers to the paint
booth room and acid etch room to be constructed within the Premises. Lessee
to be responsible for first $75,000.00 of cost (materials and installation);
thereafter, Lessor to be responsible for the balance.
4. LANDSCAPING. Prior to Lessee's occupancy, Lessor to prune and assure
that landscaping on the Property is in good condition.
5. UNDERGROUND TANKS, REMEDIATION. Removal or abandonment of the three
underground storage tanks on the Property. Removal of all hazardous materials
on the Property as required by any local, State or Federal law.
EXHIBIT C - Page 2 of 3
<PAGE>
In the event of any inconsistency or conflict between the Lease and this
Schedule as to the financial obligations of Lessor to make repairs,
alterations and improvements to the Property, this Schedule shall control.
LESSOR LESSEE
ARTHUR D. BRIDGES FAMILY REVOCABLE BURKE RUBBER COMPANY a California
TRUST corporation
By /s/ ARTHUR D. BRIDGES, TRUSTEE By /s/ ROCCO C. GENOVESE
-------------------------------- --------------------------------
ARTHUR D. BRIDGES, Trustee ROCCO C. GENOVESE
Chairman
By /s/ BEVERLY BRIDGES, TRUSTEE By /s/ REED C. WOLTHAUSEN
-------------------------------- --------------------------------
BEVERLY BRIDGES, Trustee REED C. WOLTHAUSEN
Director
Executed on July 1, 1991 Executed on July 1, 1991
ADDRESS FOR NOTICES AND RENT: ADDRESS:
3223 Crow Canyon Road, Suite 270 2250 South 10th Street
P. O. Box 157 San Jose, CA 95112
San Ramon, CA 94583
EXHIBIT C - Page 3 of 3
<PAGE>
GUARANTY OF LEASE
WHEREAS, ARTHUR D. BRIDGES FAMILY REVOCABLE TRUST, hereinafter referred
to as "Lessor", and BURKE RUBBER COMPANY, a California corporation,
hereinafter referred to as "Lessee", are about to execute a document entitled
"Lease" dated July 1, 1991 concerning the premises commonly known as 107 S.
Riverside Drive, Modesto, California, wherein Lessor will lease a portion of
the premises to Lessee, and
WHEREAS, BURKE INDUSTRIES, INC., a California corporation, hereinafter
referred to as "Guarantor" have a financial interest in Lessee, and
WHEREAS, Lessor would not execute the Lease if Guarantor did not execute
and deliver to Lessor this Guarantee of Lease,
NOW THEREFORE, for and in consideration of the execution of the
foregoing Lease by Lessor and as a material inducement to Lessor to execute
said Lease, Guarantor hereby unconditionally and irrevocably guarantee the
prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each
and every one of the terms, conditions and covenants of said Lease to be kept
and performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between
Lessor and Lessee, said Lease may be assigned by Lessor or any assignee of
Lessor without consent or notice to Guarantor and that this Guaranty shall
thereupon and thereafter guarantee the performance of said Lease as so
changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or
in equity.
All notices of default shall be given to Guarantor.
Guarantor hereby waive notice of acceptance of this Guaranty.
Guarantor do hereby subrogate all existing or future indebtedness of
Lessee to Guarantor to the obligations owed to Lessor under the Lease and
this Guaranty.
The obligations of Lessee under the Lease to execute and deliver
estoppel statements and financial statements, as therein provided, shall be
deemed to also require the Guarantor hereunder to do and provide the same
relative to Guarantor.
-1-
<PAGE>
The term "Lessor" whenever hereinabove used refers to and means the
Lessor in the foregoing Lease specifically named and also any assignee of
said Lessor, whether by outright assignment or by assignment for security and
also any successor to the interest of said Lessor or of any assignee in such
Lease or any part thereof, whether by assignment or otherwise. So long as the
Lessor's interest in or to the leased premises of the rents, issues and
profits therefrom, or in, to or under said Lease, are subject to any mortgage
or deed of trust or assignment for security, no acquisition by Guarantor of
the Lessor's interest in the leased premises or under said Lease shall affect
the continuing obligation of Guarantor under this Guaranty which shall
nevertheless continue in full force and effect for the benefit of the
mortgagee, beneficiary, trustee or assignee under such mortgage, deed of
trust or assignment, of any purchase at sale by judicial foreclosure or under
private power of sale, and of the successors and assigns of any such
mortgagee, beneficiary, trustee, assignee or purchaser.
The term "Lessee" whenever hereinabove used refers to and means the
Lessee in the foregoing Lease specifically named and also any assignee or
sublessee of said Lease and also any successor to the interests of said
Lessee, assignee or sublessee of such Lease or any part thereof, whether by
assignment, sublease or otherwise.
In the event any action be brought by said Lessor against Guarantor
hereunder to enforce the obligation of Guarantor hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
Executed at San Jose, California, on July 1, 1991
"GUARANTOR"
BURKE INDUSTRIES, INC.
a California corporation
Address: 2250 S. 10th Street By /s/ ROCCO C. GENOVESE
San Jose, CA 95112 ------------------------------
ROCCO C. GENOVESE
President
By /s/ REED C. WOLTHAUSEN
-------------------------------
REED C. WOLTHAUSEN
Vice-President, CFO
-2-
<PAGE>
[LETTERHEAD]
March 3, 1992
Mr. & Mrs. Art Bridges
ADBRIDGE, Inc.
P.O. Box 157
San Ramon, CA 94583
Dear Art & Bev:
Attached is one copy of the lease addendum as signed by Rocky and me,
executed as of February 20, 1992. We retained the other copy for our files.
Sincerely,
/s/ Reed
Reed C. Wolthausen
Senior Vice President, CFO
RCW/d
enclosure
<PAGE>
ADDENDUM TO INDUSTRIAL LEASE (TRIPLE NET)
This addendum to the Industrial Lease dated July 1, 1991 between
ARTHUR D. BRIDGES FAMILY REVOCABLE TRUST (herein called "Lessor") and BURKE
RUBBER COMPANY, a California corporation (herein called "Lessee").
Under paragraph 2. Premises, Parking and Common Areas.
2.1 Premises. This paragraph is amended to
read Lessor hereby leases to Lessee and Lessee leases from Lessor for the
term, at the rental, and upon all of the conditions set forth herein, a
portion of that real property situated in the County of Stanislaus, State
of California, commonly known as 107 S. Riverside Drive, Modesto, more
particularly described on Exhibit A, and Exhibit A-1, and described
as approximately 112,986 square feet (including approximately 10,390 square
feet of office area) of the building occupying the Property (the "Building")
as outlined on Exhibit A, and Exhibit A-1, herein referred to "Premises",
including rights to the common areas as hereinafter specified.
Under paragraph 4. RENT.
4.2 Base Bent.
add 4.2 (a) The adjusted Base Rent is amended to
read under the Schedule of Monthly Base Rental Payments, Exhibit A-1 Page 1
of 3, Page 2 of 3 and Page 3 or 3, under column "C".
4.3 (a) This paragraph is amended to read
"Lessee's Share" is defined, for purposes of this Lease, as sixty three
point eight (63.8%) percent.
Under paragraph 39.2 RENT.
(a) This paragraph is amended to read The
monthly rent for the first year of the extended term shall be determined as
follows: The Consumer Price Index ("CPI") figure shall be established the
month of March, 1991, and the month of March, 2001. The base rent for the
first month of the extended term shall be equal to the greater of (i) the
preceding month's rent or (ii) the base rent increased by the same percentage,
if any, by which the March 2001, CPI figure shall have increased over the
March,, 1991, CPI figure. As used herein, the term "Consumer Price Index"
shall refer to the "Consumer Price Index For All Urban Consumers
San Francisco-Oakland Metropolitan Area (All Items)" compiled by the U.S.
Department of Labor, Bureau of Labor Statistics (1982-84 equals 100). If the
CPI should hereafter be changed, then the new base shall be converted to the
1982-84 base and the base as so converted shall be used. In the event that the
bureau shall cease to publish the Consumer Price Index, then the successor or
most nearly comparable index thereto shall be used. The monthly rent for years
two through five of the extended term shall be determined by a three (3)
percent increase from the immediately preceding year's monthly rent.
All other terms and conditions as written in the
PAGE 1 OF 2
<PAGE>
Industrial Lease (Triple Net) remain as written without change.
LESSOR LESSEE
ARTHUR D. BRIDGES FAMILY BURKE RUBBER COMPANY
REVOCABLE TRUST a California corporation
By /s/ ARTHUR D. BRIDGES By /s/ ROCCO C. GENOVESE
----------------------------- --------------------------------
ARTHUR D. BRIDGES, Trustee ROCCO C. GENOVESE, Chairman
By /s/ BEVERLY BRIDGES By /s/ REED WOLTHAUSEN
----------------------------- --------------------------------
BEVERLY BRIDGES, Trustee REED C. WOLTHAUSEN, Director
Executed on Dec 18, 1991 Executed on Feb 20, 1992
PAGE 2 OF 2
<PAGE>
(SITE PLAN)
EXHIBIT A
<PAGE>
(FLOOR PLAN)
EXHIBIT A-1
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B C
Month
-----
11/92 1 $ 21,381 $ 7,106 $ 22,597
2 21,381 7,106 22,597
3 21,381 7,106 22,597
4 21,381 7,106 22,597
5 21,381 7,106 22,597
6 21,381 7,106 22,597
7 21,381 7,106 22,597
8 21,381 7,106 22,597
9 21,381 7,106 22,597
10 21,381 7,106 22,597
11 21,381 7,106 22,597
12 21,381 7,106 22,597
11/92 13 22,022 7,747 23,275
14 22,022 7,747 23,275
15 22,022 7,747 23,275
16 22,022 7,747 23,275
17 22,022 7,747 23,275
18 22,022 7,747 23,275
19 22,022 7,747 23,275
20 22,022 7,747 23,275
21 22,022 7,747 23,275
22 22,022 7,747 23,275
23 22,022 7,747 23,275
24 22,022 7,747 23,275
11/93 25 22,682 8,407 23,972
26 22,682 8,407 23,972
27 22,682 8,407 23,972
28 22,682 8,407 23,972
29 22,682 8,407 23,972
30 22,682 8,407 23,972
31 22,682 8,407 23,972
32 22,682 8,407 23,972
33 22,682 8,407 23,972
34 22,682 8,407 23,972
35 22,682 21,442 23,972
36 22,682 28,407 23,972
11/94 37 23,362 29,087 24,691
38 23,362 29,087 24,691
39 23,362 29,087 24,691
40 23,362 29,087 24,691
41 23,362 29,087 24,691
EXHIBIT A-1 - Page 1 of 3
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B C
Month
-----
42 $ 23,362 $ 29,087 $ 24,691
43 23,362 29,087 24,691
44 23,362 29,087 24,691
45 23,362 29,087 24,691
46 23,362 29,087 24,691
47 23,362 29,087 24,691
48 23,362 29,087 24,691
11/95 49 24,063 29,788 25,432
50 24,063 29,788 25,432
51 24,063 29,788 25,432
52 24,063 29,788 25,432
53 24,063 29,788 25,432
54 24,063 29,788 25,432
May/96 55 24,063 29,788 25,432
56 24,063 29,788 25,432
57 24,063 29,788 25,432
58 24,063 29,788 25,432
59 24,063 29,788 25,432
60 24,063 29,788 25,432
61 24,785 30,510 26,195
62 24,785 30,510 26,195
63 24,785 30,510 26,195
64 24,785 30,510 26,195
65 24,785 30,510 26,195
66 24,785 30,510 26,195
May/97 67 24,785 30,510 26,195
68 24,785 30,510 26,195
69 24,785 30,510 26,195
70 24,785 30,510 26,195
71 24,785 30,510 26,195
72 24,785 30,510 26,195
73 25,528 31,253 26,980
74 25,528 31,253 26,980
75 25,528 31,253 26,980
76 25,528 31,253 26,980
77 25,528 31,253 26,980
78 25,528 31,253 26,980
79 25,528 31,253 26,980
80 25,528 31,253 26,980
81 25,528 31,253 26,980
82 25,528 31,253 26,980
EXHIBIT A-1 - Page 2 of 3
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B C
Month
-----
83 $ 25,528 $ 31,253 $ 26,980
84 25,528 31,253 26,980
85 26,294 32,019 27,789
86 26,294 32,019 27,789
87 26,294 32,019 27,789
88 26,294 32,019 27,789
89 26,294 32,019 27,789
90 26,294 32,019 27,789
91 26,294 32,019 27,789
92 26,294 32,019 27,789
93 26,294 32,019 27,789
94 26,294 32,019 27,789
95 26,294 32,019 27,789
96 26,294 32,019 27,789
97 27,083 32,808 28,623
98 27,083 32,808 28,623
99 27,083 32,808 28,623
100 27,083 32,808 28,623
101 27,083 32,808 28,623
102 27,083 32,808 28,623
103 27,083 32,808 28,623
104 27,083 32,808 28,623
105 27,083 32,808 28,623
106 27,083 32,808 28,623
107 27,083 32,808 28,623
108 27,083 32,808 28,623
109 27,895 33,620 29,481
110 27,895 33,620 29,481
111 27,895 33,620 29,481
112 27,895 33,620 29,481
113 27,895 33,620 29,481
114 27,895 33,620 29,481
115 27,895 33,620 29,481
116 27,895 33,620 29,481
117 27,895 33,620 29,481
118 27,895 33,620 29,481
119 27,895 33,620 29,481
10/01 120 27,895 33,620 29,481
---------- ----------
TOTAL $2,941,140 $2,941,175
EXHIBIT A-1 - Page 3 of 3
<PAGE>
EXHIBIT "A-1"
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
[Attached]
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B
Month
-----
1 $ 21,381 $ 7,106
2 21,381 7,106
3 21,381 7,106
4 21,381 7,106
5 21,381 7,106
6 21,381 7,106
7 21,381 7,106
8 21,381 7,106
9 21,381 7,106
10 21,381 7,106
11 21,381 7,106
12 21,381 7,106
13 22,022 7,747
14 22,022 7,747
15 22,022 7,747
16 22,022 7,747
17 22,022 7,747
18 22,022 7,747
19 22,022 7,747
20 22,022 7,747
21 22,022 7,747
22 22,022 7,747
23 22,022 7,747
24 22,022 7,747
25 22,682 8,407
26 22,682 8,407
27 22,682 8,407
28 22,682 8,407
29 22,682 8,407
30 22,682 8,407
31 22,682 8,407
32 22,682 8,407
33 22,682 8,407
34 22,682 8,407
35 22,682 21,442
36 22,682 28,407
37 23,362 29,087
38 23,362 29,087
39 23,362 29,087
40 23,362 29,087
41 23,362 29,087
EXHIBIT A-1 - Page 1 of 3
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B
Month
-----
42 $ 23,362 $ 29,087
43 23,362 29,087
44 23,362 29,087
45 23,362 29,087
46 23,362 29,087
47 23,362 29,087
48 23,362 29,087
49 24,063 29,788
50 24,063 29,788
51 24,063 29,788
52 24,063 29,788
53 24,063 29,788
54 24,063 29,788
55 24,063 29,788
56 24,063 29,788
57 24,063 29,788
58 24,063 29,788
59 24,063 29,788
60 24,063 29,788
61 24,785 30,510
62 24,785 30,510
63 24,785 30,510
64 24,785 30,510
65 24,785 30,510
66 24,785 30,510
67 24,785 30,510
68 24,785 30,510
69 24,785 30,510
70 24,785 30,510
71 24,785 30,510
72 24,785 30,510
73 25,528 31,253
74 25,528 31,253
75 25,528 31,253
76 25,528 31,253
77 25,528 31,253
78 25,528 31,253
79 25,528 31,253
80 25,528 31,253
81 25,528 31,253
82 25,528 31,253
EXHIBIT A-1 - Page 2 of 3
<PAGE>
SCHEDULE OF MONTHLY BASE RENTAL PAYMENTS
Monthly Base Rent
A B
Month
-----
83 $ 25,528 $ 31,253
84 25,528 31,253
85 26,294 32,019
86 26,294 32,019
87 26,294 32,019
88 26,294 32,019
89 26,294 32,019
90 26,294 32,019
91 26,294 32,019
92 26,294 32,019
93 26,294 32,019
94 26,294 32,019
95 26,294 32,019
96 26,294 32,019
97 27,083 32,808
98 27,083 32,808
99 27,083 32,808
100 27,083 32,808
101 27,083 32,808
102 27,083 32,808
103 27,083 32,808
104 27,083 32,808
105 27,083 32,808
106 27,083 32,808
107 27,083 32,808
108 27,083 32,808
109 27,895 33,620
110 27,895 33,620
111 27,895 33,620
112 27,895 33,620
113 27,895 33,620
114 27,895 33,620
115 27,895 33,620
116 27,895 33,620
117 27,895 33,620
118 27,895 33,620
119 27,895 33,620
120 27,895 33,620
------------ ------------
TOTAL $ 2,941,140 $ 2,941,175
EXHIBIT A-1 - Page 3 of 3
<PAGE>
EXHIBIT "B"
ADDITIONAL RENT FOR EXISTING TENANT IMPROVEMENTS
[Attached]
<PAGE>
EXHIBIT B
ADDITIONAL RENT FOR EXISTING TENANT IMPROVEMENTS
13.04%
PMT INT BAL
-----------------------------------------
After 5/96 payment (pmt # 53 of 120) 407,634.69
6/01/96 8,600.29 4,429.63 403,464.03
7/01/96 8,600.29 4,384.31 399,248.05
8/01/96 8,600.29 4,338.50 394,986.26
9/01/96 8,600.29 4,292.18 390,678.15
10/01/96 8,600.29 4,245.37 386,323.23
11/01/96 8,600.29 4,198.05 381,920.99
12/01/96 8,600.29 4,150.21 377,470.91
1/01/97 8,600.29 4,101.85 372,972.47
2/01/97 8,600.29 4,052.97 368,425.15
3/01/97 8,600.29 4,003.55 363,828.41
4/01/97 8,600.29 3,953.60 359,181.72
5/01/97 8,600.29 3,903.11 354,484.54
6/01/97 8,600.29 3,852.07 349,736.32
7/01/97 8,600.29 3,800.47 344,936.50
8/01/97 8,600.29 3,748.31 340,084.52
9/01/97 8,600.29 3,695.59 335,179.82
10/01/97 8,600.29 3,642.29 330,221.82
11/01/97 8,600.29 3,588.41 325,209.94
12/01/97 8,600.29 3,533.95 320,143.60
1/01/98 8,600.29 3,478.89 315,022.20
2/01/98 8,600.29 3,423.24 309,845.15
3/01/98 8,600.29 3,366.98 304,611.84
4/01/98 8,600.29 3,310.12 299,321.67
5/01/98 8,600.29 3,252.63 293,974.01
6/01/98 8,600.29 3,194.52 288,568.24
7/01/98 8,600.29 3,135.77 283,103.72
8/01/98 8,600.29 3,076.39 277,579.82
9/01/98 8,600.29 3,016.37 271,995.90
10/01/98 8,600.29 2,955.69 266,351.30
11/01/98 8,600.29 2,894.35 260,645.36
12/01/98 8,600.29 2,832.35 254,877.42
1/01/99 8,600.29 2,769.67 249,046.80
2/01/99 8,600.29 2,706.31 243,152.82
3/01/99 8,600.29 2,642.26 237,194.79
4/01/99 8,600.29 2,577.52 231,172.02
5/01/99 8,600.29 2,512.07 225,083.80
6/01/99 8,600.29 2,445.91 218,929.42
7/01/99 8,600.29 2,379.03 212,708.16
8/01/99 8,600.29 2,311.43 206,419.30
9/01/99 8,600.29 2,243.09 200,062.10
10/01/99 8,600.29 2,174.01 193,635.82
11/01/99 8,600.29 2,104.18 187,139.71
12/01/99 8,600.29 2,033.58 180,573.00
<PAGE>
EXHIBIT B
ADDITIONAL RENT FOR EXISTING TENANT IMPROVEMENTS
13.04%
PMT INT BAL
-------------------------------------------
1/01/00 8,600.29 1,962.23 173,934.94
2/01/00 8,600.29 1,890.09 167,224.74
3/01/00 8,600.29 1,817.18 160,441.63
4/01/00 8,600.29 1,743.47 153,584.81
5/01/00 8,600.29 1,668.95 146,653.47
6/01/00 8,600.29 1,593.63 139,646.81
7/01/00 8,600.29 1,517.50 132,564.02
8/01/00 8,600.29 1,440.53 125,404.26
9/01/00 8,600.29 1,362.73 118,166.70
10/01/00 8,600.29 1,284.08 110,850.49
11/01/00 8,600.29 1,204.58 103,454.78
12/01/00 8,600.29 1,124.21 95,978.70
1/01/01 8,600.29 1,042.97 88,421.38
2/01/01 8,600.29 960.85 80,781.94
3/01/01 8,600.29 877.83 73,059.48
4/01/01 8,600.29 793.91 65,253.10
5/01/01 8,600.29 709.08 57,361.89
6/01/01 8,600.29 623.33 49,384.93
7/01/01 8,600.29 536.65 41,321.29
8/01/01 8,600.29 449.02 33,170.02
9/01/01 8,600.29 360.45 24,930.18
10/01/01 8,600.29 270.91 16,600.80
11/01/01 8,600.29 180.40 8,180.91
12/01/01 8,269.81 88.90 0.00
<PAGE>
EXHIBIT "C"
TENANT IMPROVEMENTS
Office improvements
Process piping (and insulation)
Sprinkler system
Press bases and pits
Draft curtains
Smoke vents
Electrical system (upgrade)
Building ventilation
Concrete slab for liquid nitrogen tank
Walls for boiler/hydraulics room
Cold box refrigeration system (upgrade)
<PAGE>
SERVICE AGREEMENT
This SERVICE AGREEMENT (this "Agreement") is entered into as of June 27,
1996 between WESTLAND TECHNOLOGIES, INC., a California corporation, ("Buyer"),
BURKE RUBBER COMPANY, INC., a California corporation ("Seller"), and BURKE
INDUSTRIES, INC., a California corporation ("Burke Industries").
RECITALS
A. Pursuant to that certain Asset Sale Agreement ("Sale Agreement") dated
as of March 15, 1996, Seller agreed to sell, and Westland Technologies, LLC, a
California limited liability company ("Westland LLC"), agreed to buy, those
certain "Assets' used in connection with the "Business" of Seller, as such terms
are more specifically described therein. Except as otherwise specifically
described herein, initially capitalized terms used herein shall have the same
meaning as set forth. in the Sale Agreement.
B. Buyer is the owner and holder of all of Westland LLC's rights and
obligations under the Sale Agreement.
C. In connection therewith, and in order to promote Buyer's ability to
continue the operation of the Business after the Closing, the parties desire
that for a temporary period of time the parties take certain actions and provide
certain goods and services in connection with the Business, subject to the terms
and conditions and as otherwise provided for herein.
NOW, THEREFORE, in consideration of the mutual conditions and provisions
herein after set forth, and the provisions of the Sale Agreement, the parties
hereto agree as follows:
1. TRANSACTIONS RELATING TO THE BUSINESS.
1.1 BUYER'S RIGHT TO PURSUE CERTAIN TRANSACTIONS. The parties
acknowledge and agree that Buyer shall have the right, at its sole cost and
expense, to take any and all actions as, in the reasonable opinion of Buyer, may
be necessary to complete the transactions described in Paragraphs l (a), (b),
(c) and (d) below, to the extent and during the periods described therein.
(a) the transfer from Seller to Buyer of those military
contracts described on EXHIBIT 1 attached hereto ("Contracts"), subject to
the condition that Buyer assume all liabilities of and claims against
Seller. under the Contracts, that Buyer obtain the consent of the
applicable governmental agency of such transfer, and that the documents
evidencing such transfer and consent be satisfactory to Seller in its
reasonable discretion, and further provided that any such transfer and
consent be completed no later than one year after the date hereof;
<PAGE>
(b) the transfer from Seller to Buyer of the tooling and
equipment used to manufacture "large o-rings" (and the fixtures related
thereto) described on EXHIBIT 2 attached hereto ("Tooling"), subject to the
condition that Buyer assume all liabilities of and claims against Seller
under the Contracts, that Buyer obtain the consent of the owner of such
Tooling of such transfer, and that the documents evidencing such transfer
and consent be satisfactory to Seller in its reasonable discretion, and
further provided that any such transfer and consent be completed no later
than one-year after the date hereof;
(c) the consent of the owner of all tooling and equipment
located in or used in connection with the Business and not wholly owned by
Seller or Buyer ("Other Party Owned Tooling") , subject to the condition
that if such consent is not obtained within one year after the date hereof,
Buyer shall at its sole cost and expense return such Other Party Owned
Tooling to the owner thereof or, at the election of Burke Industries, to
Burke Industries; and
(d) the obtaining of funding from the U.S. Department of Defense
and/or relevant shipyards relative to the continuation of the "acid etch"
operations as conducted by Burke Industries at its San Jose facility,
provided that such funding be obtained no later than the two-year
anniversary of the date hereof.
1.2 SELLER'S AND BURKE INDUSTRIES' COOPERATION. During the one-year
period commencing on the date hereof (or longer period indicated below), each of
Seller and Burke Industries agrees that: (i) Seller and/or Burke Industries will
take such actions and properly execute and deliver to Buyer such further
instruments of assignment, conveyance and transfer as, in the reasonable opinion
of Buyer, may be necessary to assure, complete and evidence the full and
effective completion of those transactions described in Paragraph 1.1 above;
(ii) Burke Industries shall, in all material respects, use its best efforts to
keep available to Buyer the Tooling substantially at the same location and in
the same condition as existing as of the date hereof and, promptly. upon any
transfer of such Tooling to Buyer, Burke Industries shall furnish the facilities
and the labor for loading the Tooling onto trucks furnished by Buyer; and (iii)
Burke Industries shall, in all material respects, use its best efforts to
conduct the "acid-etch" operations in the usual, regular and ordinary course,
substantially in the same manner as theretofore conducted, and to keep available
said operations to Buyer for two (2) years after the date hereof.
2. GOODS AND SERVICES.
2.1 DELIVERY OF GOODS AND SERVICES. Burke Industries shall
manufacture and deliver upon Buyer's written request, and Buyer shall pay for
and accept, the following goods and services, at the prices and subject to the
terms and conditions, set forth below:
(a) during the one-year period commencing on the date hereof and
expiring on the one-year anniversary of the date hereof, on those
approximately thirty-three (33) different types of compounds and those
certain processing services and materials listed on EXHIBIT 3 attached
hereto, shall be at the prices and otherwise subject to the terms and
conditions set forth on EXBIBIT 3; provided, however, that the acid
2
<PAGE>
etching pricing in effect as of the date hereof will remain effective as to
the AD 79 shipset now in progress until its completion on or about July,
1996;
(b) during the period commencing on the one-year anniversary of
the date hereof and expiring on the two-year anniversary of the date
hereof, those approximately thirty-three (33) different types of compounds
listed on EXHIBIT 3 attached hereto, at the prices set forth on EXHIBIT 3
subject to two semi-annual increases (on said one-year anniversary, and six
months thereafter) as follows: (i) 70% of the stated price being adjusted
by an index that measures the increase, if any, in Burke Industries'
formula costs from January 26, 1996; and (ii) 30% of the stated price being
adjusted by the Producer Price Index (or, if discontinued, by a comparable
index acceptable to Burke Industries and Buyer);
(c) during the six-month period commencing on the date hereof
and expiring on the date which is six months from the date hereof, those
certain technical and laboratory services necessary or appropriate to
complete the development of the products described on EXHIBIT 4 attached
hereto, at the prices and otherwise subject to the terms and conditions set
forth on EXHIBIT 4;
(d) during the one-year period commencing on the date hereof and
expiring on the one-year anniversary of the date hereof, to the extent that
the Tooling described in Paragraph 1.1(b) has not been transferred to Buyer
as contemplated therein, those certain "large o-rings" described in EXHIBIT
5 attached hereto, at the prices and subject to the terms and conditions
set forth on EXHIBIT 5; and
(e) during the nine-month period commencing on the date hereof
and expiring on the date which is nine months from the date hereof, the use
of Burke Industries' "INFIMACS" computer software system, at the prices and
subject to the terms and conditions set forth on EXHIBIT 6 attached hereto.
2.2 DELIVERY; RISK OF LOSS. All goods shall be delivered F.O.B. at
Burke Industries' facility located at 2250 South Tenth Street, San Jose,
California. Burke Industries shall furnish the facilities and labor for loading
the goods onto the trucks or other carrier famished by Buyer. The cost of
transportation beyond Burke Industries' facility shall be paid by Buyer. The
risk of loss of the goods shall pass to Buyer as soon as the goods are loaded
onto the carrier.
2.3 BUYER'S INSPECTION. Buyer shall have the right to inspect the
goods for ten (10) days after delivery. This inspection shall be fully and
finally determinative of whether the goods conform to the terms of this
Agreement. Defects that are not noted and brought to the attention of Burke
Industries within ten (10) days after delivery shall not constitute the basis of
any claim or defense against Burke Industries under this Agreement or otherwise.
Failure to notify Burke Industries of the results of any inspection within ten
(10) days after delivery shall constitute a waiver of Buyer's rights of
inspection and shall be deemed an acceptance of the goods.
3
<PAGE>
2.4 TERMS AND CONDITIONS. Seller's and Burke Industries' obligation
to deliver the goods and services described in Paragraph 2.1 above shall be
subject to the following conditions precedent, and Buyer hereby agrees to the
following: (a) that all such goods and services shall be used only for Buyer's
direct use in Buyer's Modesto, California facility (or, if manufactured by Buyer
in a location other than Buyer's Modesto, California facility such goods and
services shall be used only for the manufacture of those products manufactured
by the Business as of the date hereof); (b) that delivery of such products or
services shall be provided by Seller or Burke Industries solely on a best
efforts basis, subject to the availability of any products or service required
by Seller or Burke Industries; and (c) that Buyer shall notify Burke Industries
in writing of its requirements at least ten (10) business days in advance of any
requested shipment. The parties hereto acknowledge and agree that any of Seller
or Burke Industries may buy or sell the goods described in Paragraph 2.1 from or
to any other party.
2.5 PAYMENT. Buyer shall make payment for the goods or services
provided hereunder at the time of delivery by cash, certified check or by means
of the "Line of Credit" (as defined in, and subject to the terms and conditions
of, Paragraph 3 below).
2.6 TERMINATION. As to the goods and/or services described in each
of Paragraphs 2.1(a), (b), (c), (d) and (e) above, the pricing, terms and
conditions set forth thereunder shall apply only to the extent that orders are
placed and shipped for delivery within the prevailing delivery cycle for such
products or services, or are in such quantities where such orders do not exceed
100% of the highest monthly usage within the most recent twelve (12) months (or,
as to Paragraph 2.1(c), that services are requested and scheduled) during the
periods described in said Paragraphs 2.1(a), (b), (c), (d) and (e). Immediately
upon expiration of the periods described in said Paragraphs 2.1(a), (b), (c),
(d) and (e), Burke Industries' and Seller's obligations and the prices, terms
and conditions set forth thereunder shall terminate and be of no further force
and effect.
3. LINE OF CREDIT. Subject to the provisions of this Paragraph 3, for
the three-year period commencing as of the date hereof, Burke Industries agrees
to make available to Buyer a temporary purchase money line of credit ("Line of
Credit"), in an amount not to exceed Three Hundred Fifty Thousand Dollars
($350,000.00), which Line of Credit shall be available solely for the purchase
of products or services from Seller or Burke Industries for Buyer's direct use
in Buyer's Modesto, California facility (or, if manufactured by Buyer in a
location other than Buyer's Modesto, California facility such goods and services
shall be used only for the manufacture of those products manufactured by the
Business as of the date hereof), and provided that payment in full must be made
no later than sixty (60) days after Burke Industries' presentment of invoice.
Among other conditions, the Line of Credit, and Burke Industries' obligation to
extend credit to Buyer, shall be subject to the following conditions: (i) Buyer
not being in default under any credit or lending agreements with any other
creditors or lenders relating to the Business or the Assets; (ii) Buyer
remaining in full satisfaction of the terms of the Note (as defined in the Sale
Agreement); and (iii) Buyer remaining in compliance with the sixty (60) day
payment terms and the other terms and conditions of said Line of Credit.
4
<PAGE>
4. BLACK TILE AGREEMENT.
4.1 COMMISSIONS PAYABLE. Subject to the provisions of Paragraph 4.3
below, Burke Industries shall pay to Buyer a commission of five percent (5.00%)
of the net invoice value (exclusive of freight and transportation costs, trade
discounts, and sales and other taxes) of all shipments of the product commonly
known as "Black Tile, " Stock No. FXA 3624 ("Black Tile") from Burke Industries'
San Jose, California facility to Unified Defense, L.P. to the extent such
shipments are made and invoices are rendered during the three-year period
commencing on the date hereof and expiring on the three-year anniversary hereof
("Commission Period") . All commissions payable to Buyer shall be due and
payable reasonably promptly upon Burke Industries' receipt of payment from
Unified Defense, L.P.
4.2 RIGHT OF FIRST OFFER. Subject to the provisions of Paragraph 4.3
below, in the event Burke Industries elects in its sole discretion not to
directly manufacture Black Tile at any time during the Commission Period, Burke
Industries shall first offer to Buyer the right for the contract manufacturing
of Black Tile by giving Buyer written notice to that effect ("First Offer
Notice"). The First Offer Notice shall specify the economic and other terms
upon which Burke Industries in its sole discretion would be willing to contract
for the manufacture of Black Tile with Buyer or any other party (which terms may
be based upon bids solicited and received by Burke Industries from other third
parties). Buyer shall have five (5) business days after receipt of the First
Offer Notice to exercise its first offer right with respect to the terms and
conditions described in the First Offer Notice, by delivery to Burke Industries
of written notice evidencing such exercise. Within ten (10) business days
following delivery of such notice of exercise, Burke Industries and Buyer shall
prepare and deliver all documents and instruments necessary or appropriate to
contract for Buyer's manufacture of Black Tile in accordance with the First
Offer Notice and otherwise on terms acceptable to Burke Industries. If Buyer
does not exercise its first offer right within said five-day period, or if the
documents and instruments are not delivered within said ten-day period, Buyer's
first offer right shall immediately terminate and Burke Industries shall be free
to contract for the manufacture of Black Tile with any party desired by Burke
Industries on economic terms and conditions no more favorable to such party than
the most favorable terms and conditions offered to Buyer by Burke Industries.
4.3 CONDITIONS AND LIMITATIONS. In consideration of the covenants
and agreements of this Paragraph 4, Buyer and Burke Industries acknowledge and
agree to the following: (a) that Burke Industries' obligations under this
Paragraph 4 shall be subject to Buyer not being in default under this Agreement,
the Note or any other agreements relating to the Business or the Assets; (b)
that no representation or warranty is made, express or implied, as to the
quantity, price or timing of the Black Tile to be shipped by Burke Industries
during the Commission Period; and (c) as between Buyer and Burke Industries,
their successors and assigns, Burke Industries is the owner of and has the sole
exclusive right to the ownership, possession and use of all contracts,
processes, products, production knowledge, machinery, tooling, equipment or
other assets, tangible or intangible or held in connection with the Black Tile.
5
<PAGE>
5. RIGHT TO INFORMATION. Buyer acknowledges that all existing documents,
papers, files and other written materials relating to the financial history,
transaction data, accounts and production cost data of the Business to the
extent the same was prepared or relates to the period prior to the date hereof
("Financial Information") shall be and remain the property of Seller and/or
Burke Industries. Within ninety (90) days after Seller's or Burke Industries'
request therefor, Buyer shall deliver to Seller or Burke Industries, as
applicable, all Financial Information to the extent in Buyer's possession or
otherwise located in the Modesto, California facility. During the one year
period commencing on the date hereof and expiring on the one-year anniversary
hereof, Buyer shall have the one-time right to request that Burke Industries
make available all Financial Information (other than customer proprietary
information) to the extent in Burke Industries' possession or otherwise located
in the San Jose, California facility for review by Buyer and Buyer's
representatives at the San Jose, California facility and for duplication by
Buyer at Buyer's sole cost and expense.
6. FINANCIAL STATEMENTS. Buyer will furnish or cause to be furnished to
Burke Industries a current financial statement of Buyer, in form and substance
acceptable to Burke Industries, consisting of a balance sheet, an income
statement and a schedule of covenant compliance, as follows: (a) so long as
Buyer is not in default hereunder or under any other agreement with Seller or
Burke Industries, on a quarterly basis no later than thirty (30) days after the
end of each quarter, and (b) upon the occurrence of any default hereunder or
under any other agreement with Seller or Burke Industries (and regardless of
whether Buyer cures any such default), on a monthly basis no later than thirty
(30) days after the end of each calendar month.
7. COMMERCIAL CODE. Except as otherwise provided herein, this Agreement
shall be governed by the Uniform Commercial Code as adopted in the State of
California as effective and in force as of the date hereof.
8. NO DUTY OF SELLER OR BURKE INDUSTRIES. The parties acknowledge and
agree that, except to the extent specifically provided herein, neither Seller
nor Burke Industries owes any duty whatsoever to Buyer, express or implied, with
respect to the transport, installation, start-up or continued operation of the
Business, the condition of the Assets, or otherwise with respect to the Assets
or the Business.
9. TERMINATION. This Agreement may be terminated at any time by mutual
written consent of the Buyer and Seller (or Burke Industries) or by either party
upon written notice delivered to the other party in the event such party has
determined that there has been an assignment prohibited under Paragraph 11 below
or that there has otherwise been a material breach of any covenant of the other
party contained herein. In the event of termination of this Agreement by either
Buyer or Seller as provided above, except for breach, such termination shall be
without liability of either party and all of the parties' respective obligations
hereunder shall cease.
10. LIMITATION ON DAMAGES. If Seller or Burke Industries breaches or
repudiates this Agreement, Buyer's sole right to damages shall be the difference
between the contract and the market price. In no circumstances shall Buyer have
any right, under any theory of law, to any
6
<PAGE>
incidental damages, lost profits, "benefit of the bargain," business
opportunities or any form of consequential damages in connection with this
Agreement.
11. NO ASSIGNMENT OR DELEGATION. No right or interest in this Agreement
may be assigned by any of Buyer, Seller or Burke Industries without the prior
written permission of the other party, and no delegation of any obligation owed,
or of the performance of any obligation, by Buyer, Seller or Burke Industries,
may be made without the written permission of the other party. For purposes of
this Paragraph 11, "assignment" shall include without limitation any transfer,
assignment or hypothecation, directly or indirectly, of any ownership or voting
interest in Buyer, or of any power to direct or cause the direction of the
management and policies of Buyer, all of which shall be prohibited under this
Paragraph 11. Any attempted assignment or delegation shall be wholly void and
totally ineffective for all purposes unless made in conformity with this
paragraph.
12. FORCE MAJEURE. Neither Seller nor Burke Industries shall be held
responsible for any delivery, any failure to make a delivery or any failure to
provide services under this Agreement if that failure is due to any cause,
contingency, or circumstance not subject to its control that impairs, prevents
or hinders the availability of raw materials or the manufacture or delivery of
merchandise or services, including but not limited to federal, state or
municipal action, statute, ordinance or regulation; strike or other labor
trouble; fire damage to or destruction in whole or in part of merchandise,
manufacturing plant or other facility; or the lack or inability to obtain raw
materials, labor, fuel or supplies. Seller shall be released from its
obligations under this Agreement under any of the circumstances specified in
this Paragraph 12.
13. NOTICES. All notices or demands required or permitted under this
Agreement shall be in writing, and shall be addressed as follows-
If to Buyer: Westland Technologies, Inc.
107 South Riverside Drive
Modesto, California 95354
Attn: Thomas Halyburton
Telecopier No.: (209) 571-6411
If to Seller or Burke Industries, Inc.
Burke Industries: 2550 South Tenth Street
San Jose, California 95112
Attn.: Rocco Genovese
Telecopier No.: (408) 995-5163
or to such other address as either party may designate from time to time by
notice in the manner provided herein. All such communications shall be deemed
effective (a) upon delivery to the specified address, if hand-delivered or sent
by mail, (b) on the next business day after proper deposit with an overnight air
courier with request for next business day delivery, or (c) on the date shown on
the telecopier transmittal sheet for transmittal of the documents, if sent by
telecopier.
7
<PAGE>
14. ARBITRATION. Any controversy or claim arising out of this Agreement,
or any breach thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
15. TIME IS OF THE ESSENCE. Time is of the essence in the performance of
each and every obligation of the parties hereunder.
16. EXHIBITS; RECITALS. All Exhibits attached to this Agreement are
incorporated herein by this reference as though set forth in full herein. The
parties acknowledge that the Recitals set forth herein are true and correct and
are incorporated herein by this reference.
17. GOVERNING LAW. This contract shall be governed by and shall be
interpreted and enforced in accordance with the internal laws of the State of
California applicable to agreements to be performed entirely within such state.
18. INTEGRATION CLAUSE. This instrument is the entire contract and
exclusively determines the rights and obligations of the parties, any prior
course of dealing, custom or usage of trade, or course of performance
notwithstanding.
19. MODIFICATION. This Agreement can be modified or rescinded only by a
writing signed by both of the parties or their duly authorized representatives.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be an original but all of which shall together
constitute but one and the same instrument.
21. WAIVER OF TRIAL BY JURY. EACH OF THE PARTIES HERETO HEREBY WAIVES THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY CONDUCT, ACTS OR
OMISSIONS OF ANY OF THE PARTIES HERETO OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH THEM; IN EACH
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
BUYER: WESTLAND TECHNOLOGIES, INC.,
a California corporation
By:
----------------------
Its:
-----------------
SELLER: BURKE RUBBER COMPANY, INC.,
a California corporation
8
<PAGE>
By:
----------------------
Its:
-----------------
BURKE INDUSTRIES: BURKE INDUSTRIES, INC.,
a California corporation
By:
----------------------
Its:
-----------------
9
<PAGE>
SCHEDULE OF EXHIBITS
1 - List of Military Contracts
2 - Tooling Re: Large O-Rings
3 - Items and Pricing Re: Compounds and Select Products
4 - Servicing and Pricing Re: Selective Services
5 - Items and. Pricing Re: Large O-Rings
6 - Terms and Conditions Re: Data Processing and Accounting Services
10
<PAGE>
EXHIBIT 1
Burke Industries, Inc.,
BRC Agreement
List of Military Contracts
BURKE ORDER NO. CONTRACT NO. CUSTOMER NAME
- --------------------------- ----------------------- -----------------------
#38625 SP043096M4516 DFAS-Columbus Ctr
Van Nuys Division
P.O. Box 182157
Columbus, OH 43218-2157
#38954 N0060496C0012 DFAS-Columbus Ctr.
Van Nuys Division
#38456 N6660495MKG90 Naval Undersea Warfare
Ctr.
Det Supply Officer
Building 1176
Newport, RI 02841-1708
<PAGE>
EXHIBIT 2
Burke Industries, Inc.,
BRC Agreement
Tooling Re: Large O-Rings
Subject to the Service Agreement attached hereto, the following
customer-owned tooling is located in Seller's San Jose facility.
CUSTOMER CUSTOMER TOOL# BURKE PART # DESCRIPTION
- ------------ ----------------- ----------- ----------------------
UTC 64972-00 8817-0020 Mold - 10 ft. O-Ring
ROHR 7516644 7427-0008 Mold - 5 ft. O-Ring
ROHR Al8534-05-01 7427-0015 Mold - 2-cavity (7ft.)
Al8534-07-01 7427-0016
The following Burke-owned fixtures are related to the above
customer-owned tooling:
5 ft. fixture
7 ft. fixture
10 ft. fixture
<PAGE>
EXHIBIT 3
Burke Industries, Inc.,
BRC Agreement
Terms and Pricing Re: Compounds and Select Products
Subject to the Service Agreement attached hereto, the pricing for the mixed
compounds s as follows:
STOCK # MINIMUM ORDER PRICE PER LB.
- ----------------- -------------------------- ----------------------
1021 2,000 lbs. $1.358
1033 2,000 lbs. $1.363
1120 2,000 lbs. $1.630
1125 2,000 lbs. $1.326
1150 700 lbs. $1.526
1152 2,000 lbs. $1.286
1155 2,000 lbs. $0.940
1156 2,000 lbs. $1.456
1174 2,000 lbs. $1.399
3020 2,000 lbs. $0.631
3050 2,000 lbs. $1.292
3056 2,000 lbs. $0.766
3110 2,000 lbs. $1.243
3112 2,000 lbs. $1.225
3112 - slab only 700 lbs. $1.470
4086 2,000 lbs. $1.172
5001 2,000 lbs. $1.604
5035 700 lbs. $2.068
5079 700 lbs. $2.083
5109 2,000 lbs. $1.951
5156 2,000 lbs. $1.644
6012 2,000 lbs. $0.920
6100 AA-1 8 tiles; will be sold as calendared material
6116 2,000 lbs. $0.573
6129 700 lbs. $0.596
8002 1,000 lbs. $1.207
8004 1,000 lbs. $0.921
8005 1,000 lbs. $1.133
8054 1,000 lbs. $0.875
BXA2697 2,000 lbs. $0.928
EXA2945 2,000 lbs. $1.331
HXA3472 2,000 lbs. $1.459
Lot charge of $100 for orders below minimum quantity, in addition to the
price per pound.
1
<PAGE>
EXHIBIT 3 (CONTINUED)
Burke Industries, Inc.,
BRC Agreement
Terms and Pricing Re: Compounds and Select Products
Subject to the Service Agreement attached hereto, the pricing for the
processed materials listed below are as follows:
<TABLE>
<CAPTION>
MINIMUM
ORDER
<S> <C> <C>
Wilden Pump Materials $3.363 /lb. 2,000 lb.
(fabric to be supplied by Buyer)
Track Shrouds $85.04 ea. 150 ea.
(cured part only; finishing is the
responsibility of the Buyer)
(fabric to be supplied by Buyer)
Extruded viton for Intel $27.50 /lb. 132 lb.
Calendared stock for AA-18 tiles
Stock 6100 $3.50 /lb. 132 lb.
Stock 5112 $4.60 /lb. 132 lb.
Acid etching
(1) Set up $600.00 shift
(2) Plus hourly charge $85.00 hour
(i.e. $940.00 for four hours;
$1,280.00 per shift)
It is estimated that approximately the following
units can be processed in one shift:
AD-79 400 pieces per shift
AA-18 400 pieces per shift
Fairing Strips 100 pieces per shift
AD-2 500 pieces per shift
Grinding of AD-79 tiles
Buyer acknowledges responsibility for $0.49 /lb.
disposal.
</TABLE>
Buyer will receive from Burke Industries a $40,000.00 rebate 30 days
following the end of each of the first twelve full calendar quarters (commencing
the quarter ending June 30, 1996) during which Buyer has purchased from Seller
of Burke Industries at least $350,000.00 of mixed compounds and processed
materials included above or otherwise negotiated and purchased by Buyer from
Seller and Burke Industries. During the single quarter ending June 30, 1996,
Buyer will be required to purchase only $300,000.00 of product or services to
earn the $40,000.00 quarterly rebate. This rebate is payable subject to Buyer
being in compliance with its outstanding credit arrangements with Seller and
Burke Industries.
2
<PAGE>
EXHIBIT 4
Burke Industries, Inc.
BRC Agreement
Servicing & Pricing re: Selective Services
Subject to the Service Agreement attached hereto, the following technical
assistance will be provided by Burke Industries Technical staff.
Pellerin Milnor Dryer Gasket
-Technical staff support for four first article parts of varying design
selected by Buyer.
-Total support, paid by Seller, shall not exceed 40 manhours.
-Materials and tools to be provided by Buyer.
-Technical support is on a "best effort" basis and Burke carries no
responsibility for the successful completion of this project.
Dresser Industries NSF Certification
-Chief Chemist to monitor progress of on-going compound evaluation by
Dresser/NSF and provide formulating assistance.
-Total support, paid by Seller, shall not exceed 24 manhours.
-Fees and costs related to materials, testing, listing and auditing
activities from Dresser, NSF or other outside parties shall be
paid by Buyer.
-Technical support is on a 'best effort" basis and Burke carries no
responsibility for the successful completion of this project.
Sheave Liner Performance Upgrade
-Attendance by two technical staff people, at Seller's expense, at a
one-day meeting (at Buyee's Modesto facility) to evaluate
condition of all returned field samples.
-Technical support is on a "best effort" basis and Burke carries no
responsibility for the successful completion of this project.
-Project meeting must be held within one year of the date of the
Service Agreement.
1
<PAGE>
EXHIBIT 4 (CONTINUED)
Burke Industries, Inc.
BRC Agreement
Servicing & Pricing re: Selective Services
Subject to the Service Agreement attached hereto, the pricing and
conditions for additional technical services listed below shall be as follows:
HOURLY RATE FOR TECHNICAL SUPPORT
$75.00/Hr. SENIOR TECHNICIAN
Frank Cote
Mark Sorensen
$50.00/Hr. Mat Wachter
Jerry Jackson
Conditions:
1) Hourly rate will be charged 'portal to portal' (i.e., charge for
travel) also charge for out of pocket expenses.
2) Total maximum availability of 40 hours per person; within six
months of date of close.
3) 72 hours notice required.
2
<PAGE>
EXHIBIT 5
Burke Industries, Inc.
BRC Agreement
Items and Pricing Re: Large O-Rings
Subject to the Service Agreement attached hereto, the pricing for large
O-Rings is as follows:
(1) Setup charge per order $2,750.00
(2) Plus a charge per O-Ring equal to $575.50
Rejected parts must be returned within 10 days of delivery, and will be
accepted only to the extent of manufacturing defects by the Seller.
<PAGE>
EXHIBIT 6
Burke Industries, Inc.
BRC Agreement
Terms and Conditions Re: Data Processing and Accounting Services
Subject to the Service Agreement attached hereto, the pricing and
conditions for the use of Seller's or Burke Industries' financial, accounting
and data processing systems and services will be as follows:
For a period of 90 days from the date of the Service Agreement:
Use of the IBM RS/6000 Model 320 and attendant peripheral
devices (listed below), and access to the INFIMACS program
and data base, at no charge.
Peripheral devices:
6 ea. Wyse model 370 color terminals
3 ea. IBM model 3164 mono terminals
2 ea. IBM model 2381 printers
1 ea. IBM model 4226 printer
Various communication interface devices
For an additional period of six months
Use of the IBM RS/6000 Model 320 and attendant peripheral
devices (listed above), and access to the INFIMACS program
and data base, at a charge of $3,000 per month, payable in
advance, cancelable at any time by Buyer with 14 days'
notice.
Within 9 months of the date of the Service Agreement or at
the cessation of the above payments, Buyer will return to
Seller the IBM RS/6000 Model 320 and attendant peripherals.
If, however, the Buyer executes a site license for INFIMACS
in that time, then access to Seller's data base will be
terminated, and the equipment will become the property of
the buyer.
ACCOUNTING RECORDS
All accounts a able, payroll, billing, and general ledger
records are the property of the Seller, and are to be
physically returned to the Seller's primary place of
business within 90 days after the date of the Service
Agreement.
<PAGE>
EXHIBIT 12.1
Computation of Ratios of Earnings to Fixed Charges
and Combined Fixed Charges and Preferred Stock Dividends
(dollars in thousands)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
FISCAL YEAR ENDED SIX MONTHS ENDED SIX MONTHS
------------------------------------------------------ ---------------------- FISCAL YEAR ENDED
JUNE 28, JULY 4, ENDED JULY 4,
1992 1993 1994 1995 1996 1996 1997 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest expense . . . $2,862 $2,909 $2,836 $3,039 $2,771 $1,415 $1,218 $2,771 $1,218
Incremental interest
expense . . . . . . . -- -- -- -- -- -- -- 8,332 4,487
Estimated interest
portion of rent
expense . . . . . . . 257 283 174 335 381 137 158 381 158
----- ----- ----- ----- ----- ----- ----- ------ -----
Fixed charges. . . . . $3,119 $3,192 $3,010 $3,374 $3,152 $1,552 $1,376 $11,484 $5,863
----- ----- ----- ----- ----- ----- ----- ------ -----
----- ----- ----- ----- ----- ----- ----- ------ -----
Income (loss) before
income taxes. . . . . ($1,977) ($1,036) $3,408 $5,966 $8,499 $3,720 $6,415 $459 $2,074
Fixed charges. . . . . 3,119 3,192 3,010 3,374 3,152 1,552 1,376 11,484 5,863
Less: interest
charges capitalized . (27) (12) (11) (30) (19) (9) (16) (18) (16)
----- ----- ----- ----- ----- ----- ----- ------ -----
Earnings . . . . . . . $1,115 $2,144 $6,407 $9,310 $11,632 $5,263 $7,775 $11,925 $7,921
----- ----- ----- ----- ----- ----- ----- ------ -----
----- ----- ----- ----- ----- ----- ----- ------ -----
Ratio of earnings to
fixed charges - (A) . -- -- 2.1x 2.8x 3.7x 3.4x 5.7x 1.0x 1.3x
----- ----- ----- ----- ----- ------ -----
----- ----- ----- ----- ----- ------ -----
Fixed charges. . . . . $11,484 $5,863
Preferred stock
dividend
requirements . . . . 3,450 1,725
Accretion of
carrying value of
preferred stock . . . 417 208
------ -----
Combined fixed
charges & preferred
stock dividends . . . $15,351 $7,799
------ -----
------ -----
Ratio of earnings to combined fixed charges and preferred stock dividends - (A) -- 1.0x
-----
-----
</TABLE>
(A) Earnings were insufficient to cover fixed charges by $2,044 and $1,048 in
fiscal years 1992 and 1993 respectively.
Earnings were insufficient to cover pro forma combined fixed charges and
preferred stock dividends by $3,426 for fiscal year 1996.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Burke Flooring Products, Inc.
Burke Rubber Company, Inc.
Burke Custom Processing, Inc.
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts,"
"Summary Historical Consolidated Financial Data," and "Selected Historical
Consolidated Financial Data" and to the use of our reports dated March 7,
1997, in the Registration Statement (Form S-4) and related Prospectus of
Burke Industries, Inc. for the registration of $110,000,000 aggregate
principal amount of its 10% Senior Notes due 2007.
ERNST & YOUNG LLP
San Jose, California
September 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED JANUARY 3, 1997 AND
THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE 6 MONTHS ENDED JULY 4,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JAN-03-1997 JAN-02-1998
<PERIOD-START> DEC-30-1996 JAN-04-1997
<PERIOD-END> JAN-03-1997 JUL-04-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 9,344 13,687
<ALLOWANCES> 189 289
<INVENTORY> 8,616 8,957
<CURRENT-ASSETS> 19,415 24,146
<PP&E> 24,102 24,667
<DEPRECIATION> 9,101 9,781
<TOTAL-ASSETS> 40,673 45,464
<CURRENT-LIABILITIES> 14,087 14,111
<BONDS> 18,126 19,048
0 0
0 0
<COMMON> 6,716 11,818
<OTHER-SE> (2,433) (3,683)
<TOTAL-LIABILITY-AND-EQUITY> 40,673 45,464
<SALES> 72,466 46,011
<TOTAL-REVENUES> 72,466 46,011
<CGS> 49,689 32,467
<TOTAL-COSTS> 11,610 6,116
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,752 1,013
<INCOME-PRETAX> 8,499 6,415
<INCOME-TAX> 3,466 2,565
<INCOME-CONTINUING> 5,033 3,850
<DISCONTINUED> 932 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,101 3,850
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
